#15 Lunch and Learn: Pay yourself today for a more profitable business tomorrow

Written by Julia Bickerstaff // March 20, 2012 // Daily Juice // No comments

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So the traditional way of thinking is to hold off paying yourself until your business can afford it.

But what if you went wild and paid yourself before paying anyone else?

Legendary management guru Earl Nightingale* had a saying “pay yourself first”. It’s a tip that could change your business.

What it is

A technique that gets you re-designing your business to make a better profit

Why it works

This tip forces you to think about designing your business to cover the true costs. After all, if you work in the business, it needs to be able to pay you.

When your brain is presented with a specific problem like “How do we bring in enough sales to cover $150,000 of costs?” it rises to the occasion and works it out.

But the brain is a super-efficient organ and it won’t do even the tiniest bit of extra work.

So if you ask your brain to cover $150,000 of costs it works out how to do exactly that. Not a penny more; and nothing for you unless your earnings are included in the $150,000.

Therefore, if you want to have enough to pay yourself you’ve got to put it in your budget!

What you do

This recipe is at its best if you actually pay yourself. I know this is a big ask, so if you can’t do the cash thing straight away, at least put a modest monthly salary for yourself in the budget.

The what-you-do is easy:

Start by calculating a monthly salary for yourself. I’m not suggesting that you go from paying yourself nothing to drawing a full wage, so make it a modest amount. One of the best ways to do this is to decide on something that you are going to pay for in terms of the family budget. You might start off by paying the monthly food bill (although that’s not so modest in our household!) or something else that is a monthly recurring cost.
Every month draw your new wage out of the business (note: there is also that thing called tax so you might want to check with an accountant about how much you can take out without having to account for that!)
Try it for three months and see if it makes a change to the way you work. I have a client who started this in January. She was quite adamant that the business could not afford to pay her but she agreed to give it a short trial. She called me last week to tell me that in April she is putting the monthly salary up! She’s successfully paid herself for three months and the business found a way to make it happen!
If you owe a lot of money and can’t possibly actually pay yourself, at least put a monthly fee in your budget. That way when you look at your monthly numbers you can aim to make a small profit even after notionally paying yourself.

You may be wondering why more people don’t advocate paying yourself. I think it’s because most business information is written with the assumption that you are building an enormous business and reinvesting every dollar. If you are running a lifestyle business – and need to make money during the journey rather than wait for the (mythical) crock of gold at the end – then your business needs to get used to paying you. Pronto!

If you’ve not heard Earl Nightingale speak watch this fabulous video of him talking about goals. He has this wonderful gravely voice which is very moreish – and yes, he talks common sense too.

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