Do you ever feel like you’re so busy in your business, but after everything is said and done, there’s no money left to pay yourself?
That’s exactly how Renaldo felt. As the owner of a small service business, he was known by everyone around him as a success. He was always busy with jobs. His vehicles could be seen all around town. He had happy customers and a top-notch reputation in the community.
There was just one problem: there was never enough money left at the end of the month to pay himself a decent salary!
Renaldo was his own lowest-paid employee.
This is a common issue I see time and time again with my clients. The business is doing okay or even well, but the owner isn’t getting paid anything more than crumbs.
How can we change that?
Owners are typically paid out of the cash flow or profits of the business, depending on its legal structure.
This means that planning is key. You need to plan your business around paying yourself, which I like to call solving for X. What profitability and sales level do you need to have to be able to pay yourself more than just a living wage and more than just the leftover crumbs?
Because let’s be honest: nobody likes the crumbs at the bottom of the potato chip bag, and nobody likes getting paid in crumbs either!
I know that the last thing you, as a business owner, want to do after paying all of your bills and payroll is to look at your checkbook and see that there isn’t enough for you.
How can we solve this problem?
The most important thing you can do is budget or plan your business out. * Boom! * Figure out what it’s going to take to support your desired salary level. What level of revenue do you need? Usually when a business is in start-up mode, the owner has to take a more modest salary.
(I know, probably not what you wanted to hear).
But as you grow and start generating more and more profitability, you can pay yourself more and more.
You may be reading this thinking, “Okay, sure. But how do I even move in that direction to start paying myself a more-than-crumbs salary?”
There are six things you can do to increase the profitability of your business so you have more leftover at the end of the month. Strap in your seatbelt because some of these suggestions may make you uncomfortable.
But, you know what they say: sometimes you have to get uncomfortable in order to grow.
1. Raise prices. This depends on where you are located price-wise in the marketplace and what your competition is charging. But it is certainly a lever you can utilize.
2. Take a look at your costs. How efficient (or inefficient) is your business? Inefficiency costs money, and that comes right out of your pocket.
- How efficient is your labor?
- How efficiently are you performing the overhead tasks within your business?
- Are you making a good enough margin on your services to be able to support the overhead in the business and your pay?
- Are you frugal or frivolous with business expenses?
3. Stop running personal expenses through the business if you can’t afford it. Personal expenses that you run through the business should be considered pay! But if you don’t have enough cash to be able to do this, you need to stop. Personal expenses could include the following:
- Vacations that aren’t really business trips
- That new convertible as your business car instead of the sedan that does the job perfectly well
- Country club or social club membership
Sometimes, we let our egos get caught up in our business, and before we know it, it’s driving the decisions. I encourage you to look at how to do things a little more frugally because in the end, it’s your money, and I bet you would rather have it in your pocket than in the form of shiny stuff that you could do without.
Eliminating these expenditures = more cash in your pocket as pay.
4. Look at what you have leftover to reinvest in the business in order to grow. What is your business generating to reinvest in business? For example, do you need a new vehicle but can’t make the numbers work? Bankers want to see that your business has cash available to make those payments, instead of running zero in the checking account month after month.
That’s why it’s important to leave some cash in the business for working capital so the business can deal with fluctuations in cash flows. For example, in a slow period you need to make sure you have cash reserves on hand. It’s just like how individuals should have three to six months of savings on hand to weather any unexpected storms or changes in their employment situation.
5. Manage employee overtime. You have to make payroll. That’s non-negotiable, both by law and by the unwritten rules of decency in business. That being said, you can manage the work they’re doing in such a way that you can afford to pay them. Make sure their overtime must be pre-approved, not taken at employee discretion.
6. Examine the profitability of your work. Many business owners I speak to don’t even know if a job was profitable or not. They’re so busy moving on to the next job that they don’t have the time or perhaps the skill set to go back, gather costs and see if that job was actually profitable.
And I’m not talking about just 2% profitability. Is it profitable enough to sustain the company’s overhead and the owner’s salary?
If not, it’s critical to understand why and what you can to do fix it. You may want to create a budget as a measuring stick to guide you in determining how profitable jobs need to be in order for you to achieve a certain bottom line and cash flow.
If you have no idea how profitable and sustainable your company’s projects are, click here to download my free Pricing for Profitability Model. You’ll discover the exact formula to pricing your products or services to keep you in business long-term!
The bottom line is this: you want to get paid what you’re worth, but your business may not be in a place to do so.
I can get your business to the place where you need it to be. Call me at 717-925-3270, and let’s figure out what you want to get paid and how to get you there. I can work with you to strategize and execute a plan. I’ll even make the tough decisions for you, because that’s just the kind of sport I am!
Oftentimes, when there’s not enough money in the bank, it requires a lot of tough decisions to reverse that trend. Something has to have been happening for a period of time to take you down that path, and if you don’t stop, it’s just going to continue.
Contact me here to learn more about how I can help you stop and reverse course. It’s time. Let’s get you out of the hole you’re in and make a plan to get you paid what you’re worth.