For Those in Business, Pay Yourself

Each month, pay yourself.  This is the advice most writers, consultants give to business owners/entrepreneurs.  The act of setting aside a monthly salary goes well with the principle of business wherein the business is treated as separate from the owner.  Well this is the hard part for most business owners since most do not really agree to this concept.  But if you are an astute business owner, you will appreciate the benefits of paying yourself.   By setting aside a monthly salary, you can use the money for your family and personal expenses.  Your salary is thus computed as part of your operating expenses.   This results in a more realistic presentation of operating expenses (assuming you have included electricity, staff salaries, taxes, licenses, other utilities, rent, machine maintenance, etc.) that can also help you set your product or service price.  Many entrepreneurs blindly set their service or product prices and lean heavily on pricing based on the price offered by his or her next-door competitor.   Now, if you add your monthly salary, your perspective for setting your product or service price will change.  One of the reasons why businesses fold up is that the owners usually are either pricing their products or services too high or too low.  Too low a price, you are in danger of not being able to support your operating expense, too high a price, you might be alienating your target market. Of course there are other factors that will affect your pricing such as prevailing market price, affordability based on your target market. 

Setting a monthly salary has another benefit.  It helps you put your foot down on looking at your business as if it were your piggy bank.  Profits are supposed to be plowed back to the business to help your business grow or shield it from a down economy. 

So how do you set your salary as a business owner?  First, consider how much you need to support yourself or your family if you are married.   Look at your business’s cash flow for a start.  The cash flow of your business is about where the money comes from and where it is spent, the difference is your available cash at the end of each month.  Cash is king in business.  You don’t want to have a very low amount of cash.  By carefully looking at your business’s cash flow, you can set a more realistic salary- one that does not compromise your cash balance.  Low cash balances often force you to ask for a loan from your bank.  Factor in your very basic needs- the ability to pay for your food, housing, and education of your children.  Learn to separate the needs from your wants.  A want could be a high-end phone that sets you back by thirty thousand pesos.  Another way to do it is to look at the present salary range of those who are in the employed sector.  If you feel that you are in the salary grade of an agency head- set it from there but make necessary adjustments if your business does not and cannot support it.  Temper your ego-you only hurt your pride by lowering your expectations and that is normal.  Then comfort yourself with the fact that there are things of value that are not equated to money.  For one, the boss of an agency or organization still has a boss.  For the business owner, you are your own boss.  Even the Philippine president has a boss right?