Until a couple of years ago, I did not pay myself a regular, set salary. Far from it, in fact. For the first decade plus of my business, I commingled my personal and business finances. Everything I earned went into my personal bank account. In a month when I earned more, I would spend more money. In a month when I earned less, I would panic about money.
I was in a feast-famine cycle that I didn’t believe I could stop without earning way more money. That belief existed in years when I made $30k and when I made well over $100,000.
The idea of paying myself a salary seemed ridiculous. How could I pay myself a set amount of money each month when my income vacillated so much? Hell, I never even had enough money to pay my business taxes, which were usually a year behind.
I was deeeeeep into my story and really believed it was the truth.
So, if any of that sounds familiar, I see you. And I know it may be hard to receive what I’m about to tell you, because I certainly had my doubts for years. But the truth is, no matter what you are earning and no matter how much your income varies, you can pay yourself a regular salary.
Not only can you, you should. And I HATE shoulds! But in this case, I’m willing to say it because I feel so strongly that it’s important for every business owner to be in control of their money, and paying yourself is part of that process.
And why am I so passionate about this? Well, my life’s mission is to smash the patriarchy. And the best way to do that is to put wealth and power into the hands of women and other marginalized communities. As Ruth Bader Ginsburg says, women belong in all places decisions are being made—and money, and who has it, drives most decisions. Becoming wealthy starts with understanding your money and being a good steward of it.
The patriarchy conditions marginalized folks to believe they are “bad with money” or “bad with numbers.” This leaves so many of us afraid of money or avoiding our finances, and that keeps us from amassing wealth.
So let’s stop that! Reframe money management as an act of rebellion, and building wealth as part of the revolution to dismantle patriarchy!
And let me be clear: I’m not saying you must be rich or motivated by money. Hell no. If that’s not what you want, then that’s okay. But understanding your finances, knowing where your money is coming from and where it’s going, is really important in no longer allowing money or others to control you. It’s a big piece of living a fully empowered life.
Plus, taking charge of your finances will allow you to pay yourself a salary and get off the exhausting and demoralizing feast-famine cycle.
Hopefully I’ve convinced you that paying yourself a salary is possible (even if you remain a bit skeptical), and that it’s important. So, now let’s talk about HOW.
Note: I’m not an accountant, financial planner, bookkeeper, or any other type of financial professional. It’s always a good idea to hire a pro if you need help, and to do your own research to make sure you choose the money management method that works best for you. What I’m going to share here is not the only way to control your finances, but it is the way I do it.
About 2 years ago, I discovered the Profit First method of accounting, which Mike Michalowicz details in his book of the same name—there’s a link to the book with this video. I’ll give you the very simplified high-level explanation of the method, but please read the book before doing it for yourself.
BUY “PROFIT FIRST” HERE
In short, this system has you put all of your revenue into one account, and then divvy it up into several other accounts based on set percentages. The first bucket is profit (hence the name Profit First), then taxes and owner’s draw (meaning your pay), and what’s left goes to operating expenses.
So, how this looks for my business is this:
All of my revenue goes into one of my business bank accounts. Then every two weeks, I add up the total of money collected in my business over the previous two weeks, and transfer percentages of that into my various accounts.
I transfer 10% of total revenue into my profit account, 20% of the total goes into my taxes account (and I use that to pay my quarterly business taxes), 55% goes into owner’s draw (the account from which I pay myself), and 15% goes into my operating expenses account, which is what I use to pay for all of my business expenses.
These are the percentages I use, but they are not set in stone. The book walks you through how to figure the percentages that are best for your business. And it becomes easier to determine how much you need for each the longer you’re in business and the longer you use the method; I’ve adjusted my numbers already since I started using the system 2 years ago.
After I’ve done all of my transfers, I write myself a check for my salary. I get a set amount every two weeks, regardless of how much I earned in that 2-week period. This works because when I have bigger months, more money goes into owner’s draw and that helps offset the months when I make less.
To make all of this work, you must have budgets—one for your household and for your business. This is the only way to determine exactly how much you must pay yourself every two weeks to cover your responsibility for your household finances, and to make sure you have enough in your operating expenses account to cover your business expenses.
Now, the question I always had, and maybe what you’re thinking, too was this: What if I don’t make enough to cover my expenses and taxes? And here’s the hard but true answer: Then you need to cut expenses and/or make more money. Period.
Avoiding your finances because you don’t like what you see doesn’t change what’s happening. In fact, avoiding it only makes it worse. This was how I got behind on my taxes and always felt stressed and broke.
Nothing changed until I faced the facts, took control, and made responsible changes to my spending and earning. This system helped me do that.
In fact, this accounting method was a complete game changer for me and my business. Once I took control of my money, I had more of it—even before I was actually making more of it. That’s because every penny had a job. I knew where each penny was going and had a process for making sure it went there and not elsewhere.
Also, the system is called Profit First for a reason. You put money toward profit no matter what. I don’t skip that step. My budget must reflect that some portion of my revenue (at first it was 5% and now 10% and I hope to grow it to 20%) goes to a profit account. If I can’t afford that, then I need to change my spending or make more money. I no longer borrow from my future to pay for my present overspending.
I’ve had a couple of bookkeepers and accountants scoff at Profit First. They don’t like the idea of “hiding” money from yourself. And to them I say, I’m glad you don’t need to do that. But I do. This is what works from me. This simple, clear, regimented system is what keeps me from avoiding reality, hiding from my money, and allows me to feel a sense of control over my money.
This system is what took me from being a year behind on my taxes 2 years ago to now having more in the bank than I’ll need to pay this year’s taxes. It’s what’s taken me from always feeling and being broke to having thousands of dollars sitting in a profit account, that I can use to grow my business or go on a damn vacation if I want, and it’s what took me from the scary ups and downs of never knowing how much I would make to having a steady, reliable income.
Whether you choose to use Profit First or find another system that works for you, my hope for you is simply that you take control of your financial destiny. Being a better steward of your dollars is practical, but it’s also a way to step into your power.
