Casey L Williams, an expert in business financials shares her tips below on how to pay yourself first every time money comes into the business.
When you own a business and constantly paying the bills at the end of the day you feel like there is nothing left for you. That’s how most entrepreneurs start and get discouraged. It really doesn’t have to be that way. You can take your money first! The reason the business is around you is for you to get rewarded
So if you have money deposited this week in your business account you need to decide how much you are going to take as your paycheck. What is your number? Are you taking 30% or 40% depending on your business but I will start with the 30% range. If it’s a side hustle which means you have a W2 but you are doing this business on the side maybe you don’t need that much. Maybe you take 10%. You need to take enough that you feel like you are being rewarded but leave enough for the business to sustain itself. Especially when you are new in business or the money isn’t coming yet. If you take a percentage the money is the same every time so say you take 10% or 20% of the profit coming into the business as your money and so you transfer that money to across. If you have a sole proprietorship or an LLC you are taking that as a draw or an owners distribution and then If you have an S-Corp you take a paycheck. So you subtract that from your percentage. Let’s say you are gonna take 20% and that 20% is $2500 and then your paycheck that you take as an employee of your company is $2000. Your transfer is only going to be $500 because you are going to subtract your paycheck. Then you take your money and that’s your money, you are going to buy groceries, pay car insurance because that is your money out of your personal account.
Then with your business money that you have left, you can pay business expenses. It helps you to be a better budgeter because you have business money & personal money so you are not co-mingling, mixing money together which you should not do. Put a reminder on a Friday afternoon because you are not going to work anyway. Figure out what your profit is going to be, what you are going to take because you have personal money and business money & they are separate & you will feel like you are being rewarded for your efforts.
Profit first teaches you which number to take whether you are going to take 30%, 40% or 50%. When I started my business I was doing it as a side business & I started at 20% and then I increased to 30%, then 40%, then 50% because at that point it was my full-time job so then I take my 50% and transfer that to my personal checking account and then from there I put it in my savings account & then from there I take 20% and put that in my savings account so that I have money to put in my estimated taxes when the time comes& that is the way profit first is designed. You can take the money out of your business that you live on & the money that is left you should be able to pay your expenses and if you cant you either need to reduce your expenses in your business or increase your income & know like when we go through clients bank statements to reconcile and categorize and sometimes those old bank statements will show that you are still paying for an old software that you don’t use anymore. You can reduce your expenses that way pretty easy & you can also see you have justified a business expense which was not really a business expense & so you can reduce expenses that way too.