PAY YOURSELF IN YOUR BUSINESS

Mary runs a clothes shop in town. If you ask her how her business is doing, she will respond and tell you that it is “surviving” and she is thankful that she is able to pay her employees and cover expenses. Mary does not however draw a regular salary from the business.  In fact she almost takes pride in the fact that she does not earn an income.  According to her, as the owner of the business, she believes she is the one who takes the risk and therefore cannot afford the luxury of drawing a regular income. She will occasionally take money from the business for minor personal expenses.  Her husband has a job with a regular income and is able to meet the main costs of running their household as well as any expenses related to the general family keep. Mary’s situation is surprisingly common amongst small business owners. The belief that you should not pay yourself a salary is wrong and that is one of the things that will keep your business from becoming anything other than small.  If you run a business and you are spending your time in your business, you should be compensated for the effort and time.  If you do not do this you are in fact not running a viable business. You have offered your services for free to your business and you might as well have stayed home. Mary is running her business under a false sense of comfort. Just because she can pay everyone else, she assumes the business is OK.  For Mary she has also been cushioned by the fact that her husband takes care of the major expenses in her life.  Financially speaking it is almost like she is running the business as a hobby because she has not factored in the cost of her time. She is actually saying that her time does not need to earn any money. If you are in Mary’s shoes and you are not paying yourself that is in essence what you have also decided to do.If you needed to hire someone to do the job you are doing in your business, would they do it for free?  Probably not and that is the reason why you should be compensated.  Your business will grow out of “small” if you are working to make sure it can actually run without you.  Would you like to be able to take a whole month off, and still know that the business is still running?That is still servicing clients, paying suppliers, collecting money and very importantly still able to pay you. This cannot happen if you never started the discipline of paying yourself.  When you pay yourself, you know that the day you need to step out, you can actually afford to have someone step into your shoes.  If you have never been paying yourself, the business will just not be able to afford to do that. It would have been riding on your free labour and will buckle under the strain of actually paying someone to do your job. You have never worked towards preparing it to afford you!

Mary has been running her business like this for 4 years.  Before our conversation she thought things were fine.But Mary has not grown because she focused on ‘surviving” and even her definition of surviving did not include her.  Say your business expenses – staff, rent, supplies etc. are Shs 100, 000 every month.  You will consciously work to ensure you can meet those obligations.  The problem is you have forgotten to include yourself as part of those obligations that the business should meet. If you started by paying yourself Shs 20, 000 regularly you will now work to ensure that the business makes Shs 120, 000 andnot Shs 100, 000.  The same way you work hard to ensure you do not default on your rent is the same mentality you should adopt when it comes to your own income. If you work hard to pay other people – your employees, landlord, power bill etc. why shouldn’t you put equivalent effort into paying yourself? When you put yourself into the equation you also start being conscious about what you are doing to grow the business.  Mary never took action towards growth because she was not conscious about growing her personal income from the business.  You may restructure your workflow so that you can be more efficient.  You may become more aware of how to save on costs.  More importantly you will start thinking of how to get more clients, improve product etc. You may even find that the way you have been pricing your goods or services was wrong because it excluded you as a cost. The first time that you put yourself on a salary can be quite scary.  However wouldn’t you find a way to cope if your landlord increased rent by Shs 10, 000?  Same principle works here as well. You can start off with a small amount and keep increasing it as the business grows. You also become more disciplined with money by working off a structured and consistent income.  There are many business owners that are always withdrawing small unplanned amounts here and there from the business.  Instead of that just take a regular amount and work with that.  If you need more, then make the business work so that it can pay you what you need. Remember that the business and you are two separate entities. You may love what you do but that is not a reason to jeopardise the other goals you have outside of running the business. You still need to be able to meet your personal expenses, save, educate children and invest.  If running a business is the avenue you have chosen, start making it work for you. Start paying yourself.

Waceke runs a program on personal financial management. Find her at waceke@centonomy.com| 

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