How to pay yourself more in your small business
How can you pay yourself more? It’s something many small business owners ask themselves and small and micro businesses, in particular, struggle with this. When it's just you, it can be difficult to make sure you're paying yourself because you tend not to think of yourself as a salaried person or an employee in the business.
But actually, you need to start thinking about yourself as somebody else you need to pay and not just an afterthought. It’s not just about paying yourself whatever's left in the bank at the end of the month. Because when you do that, there's a temptation to think that you’re doing really well in your business when you’re not! This is especially relevant if you’re a service business and delivering a lot of the work. You can often find that you’re actually not paying yourself anything and working for free or very little. The thought is its work that isn’t costing anything because it’s ‘just’ your time - but your time is worth something. And it is worth remembering that.
So how can you look to pay yourself more?
Pay yourself more by getting your pricing right
The first thing you can do is look at your pricing. If you haven't already done it, check out my pricing calculator. Look at what you want to earn, type in your numbers and see what you should be charging.
The easiest way to earn more is to put up your prices and make sure that you include your time and how much you need to earn in your pricing. That’s where my pricing calculator will help - it’s making sure you know your numbers. Because if you’re not earning anything from your business, you don’t have a business; you have an expensive hobby.
How to put up your prices
Now, price pressure is something that many people are feeling at the moment. The cost of living is going up enormously. And small businesses are also still feeling the pressure of the pandemic. So it can be tricky to put your prices up, but you need to because your costs are also rising. But how do you do that when everyone's struggling?
#1: Review your costs
Start by reviewing all of the costs in your business. Look at everything that goes out, including software and membership, as they’re the key ones to watch. That little bit of software could potentially be downgraded to a free version or downgraded slightly. Ask yourself if you’re using the things you’re paying for. Are you using that membership you’re paying for, and are you bothered about it? Do you get value from it?
Can you look at what you are outsourcing and whether you're using it and getting value from it. So if you're outsourcing client work, then maybe that’s worth it. But make sure you're getting enough margin. If you have a Virtual Assistant or a Social Media Manager, are you getting the most out of their costs? And if you’re struggling at the moment, is it something you could take back? Is it something you might want to consider whether you need to use that work and whether you could cut down on the number of hours?
#2: Increase your prices
I think everybody accepts that prices have to go up at the moment and your business is no different. If you were to put your prices up 5%, most clients would be fine with that.
#3: Have a lower offer available
The next option is to have a lower offer available. If somebody can't afford you, there's an offer for them to go to, and you can move them across if needed. It's very important that you have a range of offers for people. So if they can't afford you, they can go to something else.
#4: Late payment clause
And lastly, make sure you have a late payment clause in your contracts. It's really easy to think that it’s not needed because no one is ever late paying. But I've seen quite a lot of people saying that for the first time, they're struggling to get people to pay. So have a late payment clause.
Pay yourself more by taking payment upfront
But also look to get payment upfront as much as possible. Get half upfront or as much as you can. Most of my bigger contracts are 50% upfront and 50% on completion. Because you need to make sure that people are putting their money where their mouth is, especially if you’re doing a big project. It involves a lot of your time upfront otherwise. And you don't want to get to the end of the first month, and you've done £2k worth of work and then find they can't (or don't want to) pay you.
So by getting some money upfront, you understand their payment processes. You know how long it takes to get paid, and you don't do any work until that money comes through; that’s so important.
Use the Profit First model in your small business
Start thinking about using the Profit First model - this is going to come up in a future podcast episode and blog post. But in the meantime, look to put aside a tiny amount of your profit every month to pay yourself, even if it's 1-2% of your turnover. You can then just gradually increase it. Bank accounts like Starling make that really easy to do, as they have the facility to create saving spaces for your money from within your main account. You can then put a small amount of money across, so you're building on it every single month.
So, if you want to start paying yourself more, stop looking at paying yourself as an afterthought. Use my pricing calculator and the advice above to see how you can bring more money into your business and price your services for your value, not just the time spent on them. And then make it a habit of putting money aside every month to ensure you’re paying yourself more from your small business.
