Make this a New Year’s resolution for 2007!
No. 2 in the “Build a Culture of Profitability” series
“I pay everyone else – including my employees – and if there’s anything left, then I pay myself.” Do you ever hear yourself saying this? Well, join the club. It’s a very common practice among business owners, especially during the early growth stages of your business. But this is a bad habit to develop.
You are your company’s most important employee. Why should you treat yourself worse than the other workers? I recommend you pay yourself a regular paycheck—even when you don’t have the money to do so.
One of my Business Group members was a small consultancy headed by two women. They relied on large government contracts—lucrative when you have them but somewhat chancy. And government entities are notoriously slow paying. The classic recipe for boom and bust revenue. So some months they paid themselves very well, but other months they went without. It was very disheartening to them to work so hard and not get paid.
I told them to write themselves regular paychecks—like they did their associates and subs—and cash the checks!
“But what if we don’t have the money?!” they demanded incredulously.
“Borrow it,” I said. Dead silence. “Use your line of credit to make sure you get paid.” Their horrified looks told me how this notion went against every fiber of their beings.
I continued, “Then have the discipline to repay the loan when the big checks come in.”
Long story short: They finally did this. The world did not end. They did not go deep into debt. A year later, they recounted the important positive effects of this change:
• They got much more insistent about getting paid on time.
• They shifted the kind of contracts they went after, in order to get more consistent cash flow. They actually said “no” to some big government jobs.
• They paid much closer attention to all aspects of cash management, including controlling costs. It’s easier to manage cash when you have something positive to manage.
• Getting regular paychecks re-energized and motivated them. They loved their work again.
As a result of these things, they made much more money. They gave themselves big raises and big year-end bonuses. Rarely did they have to dip into their line of credit to pay themselves.
Can you pay yourself first? For you to do this for yourself, first you must figure out your paycheck. How much do you need for current living costs, desired lifestyle, and long-term financial needs?
If you just cannot pay yourself this amount now, how soon can you do it? If you don’t see how you can ever pay yourself that much, then it is time to rethink your business. Why stay in a business indefinitely that does not pay you what you want and need? It sounds more like a hobby or charity.
Give yourself a raise and a bonus. The amount you need is the minimum you should receive from your business. Cultivate the attitude that your business should provide you a lot of money—much more than if you put the same effort into working for another company. After all, you’re taking the risk and putting in the entrepreneurial energy. You’re the one creating jobs for others and providing valuable products and services for your community. You deserve to get paid well. And first!
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Figuring out your needed paycheck.
