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Small Business Owners – Why You Should Pay Yourself

Here at Access Credit Management we’re well aware that our national economy is dependent upon small businesses in every sector and in every part of the land.  After all, statistics show clearly that small businesses account for more than 99% of all private sector business here in the UK and those that employ people are on the increase, making these small businesses vital for our employment statistics as well.  We know just how much hard work it takes to run a small business and we’re committed to providing our readers (many of whom are small business owners) with information and advice on how to maintain a steady cash flow and stay in business.  Avoiding debt and bankruptcy can be a constant fear for small business owners across the land and the current uncertain economic climate following the summer Referendum results is causing business owners even more worry than ever before.  Today, we’re going to give you some welcome advice – how to pay yourself.

Every business owner should adopt the habit of paying themselves, even if the sum is relatively small.  We all have bills to pay so if you rely on your business to provide you with an income you need to set the minimum amount necessary to fulfil your personal obligations.  Once you work this out and add your own salary to the business expenses, you’ll find it much easier to keep track of your cash flow.  Don’t’ forget that it will also be much easier for you to keep track of your personal cash flow too. Paying yourself a salary will also make it easier for you when it comes to saving for when you retire too. 

Paying yourself a salary has other benefits too – it will actually help you to clearly see and quantify the value of your contribution to your business.  It represents your market value and this can be an important issue when it comes to a change of business partnership, selling the business, even in case of divorce! 

If you neglect to calculate the costs of your working contribution into the operating costs of your business, it would be difficult for anybody outside of the business to get a true sense of the company’s total value.  This is vital if you plan on selling your business or merging with another company.

How much to pay yourself may present you with a conundrum – if you pay yourself too little you may struggle to make ends meet at home while if you pay yourself too much, it may put your business at risk – the last thing you want.  You need to find a way to strike a fair balance and it might be worth your while engaging the services of an accountant to help you determine the right amount to pay yourself. 

 

While there’s nothing wrong with drawing from your business profits (not revenues) when you need to, paying yourself a regular salary is a much more professional way of doing things and, as already mentioned, it will help you maintain a steady cash flow and keep your business in business.