Are you consistently paying yourself the money you deserve as a business owner? Determining how much to pay yourself and how frequently, can be a daunting task.
I’m sharing how I’ve approached paying myself consistently for the last three and a half years! I’m also sharing how I pay myself in slow seasons, plan paid vacations, and give myself bonuses!
Clocking In with Haylee Gaffin is produced and brought to you by Gaffin Creative, a podcast production company for creative entrepreneurs. Learn more about our services at Gaffincreative.com, plus you’ll also find resources, show notes, and more for the Clocking In Podcast.
Review the Show Notes
Disclaimer (1:27)
Choose What Works Best for You to Pay Yourself (1:41)
Separate Your Business & Personal Finances (2:05)
What We’ll Cover in this Episode (2:36)
- Setting goals in your business
- Budgeting for your own paycheck
- Maintaining a consistent paycheck in both slow and busy seasons
- Paying yourself for taking vacations.
- Rewarding yourself with bonuses.
Setting Goals in your Business (2:54)
Budgeting for Your Own Paycheck (3:29)
Determine your business expenses.
Determine how much you want to make.
Defining A Yearly Salary (4:40)
– How much do I need to pay my bills?
– How much do I want to save/invest?
– How much do I want to splurge?
Then add tax.
Actually Paying Yourself (5:52)
Consistent Paychecks Makes Calculating Taxes Easier (6:16)
Don’t Touch Extra Income Every Month (6:44)
Paying Yourself in Slow Seasons (7:20)
Paying Yourself to Take Vacations (9:56)
Rewarding Yourself with Bonuses (11:20)
Setting a Buffer Amount in Your Business Bank Account (12:10)
Women I’m cheering for This Week (13:41)
wallsgroupcpas.com
Other Episodes Mentioned in this Episode:
001: gaffincreative.com/001
003: gaffincreative.com/003
Links
Quickbooks Self-Employed
instagram.com/hayleegaffin
Review the Transcript:
Starting a business is fun. Being your own boss is fun. Finding the freedom that comes with owning your own business is .. let me say it again fun!
You know what’s not fun? The admin side of a business. The parts that no one tells you about before you start a business. Like setting up an llc, or paying taxes, or paying yourself.
In today’s episode I’m tackling the heavy topic of how to pay yourself as a business owner—more specifically, how I pay myself from my llc. Because while figuring out how to pay yourself isn’t fun, getting paid is a ton of fun.
Hey y’all welcome to the clocking in podcast the podcast for entrepreneurs and professionals making their way in the working world i’m your host Haylee Gaffin this podcast is produced and brought to you by Gaffin Creative a podcast production company for creative entrepreneurs learn more about our services at Gaffincreative.com plus you’ll also find resources show notes and more for the clocking in podcast so let’s clock in and get to work
A couple of episodes ago, I mentioned that I’d be sharing how I pay myself in my business, because it’s one the hardest things to figure out, especially when your income is inconsistent or you have really busy seasons or really slow seasons.
Now, I’ll go ahead and mention again, like I have in past episodes—I am not a financial advisor so I highly recommend you consult with a cpa or advisor on what will work best for you and your business if you can’t figure it out on your own.
There are so many ways that work when it comes to paying yourself. I’ve considered changing up how I approach my own method of paying myself, but I’ve come to realize that the way I pay myself does work best for me, the goals I have, and the living expenses I have.
This episode isn’t just for photographers or podcast producers, it’s for anyone who owns their own business.
The number one thing I’ll share that I want you to take away from this episode before we really dive in is this:
Separate your business finances from your personal finances. Everything you earn and spend in your business needs to be documented in your business account. If you’re still using your personal accounts and intermingling these accounts, STOP. Go fix that right now.
Okay, are we good to move forward now?
In this episode we’ll cover a few really important steps to paying yourself:
- Setting goals in your business
- Budgeting for your own paycheck
- Maintaining a consistent paycheck in both slow and busy seasons
- Paying yourself for taking vacations.
- Rewarding yourself with bonuses.
Setting goals in your business
Let’s talk about goals in your business. Entrepreneurs start their own businesses for a few reasons: passion, flexibility, unlimited earning power, being your own boss, and so much more.
Business success is based on whatever you want to make of it, but one thing you’ll want to consider is the financial aspect of running your business. How much does it cost to run your business, how much can you earn, and how much can you pay yourself.
Knowing your business goals will help you define your business finances, helping you achieve those goals much more easily.
Budgeting for your own paycheck
In knowing your business finances, you’ll be able to budget for everything as well, including how much you earn as the business owner.
So let’s talk about budgeting for your own paycheck. If you’re a brand new business owner, it may take you a few months to really know how much you’re actually spending in your business, but you can set a budget of expected expenses to know how much you need to make to cover those expenses.
Then you’ll want to figure up how much you want to earn in your business, which will be your paycheck (and will also move into your personal account).
Spoiler alert, I’ve set and paid myself the same salary every year since I opened my business. But—I’ve also paid myself bonuses every year when the year was much more profitable that I expected.
Now, in my service based business, I can have anywhere from 10 clients at a time to 50 or more—all paying very different and unique amounts based on the service they book.
So how do I approach paying myself when I don’t necessarily book the same amount of clients or the same amount of income every single month throughout the year?
Let’s start with defining your yearly salary. How much do you realistically want to make in a year?
I knew that when I left my cushy salary position in corporate america back in 2017, I wanted to at least match that, if not bring home more than that salary position offered. Mainly because I’d grown accustomed to that paycheck (more specifically, the consistency of that paycheck).
So I wrote down how much I wanted to make per year, then figured up how much I’d need to bring in on a monthly paycheck to myself every single month to keep that consistency.
The first few months of doing this will kind of be a test, so don’t feel like you’ve failed if you can’t do it consistently in the first few months. You may need a few months of work under your belt to really understand how much you can realistically pay yourself monthly.
When you set the amount of money you want to make, please don’t over promise yourself. Consider these few things:
- How much do I need to pay my bills?
- How much do I want to save/invest?
- How much do I want to splurge?
- Then add tax (and make sure you listen to episode 003 of the podcast where I talk all about tax prep)
Once you’ve decided on that paycheck, it’s important actually pay yourself. This is not hard—I actually just connect my bank accounts and transfer my monthly paycheck, then tag it as an owners draw in quickbooks (and if you’re not using quickbooks in your business, please go buy it right now, because it make tax season so easy).
One more thing I’ll add before we move to the next point is that this means that I can easily calculate how much my taxes are every month, because it’s the exact same amount that I need to be paying in per month.
If you’re taking my approach to paying yourself, it’s important to remember this one rule when you have really successful months, don’t touch the extra income just yet. Why?
Maintaining a consistent paycheck in both slow and busy seasons
In your business, you may find yourself in times where you experience really slow seasons and really busy seasons. So I actually keep my extra income in the business account for the months that I do have those slower seasons (this year, I’m shifting this strategy slightly, so stick around to the end of the episode to hear why).
For example, I have a couple of slow seasons in my business, specifically for the month of December.
December hits my business really hard. For my photography clients, they’re not really interested in getting headshots or branding photos done. For my studio renters, they’ve completed their Christmas mini sessions by the first week of December, so they’re really not booking studios for the rest of the year. Additionally, my podcast clients like to take breaks around the holidays, especially if the holiday falls on their episode release days (looking at you Christmas and New Years, since they fall on the same day of the week back to back).
But, I get to make the same amount of money (and actually more in December), because I’ve held onto the income from busy seasons.
So every December, I round up the profits in my business, and since I am the owner of my business, I pay myself out at the end of the year! This is what many companies would consider a Christmas bonus, but you know, I actually earned all the money through out the year and can officially say, congrats on a successful year in business!
Now I’ll add the caveat that this last year wasn’t exactly the same, because you know, COVID.
In March of 2020, my projects for most of my clients were cut in half, but I still had my biggest client, so I felt secure in how I’d run my business, how I’d set aside extra money, and how I could still pay myself the same every month even if I wasn’t earning as much in my business.
Then in July, my hours with my biggest client were unfortunately cut down. Which is totally understandable—COVID impacted our industry so drastically that any business decision that was made during that time could never be taken personally.
So I had to reevaluate where my money in business was coming from—so I expanded my podcast production, because podcasting was becoming bigger than ever. I booked a few more clients and was able to replace the income I’d lost due to the impacts of covid on my other clients.
The lesson here and why I’m so passionate and confident in the way I pay myself, is that even in my slowest season, when I only brought in half of my normal paycheck, I was still able to pay myself the full amount, because I had left a little cushion in my business account from previous months that I’d brought in more than I paid myself.
Paying yourself for taking vacations.
Another reason I like to pay myself this way is that since opening my business, I’ve never taken a vacation that I didn’t get paid for.
Before I started working as a contractor and owning my own business, I came from the corporate world where you get paid vacation time. Making the move to contract role or to entrepreneurship means (in most cases) giving that up.
But I wanted to be able to say to my husband, I have a bit of free time coming up, let’s take a vacation—and still get paid.
By giving myself the expectation of making the same amount every single month EVEN on months that you bring in more or even double your paycheck, I’m allowing myself to get paid to take time away from work.
This is why I’m paying myself the way I do. This is why I’m an entrepreneur now. I’m doing it for the freedom and flexibility (along with the passion of just doing work I love).
You get used to making the same amount of money every single month, which makes it easy not to feel like you’re missing out on the money sitting in your business account.
Rewarding yourself with bonuses.
So now that I’ve shared the principles behind how I pay myself, I do think it’s important to highlight that every person is different and goals are different.
You don’t have to do this exactly how I do it. I actually had a friend share how she pays herself and it’s totally different than how I do it, which made me rethink a little of how I’ll be paying myself this year.
Which brings me to rewarding yourself with bonuses.
So my friend was telling me that she sets an amount in her business account as the base and pays herself everything that left over that amount each month—primarily because you do so much with the extra money, like invest it. This made me realize a huge flaw in my own system. So instead of just paying myself an end of year bonus, I’m going to start rewarding myself with a quarterly bonus.
How will I do this? Every quarter, after I pay myself for that month, I’m going to review my business account and leave at least a paycheck and half in my account for buffer. Everything over that, will be a bonus, so I can invest in retirement, updates around my house, or just put it in savings to earn interest. Because all that extra money that I’ve kept in there throughout the year isn’t earning anything.
This allows me to continue to still pay myself in slower seasons, cover any expenses if a pandemic ever happens again, knock on wood, and feel comfortable in how I’m running my business.
Now that you’ve heard all about how I pay myself in my business, I’d love to hear how you pay yourself OR how you’re changing based on this episode! Make sure you connect with me on instagram at hayleegaffin (spell) and I can’t wait to chat with you!
This has been another episode of The clocking in podcast. You can find the show notes for this episode and more at Gaffincreative.com. Thank you so much for your listenership and support. If you love this episode, I’d be so honored if you leave me a review in Apple podcast app. Until next time, I’m your host Haylee Gaffin, clocking out.
So you’ve stuck around for the end of my episode, which means you’re ready to cheer for some women this week! I’m actually changing it up for this episode and instead of cheering for three individual women, I’m cheering for a team led by women!
I’m cheering for the ladies and gentleman over at the Walls Group in Chattanooga. I could not survive tax season without them and I’m just blown away by their knowledge and support in my small business. While they may feel like they do so little for me, having them on my side lifts so much weight off my shoulders at tax time.
Additionally, my CPA there is the one who encouraged me to pay myself consistently!
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