Is It Time to Pay Yourself More?

You’ve earned it. But should you keep it?

The difference between business owners who build wealth and those who stay stuck often comes down to one decision: what they do after a good quarter, when there’s a little extra in the bank.

Profit has three destinations: into a reserve fund (protection), back into the business (reinvestment), or into your personal wealth (reward).

There’s a case to be made for each of them. The problem is, most business owners default to a messy combination of all three based on gut feeling and whatever feels most urgent in the moment.

Whether your knee-jerk reaction is to spend or save, having a clear plan for profit means every dollar has a job.

Step 1: Build Your Reserve Fund

This is your break-glass-in-case-of-emergency account that helps you sleep at night. Start by saving enough to cover one payroll cycle. Then one month’s worth of operating expenses. Then three. With 3 months of expenses secure in the bank, you’re in a solid position to weather almost any storm. However, in some cases you might want 6 months or a full year’s operating cash in reserve. It all depends on your risk tolerance and business model (if you rack up expenses way before you get paid, for example, you might need to keep more in your reserve fund.)

When to Reinvest

Reinvesting back into the business makes sense when there’s a clear constraint that money can remove. If you can hire or promote someone to create capacity, buy a tool that saves time, or install software so the business runs smoothly when you’re not there, then reinvest. If you can draw a straight line between the dollars spent and increased revenue or better margins, it’s a solid bet. But if the link isn’t clear, it might not be the right moment. Just remember that increasing monthly overhead on the back of a good month or quarter can create massive stress in the future.

When to Pay Yourself More

Paying yourself more makes sense when the business is stable and your reserve account is funded, or if you’re underpaying yourself. Here’s a useful benchmark: what would you have to pay someone else to do your job? If you’re earning less than that, you may be subsidizing your own business. But before you make your move, take the time to talk with your accountant about whether it’s better to increase your salary or take a dividend.

To build wealth, your business needs to be profitable consistently. That means planning for profit – how you’ll earn it, and what you’ll do with it.

This Week’s Takeaway

Your net profit has three destinations: it can fund protection, reinvestment, or reward.

Planning in advance what how you’ll use your profit sets you up to make high quality decisions that will keep your money machine spinning.

Steady, consistent profitability takes planning. So what’s your profit target for the quarter? Do you know how you’ll earn it? And finally, do you have a clear plan for how you’ll use that cash once it’s in the bank?

Upcoming Event:
ActionCLUB – The Expert Edge

July 17th – Register Here

Join ActionCLUB on Friday, July 17th from 10-1 to learn how to communicate and sell your industry expertise, so you become the obvious choice for your ideal clients – the ones who will happily pay what you’re worth.

Details

Interactive session: “The Expert Edge”
Date: Friday July 17th, 10am-1pm
Where: IDEA Square One, Mississauga
Reserve Your Spot: extramilecoach.ca/visit

SYSTEMology: by David Jenyns

SYSTEMology is a practical resource for any business owner who feels like too much of the business still depends on them. David Jenyns challenges the idea that owners need to document every process themselves, instead sharing a framework for building systems that your team can help create, follow, and improve over time.

Check it out!

If you want a digital copy, David has kindly shared it as an audio book on YouTube, and you can pick up the PDF version here!