Pay Yourself First
Link your marketing, finances, and paycheck— to pay you what you want and need.
Mike Van Horn
#10 in the series
What is your desired paycheck? How big must your business be to pay you that much?
Make sure this never happens to you: “My company is growing, but I’m not putting any more money in my pocket. I’m still occasionally ‘loaning’ money to the company to cover payroll. And I’m still carrying uncashed payroll checks I’ve written to myself.”
The first step is knowing how much you need, so that you can find a way to bring in that much. These exercises take you step-by-step to calculate how much revenue your business must bring in to cover all your operating costs, pay you well, and generate a profit besides.
These exercises are tailored to small, owner-run businesses—service businesses such as consultants, contractors, or salons; retail and wholesale; restaurants—with or without employees.
For home-based solopreneurs, it will force you to separate your home and business expenses—a key step in becoming a “real business.”
Topics Covered
Calculate how much money you need—and want—to pay yourself.
Make the business “bottom line” your “top line.” Flip your profit & loss statement upside down.
Calculate needed business revenue, starting from your desired paycheck.
Formula to calculate needed business revenue--using your paycheck, overhead, profit needed, and gross margin from sales.
The three biggest barriers to calculating needed revenue
How to calculate your real gross margin
Estimate your needed profit
Estimate your expected overhead costs in the coming year
How many customers, and new customers, will you need?
How much marketing will it take to bring in that many customers?
Warm up exercise
From the workbook
Why You Don't Pay Yourself Regularly
Do any of these apply to you?
I pay everyone else first, and if there's any left over, I pay myself.
I write myself regular paychecks, but I don't always cash them.
Before I started my business, I earned about twice as much at the corporation.
Give myself a raise? Ha! I can't even pay my current salary all the time.
I'm envious of my employees, who get paid better than I do.
We take out basic living costs, but what about vacations? Putting the kids through college?
I had to borrow from my savings to meet expenses.
If we collected all that was due us, I could pay myself well.
I know how much we need to bring in, but we never have enough customers to make that happen.
Our books just aren't set up to allow me to calculate needed income growth.