How do you pay yourself?

4 March 2025 09:23

Paying Yourself: Tips for Small Business Owners

If you’re running a small handyman business on the side, you’re probably familiar with the juggling act of managing income and expenses. In the early days, you might have simply taken home whatever was left after covering your bills. However, as your venture grows, it’s wise to treat it more like a legitimate business, including having a structured approach to your personal compensation.

So, how do you decide how much to pay yourself? Here are a few strategies to help you establish a fair salary while keeping your business finances healthy.

1. Analyze Your Business Financials

Start by getting a clear picture of your business’s income and expenses. Review your financial records to determine your average monthly earnings. This insight will guide you in setting a reasonable salary.

2. Consider Industry Standards

Research what other handyman businesses of similar size and scope are paying their owners. Industry benchmarks can provide vital context for your own compensation. If you find that salaries in your region vary widely, use this information to position yourself competitively.

3. Determine Your Personal Financial Needs

What do you need to cover your personal living expenses? Assess your monthly financial obligations and factor in your desired savings and investment goals. This will give you a baseline figure that your business must support.

4. Choose a Salary Structure

Decide whether you prefer to pay yourself a fixed weekly or hourly wage. A consistent paycheck can help simplify budgeting and ensure that you’re regularly compensating your hard work.

5. Factor in Business Growth and Stability

When determining your salary, consider the stability and growth of your business. If you’re in a lean season, you might choose to pay yourself less than during peak times. Flexibility is essential, especially in a seasonal industry like handyman services.

6. Reassess Regularly

Your business and personal circumstances can change over time. Make it a habit to review your salary on a regular basis, ensuring that it aligns with your evolving goals and financial situation.

By establishing a structured approach to paying yourself, you can maintain financial health for your business while also securing your personal financial well-being. Remember, treating your handyman business like a professional venture is a crucial step toward long-term success.

bdadmin

2 Comments

bdadmin
4 March 2025 at 09:23

Reply
Transitioning from informal earnings to a structured salary can significantly enhance your handyman business’s professionalism and sustainability. Here are some steps and considerations to help you pay yourself effectively while ensuring your business remains viable.

1. Understand Your Business Financials

Before determining how much to pay yourself, it’s crucial to understand your business’s financial health. This includes:
- Income Tracking: Keep detailed records of all your income sources, including client payments, deposits, and any additional revenue streams.
- Expense Tracking: Document every expense associated with your business, from materials and tools to transportation and marketing costs. Use accounting software or a simple spreadsheet to help organize this data.
2. Calculate Your Net Profit

To figure out how much you can pay yourself, calculate your net profit, which is your total revenue minus total expenses. For instance:
- Total Monthly Revenue: $5,000
- Total Monthly Expenses: $3,000
- Net Profit: $5,000 – $3,000 = $2,000
This net profit is what you can consider for your salary.

3. Determine Your Salary

Now, decide on a salary figure that balances fair compensation for your work and the financial health of the business. Consider these factors:
- Market Rates: Research what other handyman services charge and what they pay their employees (if applicable). This will help ensure your salary is in line with industry standards.
- Time Invested: Estimate the hours you work weekly and decide on an hourly rate that reflects your skills and experience. For example, if you choose an hourly rate of $25 and work 20 hours a week, this would amount to a salary of $500 weekly, or $2,000 monthly.
4. Create a Budget

Once you’ve established your salary, create a budget that accommodates your monthly expenses, savings, and personal funds. A recommended approach is:
- 50/30/20 Rule: Allocate 50% of your salary to needs, 30% to wants, and 20% to savings/debt repayment. Adjust these percentages based on your financial situation and business goals.
5. Separate Personal and Business Finances

To maintain clarity in your finances, it’s advisable to:
- Open a Business Bank Account: This keeps your business income and expenses separate from personal funds, making it easier to track finances and file taxes.
- Set Up a Payroll System: If you’re paying yourself a regular salary, consider using payroll software or services to ensure compliance with tax regulations. This can automate tax withholdings and help you stay organized.
6. Regular Review and Adjustment

Your business will evolve, and so should your salary. Make it a practice to review your finances quarterly:
- Assess Growth: If your business income increases or if you take on more clients, you may be able to increase your salary.
- Adjust for Market Changes: Stay informed about changes in your industry that may affect pricing and expenses, allowing you to adjust your salary accordingly.
Final Thoughts

Paying yourself a structured salary is a smart move that not only legitimizes your business but also reinforces your commitment to financial discipline. By carefully analyzing your business’s financial health and adjusting your salary as necessary, you can ensure both your personal financial well-being and your business’s success. Remember, this transition may take time, so be patient and stay committed to your financial goals.
bdadmin
26 March 2025 at 10:42

Reply

Thank you for sharing these insightful tips on how to approach paying oneself as a small business owner! It’s so important to recognize that the salary we take can significantly affect both our personal finances and the sustainability of the business.

I’d like to add that in addition to your points, it can be beneficial to consider incorporating a portion of your pay into a retirement savings plan, even if it’s a small amount initially. This not only helps to secure your financial future but also reinforces the idea of treating your business as a long-term venture rather than just a side gig.

Additionally, establishing an emergency fund can provide extra security during lean months, allowing for more flexibility in your salary decisions during seasonal fluctuations. Having that safety net might encourage you to invest more in business growth during peak seasons, knowing you have reserves to fall back on, which can ultimately lead to better financial health overall.

Regular reassessment of both personal and business financials can create a proactive approach, ensuring that our compensation reflects the hard work and value we bring to our clients. Thanks again for the thoughtful discussion!

How do you pay yourself?