How to budget a salary in your business (your accountant doesn't do this for you!)
When’s the best time to start budgeting for your business?
The minute you put $1 into your business. Even if it’s being funded by your own personal money or your 9-5.
The minute you spend money to buy a domain or a website, that’s when you can start tracking your investment.
It’s important to get into this habit from the beginning of your business before you have those moments of: “why am I making money but I have no money?!”
It can seem daunting, tedious, or just something you want to avoid but trust me, today is the day to start budgeting for your business.
For the girl who just said to herself: Oh but Shannon I already budget! It’s all stored here (points to her head), that doesn’t count.
I’m going to show you how to budget EVERYTHING, budgeting your expenses will clarify SO MUCH for you. It will show you what amount of income you need to create in your business and to stop aiming at random income goals. It will show you your first stepping stone to creating real income and real impact in your business.
PPSSTTTT: if you’re serious about changing your money habits I highly suggest signing up for You Need a Budget.
It has completely changed the way I manage my money in my business and I use it in the video down below showing you how to pay yourself a salary.
I am an affiliate and earn commission from this!
Reason #1 you need to budget: But my income fluctuates: I don’t know how much I’m going to make next month: how can I budget?
Here’s what will never be a surprise: your expenses.
Those expenses are coming and your spending money no matter what. While your income may be inconsistent, those expenses will be as stable and reliable and coming every month.
Instead of letting it be a surprise at the end of the month: your profit + loss statement, take control before you go into the month.
Your expenses will typically be around the same every month, some months more, some months less. This number is a non negotiable
Reason # 2 you need a budget: I usually just wait until the end of the month to budget all my expenses and figure out how much I spent and made.
A lot of people run their business this way but this is where you’re allowing money to just go to places and not telling it where you want to go.
If you haven’t been paying yourself or you don’t like how much money your business isn’t keeping, this is the area of your business you want to fix.
This is where you start to take control of those impulsive buys or joining a new program because it sounds good without consulting with yourself about what your goals really are.
Imagine if I said this about my weight loss: I just eat what I want and exercise when I want and at the end of the month I just try to see if I made any progress
It might seem kinda silly right? Or it might seem really hard to lose weight if I’m not making any decisions that are moving toward progress instead I’m just going by what I want every month.
Base your decisions in where you want to go, not what you’ve been doing.
Reason #3 You need a budget: How do I pay myself a decent salary?
THIS WAS MY BIGGEST QUESTION WHEN RUNNING MY BUSINESS.
When will I ever cut myself a paycheck?! I didn’t realize that I could cut myself a paycheck whenever I decided that I wanted to cut myself a paycheck, all I had to do was decide to manage my money once and for all.
The problem wasn’t my money hungry business, it was that I let my business be a money hungry. I didn’t give my money direction and I let every month go by wondering where my money went!?
If you want your business to pay you have options:
get more clients
increase your prices
cut expenses
start budgeting your money
I know you’ve thought about this too, I can hear your eyes rolling from over here, but believe it or not, it’s this simple, it’s hard, but SO SIMPLE.
[ An exception: if you’re a newer business, first year in business, it will take some time to get to profit and your focus should really be on building the foundation of your business. ]
If you’ve been in business for a couple years and still are having this problem, you can pay yourself now if you look at your expenses and your business model.
I struggled for about a year trying to pay myself, and the biggest thing holding me back was my business model, undercharging, and not knowing how much I was spending to the penny.
I didn’t want to add in a high value coaching package because I was worried about no one paying and I didn’t want to change the current business model that I had, but I did want a salary.
It came down to me deciding that I wanted my business to pay me, pay it’s bills, and get out of debt. That’s what budgeting did for me.
I have an accountant or someone else who manages my money, do I still need to budget?
When it comes to the accountant question: your accountant will tell you where your money went and how much you owe in taxes but your accountant will never tell you where you should be putting your money daily or monthly.
That’s up to you.
Whether it’s your accountant, your spouse, a book keeper, in the end you’re the CEO which means you’re the one who decides where you want money in your business to go.
Your role is to decide where your money will go and where your money will GROW.
This is your business and you can spend your money in anyway you want, including PAYING YOOSEELLFFF.
“I’m gonna be on a budget until the day I die” -Cardi B
Here is how you can calculate how much your business should pay you:
For this exercise I am going to be using the software You Need a Budget there is a 34 day free trial down below, I would highly suggest using them.
If it’s not for you, no worries just pull out a google spreadsheet.
I am an affiliate and earn free months of YNAB from this
Step 1) Collect your recurring monthly expenses
I know: SO SIMPLE but it’s so simple I’ve found a majority of business owners don’t know this number.
For this exercise I want you to do a simple brain dump for now but go back through your checking or credit card statements and list out on average how much you’re ACTUALLY spending. The truth is you’re either spending a lot more than you thought or you have a lot more money than you thought.
Step 2) Collect your random/ once in a while expenses (contractor, graphic designer, copywriter)
You know when you have a big launch coming up and all of a sudden you have to pay for Facebook ads, a graphic designer, and extra time for an assistant.. but the only way you can afford it is to put it on your credit card?
Yeah we’re going to put a stop to those things because that’s how we get into debt and can’t pay ourselves as much as want. By planning and being honest with ourselves on how much our business truly needs in terms of finances, we can change how much we’re spending and get out of debt!
Create another category of expenses titled Employee’s or Contractors and underneath that list the people you pay or hire out (this can be a recurring expense or one in a while expense).
Step 3) Write down your long term goal expenses (hire a coach, pay a virtual assistant, pay website brand editor, buy one of Shannon’s courses)
This category is titled your goal category because these are things that you want to invest in the future. This is a great way for you to start seeing how you can start allocating your money right now to create money for the future and to invest in things that will get your business further without going into debt.
Step 4) Taxes
Okay so now that you have all your expenses written down, you are able to see how much money is going out in your business.
For the example in the video I use an income projection of $3,000. I subtract my expenses for that month from the profit.
Example:
Income projected for September: $3,000
Expenses for September: $850
Profit: $2,150
I’m going to allocate 30% of my profit for taxes. Your tax bracket and percentage may be different but for me the 30% rule has always worked for my business.
Taxes: 30% of $2,150 = $645
I am going to allocate $645 of my revenue to my taxes.
Step 5) Your salary
FINNNAALLLYYY! You’ve paid your team, for your software, you’ve paid the government, now you finally get paid!
Let’s see what you can get:
Income projected for September: $3,000
Expenses for September: $850
Profit: $2,150
Taxes: $645
Money left over: $1,505
Now the beauty at this moment is you have options with your money! YES OPTIONS! Isn’t that incredible to say?
With the $1,505 left over you get to decide how this money is spent:
maybe it all goes to your salary
maybe next month you want to put some money into Facebook ads
you can put half of the money to yourself and ask your VA to pull some more hours next month so you can relax
Or maybe you decide to put it towards any business debt you have
This is YOUR business and it’s your money, you get to decide where you want it to go!
The biggest take away from budgeting a salary for yourself is that you get to decide where your money goes.
Once you start allocating your money and giving it direction, you’ll begin to see how much money is truly available to you.
You won’t have to keep saying “I can’t afford it” to things that you want to do, if you decide that you want your money to do different things than it’s been doing.
All you have to do is become aware of how you’re using money right now.
If you don’t like the way it’s currently being used, change something!
PS: I’ll say it again, sign up for YNAB it will seriously change your life.
BONUS!
Maybe you’re wondering how you can make more money with your current audience or how you can break past the current income plateau you’re at?
Here’s a free blueprint on how to make more money with your current following, even if it’s small.
This is another financial planning exercise where I break down numbers and show you what types of offers to sell in order to hit $10K months.
Remember from my video that $10K months do not have to be your goal, but this video + PDF will show you how simple and easy your business can be to make more money.
We start again with simple things that aren’t emotional: NUMBERS.
In this free training you’ll receive:
1 short but powerful financial video training on how to create $10,000 in your business right now with the current audience you have (yes even if you’re audience is below 1,000 email subscribers or followers)
1 PDF to break down what you need to be selling now + what to price it for
