Common practice will be that you pay yourself the salary that you are worth based on either your talent, merit, market or experience you have in your chosen field. But in reality this is not the case because the new business does not afford you. So how do i calculate my salary?
A business owner must earn a salary from the business from day one. This is the basic principle of the business that many small business owner / start-ups fails to follow. When you are serious about your business you will fight to have the courage and discipline to do it. This is expected out of any business.
Projecting Your Salary
My advice: The first is paying yourself enough to meet basic living requirements. Depending on your situation, that means enough income to cover your bills, food and other miscellaneous living expenses. Strike all other discretionary items from your life for a while and get used to just the bare necessities. You are almost forced to downgrade your usual lifestyle to at least accommodate the business operating needs until the business makes enough profit to afford the required salary.
To begin planning your pay, you need to put together your own personal financial statement that lists all your living expenses and any credit cards with outstanding balances as well as short-term and long-term loans. This may be one of the most difficult things you’ve ever had to do because you don’t want to leave anything out. You want to make sure that your income from the business will be enough to cover your expenses. Be honest and make correct calculations.
You will start by the listing of all common items that you will always need on a monthly basis and those are your living expenses. Generally, if you can pay-down any debts before going into business, you’ll not only decrease the amount of income you’ll require each month, but also improve your personal net worth, which is important when it comes to borrowing capital to fund your business. Whether the Business is funded by yourself or the outside parties that does not change the concept. A business will always need the next person / party to be funded anyway.
Once you’ve listed amounts for each of the items on your monthly budget, add them all together. This is the amount you will need to pay yourself in order to meet your basic requirements. Remember when putting together your list to include all your expenses. That doesn’t mean just monthly, but quarterly, semi-annual and annual expenses. You must provide yourself with complete information. After all, you will be living on this income for at least six months to a year.
I had two speaking engagements yesterday and i received two quetions each from this events that somehow relate to this topic. First question from an entrepreneur in Sandton. How does the transition happen that you still able to maintain the life you lived while you were still employed? My response: Please plan poperly while you are still employed. Pay all your debts (almost), use part of your monthly salary for basic neccessary business needs such as Branding (Logos, Websites, Banners,etc) so you don’t worry about them in your early stage of business as you would have taken care of them already. Have one or two people that will assist you with servicing the clients. You will train and supervise them and your core role in business will be to bring the work, sign new clients, attend meetings, attend networking seminars, etc. While you are doing this you are assured that production is taking place in your absence. As time goes on you are going to appoint a responsible supervisor who is going to train your staff and oversee things while you out there looking for business. It is an known fact that as a new business owner you almost hold all the positions in your business. You become the CEO, the Operational Manager, Public Relations, etc. this will be so until the business makes enough pofit so you will be able to appoint people that are qualified and experience to hold this positions.
Second question from a Business owner in Benoni: After my talk the lady approached me and ask that she really want to grow her business but it becomes difficult as after paying all her bills she is left with nothing. And another lady also joined in and retaliated the same thing. Now this is where i realised that you know as small business owners we need to learn early to not work on the business but work for the business. The ladies further explained the complex of their family responsibilities to me to prove a point of how difficult it is for them. I then said to them, this means their businesses is not making enough revenue. I as well exlained to them that they need to plan and have projections in place as this will help them to push for more profit.
The ladies emphasised to me that it is difficult also to sign new clients. Which i agree but you always have to work on it every day. Then i asked them: You ladies knew that you are coming to a business seminar today did you bring your business cards or flyers to distribute? The answer came after a very long pause as No. I asked: Does the congregation knows about your services? And further asked: Seeing that you are in Events and Catering field why did you not volunteer to cook for the congregation today, showcasing your work with the assumptions or knowing that there were chances of visitors attending the seminar? Still no answer. But when i recommended them to advertise their businesses they said they have done them “all”. The technique about advertising in business is that you can’t say you are done, as long as you are in business you continue to do it over and over, because once you stop it is the dying of your business.
It is very important to have projections in your business because they will serve as a guideline or a roadmap in running a profitable business. The fact is a business must generate a profit that changes in growth from month to month. That is the nature of business.
One other thing i observed from the ladies is as much as they were asking questions with hope of seeking guidance they also tried to reject my suggestions as they were busy defending with excuses why they cannot achieve what they want. You need to try almost everything and continuously so before you decide that they are not woking. We need to stop making excuses for not trying new things because that is exactly the reason we will remain stagnant. Because as much as word of mouth advertising shoud not be undermined but we really cannot rely only on it as the ladies did especially in this very competitive world.
Compiled by Dee The Coach.
Happy Trading!
Matsobanemetja Business Consulting Pty Ltd 