Paying Yourself First

[Jake Studebaker]

So I have recently finished TMF , and I have a question that is getting to me. As an entrepreneur in order to pay myself I would be taking money from my start up. So I looked into a few ideas and one is to pay yourself a salary like any employer would, but the way the book approaches this topic makes it seem like my bank account should be synonymous with my company's account. Does anyone have any input?

 

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[G-Man]

You're worried about what to do with the money your business hasn't made yet?

 

[Michael Burgess]

Initially your company is going to need absolutely as much cash as possible.

You probably can't afford to pay yourself a "normal" salary from your company until it has some real traction and sales. So try to earn your personal income from somewhere else initially, turn your business into a small cash printer, and pay yourself from it once you have something real built.

 

[ApparentHorizon]

You're worried about what to do with the money your business hasn't made yet?

LOL this brings back memories from the early days of internet marketing. There used to be a post where the dude didn't want to start anything b/c he didn't want to pay too many taxes.

So I have recently finished TMF , and I have a question that is getting to me. As an entrepreneur in order to pay myself I would be taking money from my start up. So I looked into a few ideas and one is to pay yourself a salary like any employer would, but the way the book approaches this topic makes it seem like my bank account should be synonymous with my company's account. Does anyone have any input?

It's just paperwork and bureaucracy. (there was an action faking thread around here...)

Focus on producing so much, that it's impossible to stop the overflow of cash into your company and your personal account.

 

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[Envision]

So I have recently finished TMF , and I have a question that is getting to me. As an entrepreneur in order to pay myself I would be taking money from my start up. So I looked into a few ideas and one is to pay yourself a salary like any employer would, but the way the book approaches this topic makes it seem like my bank account should be synonymous with my company's account. Does anyone have any input?

The accounts are seperate - this is not only for the sake of your business but also for legal purposes.

You dont pay yourself until it makes sense to pay yourself (when you're company can not only sustain itself but grow itself then pay you). You'll most likely be a sole prop LLC which means you are the only owner/employee of your company. When you get to the stage where you're making a solid and consistent income and the company is profiting it will make sense to pay yourself not only for tax purposes but because it will not suffocate the business.

If you are paying yourself as an employee of the company you will need to pay payroll taxes and other expenses that can rack up quickly. Generally, your accountant would probably just advise you to do owner draws at your own discretion. When you get to the stage where you're actually concerned with these questions you'll need to find a good accountant who works with businesses like yours who can guide you because every situation is different.

Edit: This is why you need a job to pay for your lifestyle... the process above can take a year or 10 years depending on your idea and ability to execute.

 

[MidwestLandlord]

Cart WAY before the horse here...

In TMF , the "pay yourself first" means that you have control of your money before anybody else, especially the government.

Unlike a paycheck where you only see the money after taxes have been paid, and pre-tax options for controlling your money are limited at best. So you are actually paying the government first, not yourself.

There's a million legal ways to lower your tax burden when you control the money. Try doing that as an employee haha.

When you start making big money and over 1/3 of it goes to the government...you'll figure out how to save money on taxes.

Good money problem to have, but ya gotta get there first.

 

[MidwestLandlord]

One other thing:

I HIGHLY recommend that most people take some accounting courses at some point. College level accounting 1, 2, & 3.

It'll really help you visualize how money flows through a business, how profit and cash flow are different, and how net income is both adjustable (to an extent) and is the biggest driver of your tax burden.

It will help you differentiate between personal finances and business finances too, and they are MUCH different.

You'll also learn about target costing, process costing, job costing, and pricing methodologies too, which are invaluable tools in your fastlane arsenal.

 

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[Jonster]

Don't forget you can sell the business further down the line, essentially turning those hours of hard work into rapid income generating ones.
The salary you pay yourself isnt the only way to get paid.

Sent from my SM-G920F using Tapatalk

 

[JAJT]

IMHO, from many mistakes:

- Take out only what you need to survive (as in, pay the necessary bills, not frivolous entertainment) for as long as possible.
- Hire an accountant familiar with small businesses in your field. It took me more than one attempt to find mine. Then listen to them. Mine pointed out that how I structured the business legally was perfect but how I moved the actual money around was opening myself up to the risk of a nasty audit.
- If you have a job, keep it until the time you spend and money you make at your job make absolutely no sense anymore. Be realistic. If you are paying your bills with company money as a salary - you need to look at your business finances and see if that leaves enough for growth. If you sell $10,000 worth of goods per month at a 30% net margin, that leaves you with $3,000 profit. If you need $2,000 of that for bills like rent/food/internet/transportation/etc... that gives you $1,000 for growth. You've killed 1/3 of your profits. If you want to bring in $10k in additional goods to double your business, that's 10 months at $1,000 profit or just over 3 months at $3,000 profit had you left it alone. Huge difference. Now, if you make $50,000 per month, that's $15k profit, take away $2k for living, and now you've only taken 13% instead of 33% of your profits. Makes much more sense now to quit the job and take the income.

(numbers pulled out of my a$$ based on how I think right now, would love to hear input on this from other experienced members to see if these thoughts ring true to them as well)

 

[Waspy]

There's a million legal ways to lower your tax burden when you control the money. Try doing that as an employee haha

Excuse me. I think you will find that I can maximise my tax efficiency even as an employee. In fact, this very day I got a letter from my employer inviting me to contribute 4% of my salary to a pension scheme, and my employer contributes 4% too! PLUS I get 0.8% tax relief! Can hardly believe how lucky today is.

Can you believe that?! 100% I make on that investment. Sure I can't touch that money for exact 37 years (providing the government don't change the rules), and sure someone else gets rich off my money in the mean time.

But 100% !!

 

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[Jake Studebaker]

You're worried about what to do with the money your business hasn't made yet?

I'm certainly not worried about it, but I am wondering. I was reviewing the book and I came across that page and this question just popped into my head. No sir I am not worried, but I would like to learn.

 

[ExcelGuy]

I don't really think the book mentions the term "bootstrapping" at all. It's the term used for financing your business without getting any external funding from someone else.
For example, I started a tshirt design business but kind of did it wrong. Note: I have a fulltime job as a computer guy.
I registered myself as a sole proprietorship as a graphic designer. This allows me to buy shirt blanks at wholesale. But I don't have a printer or press yet. I'm saving money every week to get a vinyl cutter first. I make a bit of money each month doing custom orders but just had to pull all my profit to pay credit card bills.

Sent from my SM-A500W using Tapatalk

 

[MokenaCleaner]

I still don't follow all of this. I DID read the book but is the message to reinvest all the profits to give the business juice and momentum?

 

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