Paying yourself from your own product business…say it again…paying yourself from your own product business. Does that sound strange? Probably, because it is so common for product business owners to not pay themselves and not only that, for many it feels like an impossible dream.
I firmly believe that paying yourself is something that you can and should be planning in your business. Yet, about 75% of the product business founders I surveyed earlier this year did not pay themselves from their business at all and some of those businesses have been running for over 3 years.
There is a belief that when you first start out that you shouldn’t pay yourself and everything should go back into the business – but I would challenge that idea because ultimately what are you building your business for? You’re building it to help support you, build the life that you want to lead or support a cause that you feel really passionate about.
It is very hard for you to do that if you don’t have any financial reward. It may not be something you can do overnight but building into your business planning the idea that you need to be paid is a really important step.
Otherwise we can easily fall into the trap of thinking that all of our money has to constantly get reinvested into the business when actually, believe it or not, that’s not always the best approach for your business.
Paying yourself needs to be an intentional act. You can’t just suddenly decide I want to pay myself and start taking money out of the business overnight - there are four main factors to consider first to help you.
1. Price it right
The first one is really crucial – the difference between what you buy an item for and what you sell it for. That is the only income that you have so you have to guard that relationship carefully.
If there’s not enough money between what you paid for an item and what you sell it for, you will struggle to build a profitable business, and you will struggle to pay yourself. When all of the other costs have been taken out of the business then there simply isn’t going to be enough left for you if there isn’t enough profit in the first place.
Review your prices. Complete the exercise where you look at each one of your products and work out how much money you’re actually making on each one.
2. Have a sales plan
You need to have a sales forecast, a sales plan - an understanding of how much money you think you’re going to be getting into your business. It’s a forecast – it doesn’t have to be 100% accurate but you do need to have a figure to work with. It’s very hard for you to plan to take money out of the business if you have no idea how much is going to be coming in.
A lot of people feel very nervous about sales plans because they worry “how am I supposed to work out how much money I’m going take?’ As I said, a sales forecast doesn’t have to be 100% accurate. It’s about having a plan and then adjusting as you go along and reacting to sales numbers, adjusting your plan accordingly. If you don’t have any plan and you don’t have any forecast then it’s very difficult for you to map out how you’re going to actually pay yourself.
3. Control your costs
I talk about the stock monster. The stock monster always wants to be fed - that means you can always buy more stock for your business. You will always have new product ideas, you’ll always see amazing items that you’ll want to bring into your business to offer to your customer. If you keep putting the money from your business into your stock with no budget, limit or cap, you will never take the money out of the business to pay yourself - it will already have gone on stock.
Get really clear about how much you want to spend on stock each time and be disciplined, if you’ve that amount of stock in your business already don’t bring more in. Look at what you can clear out and this discipline of sticking with the planned stock level, clearing out old stock - will help you free up more cash in your business and ultimately cash flow is what enables you to pay yourself.
4. Make a commitment
Prioritise the plan to pay yourself and make the commitment to follow through. There’s an endless number of things that you could spend money on for your business so you need to plan in the expense of your pay-cheque. Ask yourself - if you’ve been running your business at 100% of your sales income can you run it at 99% or 96%? in order to carve out a small percentage to pay yourself. You can start small and over time adjust your figures to a workable salary.
Why have you taken the brave leap into running your own product business if paying yourself isn’t on your to do list? You’re worth it!
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