Every business owner deserves to pay themselves in a way that affords the standard of living that they desire. Too many business owners fail to pay themselves because their business can’t afford it.

Of course, there’s revenue to consider. But there’s so much more to your business finances and paying yourself a livable wage than revenue. You need to consider your lifestyle, profit, taxes, pricing, and so much more.

This week on the podcast, we’re exploring whether your business can afford to pay you and how to make some adjustments so you have the cash that you need both personally and support your business. And I’ll walk you through how to calculate exactly what you need to bring in each month to thrive.

Links and Resources:

• Join the Insiders group
• Join Office Hours
• Episode 3: Having Sticky Pricing Conversations with Clients
• Episode 2: Is Your Pricing Aligned with Your Life?
• Quick Financial Assessment

Transcript

Tracy Jepson 0:10
Whether you’re looking to grow or ready to scale and so navigating the challenges you face as a business owner are hard, and knowing which steps to take next can be overwhelming. Each week on Beyond the bank account, I will walk you through overcoming the overwhelm and confusion around your business. From the bottom line and beyond. I’ve worked behind the scenes and in the weeds of small businesses, including several my own for over 20 years, and I have a personal mission of guiding owners to have profitable sellable businesses while living the life that you’ve always dreamed.

Tracy Jepson 0:42
Hey, welcome back to Beyond the Bank Account, I am really excited to share with you the biggest question that business owners come to me with today on our show, and I hope that it will help you thrive in your life and in your business as well. Yesterday, when I was scrolling through Facebook, probably pretty mindlessly would be my guest, because it is not my favorite platform to be on. And then Marie popped up from January of 2017. And it was the day that my husband and I went on to the Dave Ramsey show and did our best debt free scream, we had spent 23 months paying off $70,000 of consumer debt. And it was a really, really hard struggle. In fact, it is the way that I actually started this business. So this began as a bookkeeping side hustle. While I was working full time for a nonprofit. I also had another part time job at a local restaurant, being paid to change television channels and give out beer samples. I can tell you, that was a very humbling part of my life. But one that was really meaningful. Unfortunately, I was spending a ton of time away from home between the full time job and the part time job that I just needed to do something else. So I was able to start a bookkeeping business over the weekend, I put an ad out on Craigslist had three clients within about 24 hours, which thinking back now like I don’t even know who uses Craigslist. So maybe that’s still a thing, maybe it’s not kind of just depends on where you’re trying to start your side hustle. Fast forward. About a year later, after I became that bookkeeping job, I actually was able to go part time with my full time employer, because I had so many clients that were coming on, and I simply couldn’t continue the 80 hour workweeks. It got to a point where I wasn’t seeing my family, I was constantly stressed, I was working early mornings, I was working late nights, and it wasn’t sustainable. So I was able to go to my employer, given them a case for going part time and working from home. So that way, I continued to actually take them on as a client and not be an employee of the organization. It worked out really well. And I continued that job for another year, as we finished getting out of debt. And I will tell you the number of emotions that you go through while you are trying to plug away that hard and that quickly.

Tracy Jepson 2:54
Again, we use the Dave Ramsey program, I don’t think it’s for everyone. I think it worked for us, I think it was wonderful. If it’s something that you’re interested in talking about, shoot me a message at TracyJepsen.com/podcast. And I can kind of give you more information about how to go through with that. And it’s a little bit of what I use, when I’m helping clients today get out of business, or get out of debt. But ultimately, it really isn’t. It’s not for everybody, by being able to replace my full time income from my full time job. And from any other side gigs that we were doing, you know, selling furniture or kids toys, or all kinds of the other methodologies that you can go through while you’re trying to get out of debt. I was able to like I said, I was able to replace my full time income, and be able to stay home and work on growing this business. And one of the biggest things that I get asked all the time was Tracy, how did you replace your full time income? And how did you know what to pay yourself? And the problem that I see with business owners today is that this question comes up entirely too often, I get so many clients and inquiries of coming to us and saying, Hey, I don’t know how to pay myself or I have all of these employees, but I’m not being paid, I want to put all the money back into the business, I’ll start taking it when we’re making a profit. The issue is that it never happens. So those business owners will continue in that mindset of that they don’t need to pay themselves or that they can just get by some of these people have spouses at home that maybe have a full time job. And so they’re kind of pushing through and working off of a budget at home in order to have that one source of income, manage everything in the household. But I can tell you that that creates a ton of frustration in marriages and in families and isn’t going to get you to the thriving life that you’re looking for. So what’s the solution? The solution is I have a very, very simple tool that I share with my clients, and that we walk through together in order to figure out how to pay themselves and to figure out what their business needs to bring in in order to pay themselves what they actually need.

Tracy Jepson 4:52
You can get a copy of this financial quick assessment on my website, TracyJepsen.com/podcast. It’s going to be in the resources for you a Get this is a free tool that I give to everyone, I think it is the number one thing that any business owner needs to go through in order to figure out what they need to pay themselves, and to ensure that their company is being profitable enough to actually pay them what they need. Ultimately, in this financial quick assessment, you’re going to figure out that we are trying to get to a personal goal number. And this number is going to be different for every single individual, every single household, I do actually sometimes encourage couples to go through this together. I think sometimes as a business owner, I know that I don’t necessarily keep my husband in the loop of what I’m making in the business or anything else, because he’ll hear a revenue number that’s coming in, and then wonder why it’s not all coming home. What he forgets about is the actual operational expenses, my team that has to be paid subscriptions, all of these other kinds of things that actually run our business. So sometimes when your spouse knows that you’re bringing on new clients, or you’re doing all of these things are going to start wondering why you’re not actually bringing it home. So this can be either be a wonderful tool and exercise to walk through together so that we guys can get on the same page, or avoid it entirely if it’s going to create more chaos, and that your business is or that your spouse is going to start wondering if your business is actually a hobby or if it’s making money. The first step in our assessment is to actually figure out what your personal goal number is. And the only way to figure this out is to determine how much money you need in your household to keep things running. So there is going to be a personal budget page that is in this assessment. And I want you to go through and fill it out and think about how much money you spend every month or every year on certain items. So you’re gonna go in and put the amount of your mortgage, any kind of second mortgage, he locks that you have repairs, maintenance, utilities, thinking about the food and groceries that you spend, restaurants, all of the clothing, insurances, everything. Now, this budget may not be all inclusive for you. So if you have other items that aren’t listed, and again, this is kind of a general overview, best practices type of budget, but I want you to really put things down, and I want you to be realistic about them. If you think that you only spend $100, at restaurants every month, but you actually in reality, spend six or 700, I need you to put the actual number, because what’s going to happen is if you pretend in this budget that you know what you spend in your, in your personal life, or you are trying to hide the fact that you really are spending more than you should be isn’t going to help you get to a realistic goal that’s going to help you continue to live the lifestyle that you’re living. And maybe you don’t need to continue living that lifestyle. So maybe that’s a bigger question. But in order to create this budget and be very realistic to get to that personal goal number, I really need you to be honest with yourself in this budget. And again, let’s I guess I should be clear, this isn’t really a budget, this was really your spending, like we need to know what you’re spending in your life in order to figure out that goal number. So fill this out and keep that number handy. The next time that’s going to be over there, it’s going to be the exact same assessment, but it’s going to be on your business, go run a p&l, if you have one, if you’re using some type of accounting software, or use the sheet that we have here and type out what your monthly expenses are. Again, this is not a guess, we need accuracy, we need to know exactly how much you spend in your business. In order to create a real scenario of how much you can pay yourself or how much you should be paying yourself. You know, there’s a lot of times that I will meet with a prospect or meet with a client and I see that they are plugging a ton of money into their business from their personal accounts. And it has to make me wonder what sort of stress that is putting on their personal revenue on their their personal savings on their family on their spouse relationship. Anytime we are taking money out of our personal accounts in order to fulfill our business needs, there is a bigger problem going on. And we see the exact same thing, honestly, when people are taking out too much money from their business.

Tracy Jepson 8:56
So just because you’re not paying yourself a salary doesn’t mean that this is your personal piggy bank. And you can just go to the accounts whenever you need something. In order to cover something in your personal life, we really want to avoid the cash flows up and down and want to make sure that we know that what your business is doing can actually support your life and that this truly is a business and not a hobby. So now that you’ve determined what your personal goal number is and what your business expenses are, in order to continue this, we’re going to flip over to the next tab which is the magic of this entire spreadsheet. And that’s your revenue goal. So go ahead in step one, and enter in the amount that you want to pay yourself every month. And again, I think that this number changes. So there’s a difference between what you want to be paying yourself and what you need to be paying yourself. If your business is strapped for cash at this point, I would put in the exact goal number that you found in your personal goal number as the minimum amount that you need to be paying yourself on a monthly basis. Again, this is a really great conversation to have if you have a partner or married in order to figure out who can bring in what to cover those four walls of the house. In the second step I want you to enter Your average monthly business expenses now, there’s definitely going to be things that are annual expenses, there’s going to be maybe annual subscriptions, that kind of thing. Much just get the average. This is the idea that we know what your business is paying out on a monthly basis, some are going to fluctuate, we’re going to create a bit of a savings as well, to cover those annual expenses as we move forward. If you know your tax percentage from your accountant, your effective tax rate that you know, you have to pay into Uncle Sam or the state that you live in, depending on if you guys have state income tax or not, make sure that you have your effective tax rate. Otherwise, I like to use at least 15 or 20%, to make sure that you are saving out enough taxes, that you’re not going to get a nasty gram from the IRS at the end of the year. And because you know that I subscribe to the Profit First methodology where I am ensuring and guaranteeing myself profitability every single month with every single client. And every single time I get revenue into my income account, I want you to create a profit percentage that you can guarantee in your business 1% 2%, five or 10%, whatever that number is, I want it to be something that’s not zero, it is really important to make sure that we have intentional profit. Profit is not something that just happens at the end of the year. And we look at our p&l and go, Oh, look, we made money. Profit is a habit profit is something that we create in our business, and it has to be intentional, we are going to spend more money than we make. And we’re not going to be profitable. Once you plug in all of those numbers into my cute little calculator, you’re going to have your average monthly revenue goal that you have to meet in order to take home what you need. And I will tell you that this is the place where this becomes really shocking to some of my clients. And they think to themselves Tracy, there’s no way I can ever bring home that amount of revenue, or they’re pleasantly surprised and thinking oh, I’m bringing in way more than that, maybe I should increase what I’m paying myself, which I definitely encourage, if you’re not going to go ahead and increase that profit percentage, definitely increase the amount that you’re going to take home, make sure that it’s still reasonable for your business, and you’re not going to unplug any sort of cash flow. But this is going to be this number is going to be what you need to make every single month. And if you are not meeting that revenue goal, we have bigger conversations to have, I would encourage you to go back to the episode about pricing, I would encourage you to take a really hard look at not only your business finances, but your personal finances. I 1,000% believe and talk about every single day with clients, that your business and personal finances are deeply intertwined. And if you aren’t paying as much attention to the personal side as you are to the business side, you will never make these numbers work. It is just the fact of the matter. And I think that when I talk to prospects, and I start talking about personal finances, they get a little surprised because this isn’t what your average advisor is going to talk to you about. But I know personally how I was able to be successful in my personal financial goals, because I was being successful. And because I was being smart with my money in my business, I want you to be a business owner that makes sure that they are taking care of themselves first. This is your business. This is your business. You are the key part of this business that makes things keep going. You are the reason that clients want to work with you. You are the reason that you are able to help other people. And if you can’t pay yourself, you are going to get very frustrated, you’re going to get very tired, you’re going to get burnout, you’re going to have rough relationships, things are not going to go the way in your life or in your business that you want to, you’re going to make quick cash decisions, such as taking out loans, maybe you’re going to take a second mortgage on your house, we need this business to support itself.

Tracy Jepson 13:50
So that way it can support you. paying yourself is the single most important thing that I want a business owner to understand. Yes, there’s wonderful customer service. Yes, there’s bringing in sales. Yes, there’s having an incredible team. But if you are not taking care of the number one person in your business, it will never succeed in the way that you want it to. If you have more questions about how to pay yourself or what kind of expenses that you need to be looking at cutting out shoot me a message on my on my website, TracyJepsen.com/podcast. And I would be more than happy to help you walk through the challenges that you’re having in order to make sure that you are paying yourself I don’t want you to have such small margins in your business that you aren’t able to take home that personal goal number so that way your again, your life can be thriving and successful. You will hear me say it over and over and over again. But your business needs to support your life and not the other way around.

Tracy Jepson 14:49
Thanks for listening to Beyond the Bank Account. You can check out the notes of today’s shows for links and resources we discussed. Just check your app or visit TracyJepsen.com/podcast and you can catch all the past up Besides, and don’t forget to subscribe to the show. Just search for beyond the bank account on Apple podcasts, Spotify, or anywhere else you listen. And if you can take the time to drop us a like or a thumbs up even a five star review. It really helps us to know what you’re enjoying about the show and it’ll help newless listeners find this more easily. And lastly, do you have a question or a challenge that you need help with? Send me your questions through my website, TracyJepsen.com/podcasts and I’ll be answering all of your questions via email and on the show.

Transcribed by https://otter.ai