By Cyndi Thomason, bookskeep.com
Labor Day has come and gone, but we know that it officially kicks off fall as kids go back to school and we prepare for cooler temperatures and many sellers gear up for Q4. As you prepare for this busy time and have celebrated a holiday for Labor, are you thinking about your most important employee? (I mean YOU!) Do you pay yourself adequately from your business? Or do you wait until tax time to see if you made anything?
You, along with all entrepreneurs, got into business to fulfill a dream or a need. You either wanted to have more flexibility to spend time with your children or grandchildren or perhaps travel to see the world, or maybe you wanted to make a difference by introducing a product that met a specific need. All those dreams drove you to take the leap, and you held an expectation that you could make a go of it and be rewarded in both lifestyle and financial metrics.
Often though, as we’re making a million different decisions, we put ourselves last. There is even a common school of thought that we should sacrifice and plow back all the earnings in the early life of the business into growing the business. Read this next sentence carefully. This is not a sustainable approach. In fact, it’s a flawed approach. Over time, you and your family will resent the business because it is not providing for your needs. We all know that our time will be consumed by the business, so when there is little or no financial reward, it causes us to ask, “Why am I killing myself when I get so little in return?”
Profit First puts Owner Pay near the front of the line for business owners. The order in which we allocate funds to our Profit First accounts is based on the order of importance. First, we allocate to Inventory, then Profit, then Owner Pay, then Taxes and finally, Operating Expenses. This sequence shows that Profit, which is paid to the business owner to reward them for taking the risk of being a business owner, and Owner Pay are second only to Inventory. It’s ahead of those Operating Expenses that so many business owners invest in first.
How can you calculate the Owner Pay for your business? It’s simple. In fact, I recommend you start with what financial resources you need to support your family. Once you have that number, the Profit First benchmark numbers will allow you to see the size of business you must have from a Top Line Revenue perspective to meet your personal financial goals. We have created a “calculator” to help you make this calculation. You can access it here.
The calculator will allow you to model where you need to be. You can also plug in the current owner pay numbers to see the difference of where you are currently compared to where you need to be. Often seeing this difference will give you a number to shoot for so you can begin making a plan to achieve that goal. If you’re not paying yourself adequately, it’s time to make a plan to resolve this issue. Take the necessary steps so you can truly celebrate Labor Day next year.
Author of the bestselling book, Profit First for Ecommerce Sellers, a Mastery Level Certified Profit First Professional, and the founder and president of bookskeep. Her company consists of a virtual team located across the United States, providing bookkeeping and Profit First consulting services to e-commerce clients all over the world. Cyndi devotes much of her time speaking at various events such as ASD Market Week, SellerCon, ProfitCon, and other industry events. She also participates in numerous webinars, teaching e-commerce businesses how to implement the Profit First method. bookskeep.com