When you worked for someone else, you likely got a monthly salary for your hard work. This was paid routinely, helped you to pay the bills and put food on the table. Now you’re setting up your own business, you’re still going to have those bills to pay, so giving yourself a regular salary from the business is a good practice to keep. Here are some of the reasons to do it.
You Need To Live
As alluded to above, you need to be able to live. We all need to have cash to put food on the table and keep the heating on. We need to pay for broadband and fuel for our cars. There are other things too, such as rent and water and council tax. How can you do that without taking a salary out of your business. How much that salary is, will differ person to person, business to business.
The Business Has To Work
With that said, you need to make sure that the business actually works. If it isn’t paying enough to support you, then you should probably consider walking away from it. One of the ideas of running a business is to make money and support yourself. Whilst it might take time to get to that level, your business plan should help you work towards that time. You’ll likely have some savings or a loan to rely on in the first instance but if, ten years down the line, the business is struggling to cover what you need to earn to live, maybe it isn’t working.
You Need To Know How Much The Business Has
Adding your salary to the business as another outgoing helps you to know how much the business has in it’s accounts. It’s easier to figure out the monthly incomings and outgoings of the company. If you simply take out what you need when you need it, that isn’t a good way to keep track of things. You need to know what is in your business accounts for such payments as paying suppliers, purchasing stock, future tax payments and so much more.
You’ll Be Able To Apply For A Mortgage
If you want to apply for a mortgage or loan, the bank will look at how much you earn. Obviously, if you’re not earning anything, they’re not going to lend you anything because you won’t be able to pay it back. You might turn the business into a real success but if you want to then by a house via using a mortgage, if you’re haven’t been taking a wage, you’ll be out of luck. The sooner you start doing this, the better.
How Much Do You Pay Yourself?
As mentioned, it will be different amounts for different businesses. Some businesses will become profitable faster than others. You need to figure out the balance between how much you need to live on and how much the business can afford to pay you each month. Also think about how much you’re worth in the job that you’re doing. It’s worth getting advice from a bookkeeper about how much your business can afford to pay you as a salary.