It's the line item most often left out of a small construction company's budget: the business owner's salary.
Let's face it: you can always spend cash on your business. From office expenses to employee salaries to rent, every month, a portion of your revenue is accounted for.
But paying yourself first is a must. You need to earn a living – and paying yourself can help your business succeed.
Here's why you should make your salary a top priority, starting now:
- It's the first rule of wealth building.
A business exists to make money, but business owners thrive when they continuously save and invest profits. If you aren't paying yourself before your vendors, suppliers, and employees, you're probably not setting aside funds to re-invest in your business to help grow more profits – or investing in a wealth-building portfolio.
Pay yourself what you can afford monthly or biweekly, and earmark a portion to invest in savings. Making consistent financial contributions throughout the year will help you build a healthy nest egg – and the sooner you start, the more you'll benefit from compound interest.
Setting up automated fund transfers from your business to an investment savings account will make paying yourself easy. After a month or two, you won't even notice a difference in your cash flow – but odds are your growing balance will motivate you.
- Avoid a cash flow crunch.
Sometimes it may feel like you need to compromise between two priorities: paying yourself and paying all your bills in full.
Continue to pay yourself a minimal salary every month, even when money is tight. Then pay the rest of your bills, putting down as much as you can above the minimum required payment. This strategy will help you build a solid credit rating – so when you apply for a business loan, a lender will consider you a good risk.
It's worth noting that banks, finance companies, and investors regard business owners who pay themselves in a positive light – and are much more likely to want to deal with them.
- The financial reward can be a powerful incentive.
Many businesses generate revenue, but it typically takes time to see healthy profits – another reason it can be difficult to pay yourself first. Nonetheless, rewarding yourself for your hard work will motivate you to keep working, even if you aren't able to pay yourself a large salary right away.
Talk to your accountant for a guideline on how much to pay yourself – and always treat yourself as generously as you would your employees.
Reward financial milestones met, and projections exceeded with a bonus. Raise your salary when your profit shows continuous growth. If giving yourself a raise creates some anxiety, do it in confidence, knowing you can always make adjustments as needed.
If you need help with this, please don't hesitate to contact me. I read all the emails I get. You can respond here or give me a call at 1-800-361-1170.
About The Author:
Sharie DeHart, QPA is the co-founder of Business Consulting And Accounting in Lynnwood, Washington. She is the leading expert in managing outsourced construction bookkeeping and accounting services companies and cash management accounting for small construction companies across the USA. She encourages Contractors and Construction Company Owners to stay current on their tax obligations and offers insights on how to manage the remaining cash flow to operate and grow their construction company sales and profits so they can put more money in the bank. Call 1-800-361-1770 or firstname.lastname@example.org