ARE YOU SUBSIDISING YOUR BUSINESS?

Your business needs to pay you otherwise you have been effectively subsidising it. In the quest of entrepreneurship, business owners often tend to neglect or forsake their own personal financial requirements. In the beginning yes, this is often necessary but I am coming to understand that at some point adjustments need to be made to adequately compensate the person running the business otherwise it cannot be considered to be sustainable. Many business owners often say that they do not pay themselves which is not the right thing to do. Consider this; If you had to hire someone to replace you, how much would you need to pay them? For this business to survive and indeed grow, whether it is you or someone else at the helm, it needs to be generating enough income to meet that cost.

Many business owners will strive to meet all other expenses except their own. Salaries, rent, suppliers will be paid. The problem with this is that when you exclude payment to yourself, it keeps you focused on meeting just those other costs. For example if your monthly business costs are Kes 150,000 (excluding payment to yourself), you will keep striving for Kes 150,000 because “that’s what it takes” according to you. But suppose you were to include a monthly payment of Kes 100,000 for yourself you would now realise and focus on the fact that it takes Kes 250,000 a month to sustain the business and more to generate a profit. Without recognizing the cost of your own effort and time in the business, it will not grow because you will be consciously only working to meet the other costs.

Paying yourself on a regular basis will make you critically look at the strategy in your business and your pricing. Maybe if you consider the true cost of running the business you will realise that you have undervalued your goods or services, you need to work towards bigger volumes, you need to change your approach etc. As mentioned earlier when starting out there is the “school fees” to pay. This is the learning curve where you are building your name, brand, credibility etc. However in time the business should compensate you adequately and regularly for your time and effort. You find that people have built credibility in their various business areas but still fear putting a price to their time because it rocks that comfort zone that has been established. Using the same example Kes 150,000 could be a comfort zone but Kes 250,000 is not.

By paying yourself properly it also means that the business has set up the financial structure to survive without you. If you can pay yourself, it means that you can also hire someone qualified to run the company in your absence. If you cannot pay yourself it means that the business is dependent on your discounted labour to operate. This may very well be one of the reasons a lot of business are not surviving past their founders, who are willing to work on these terms because of their emotional attachment. This is a lesson I am learning and I challenge you to critically look at your business and start planning and working towards compensating yourself.

Waceke Nduati- Omanga

The author teaches personal financial management. Find her at www.centonomy.com