Small Business Financing: Why Paying Yourself Matters
Financing a small business takes an acute awareness of many variables, from rent to logistics costs, many of which fluctuate rather than stay the same. In light of this, many business owners hesitate to pay themselves a wage, instead opting to keep re-investing the capital they gain towards the goal of helping their business continue to grow. However, there is a serious case to be made for business owners paying themselves a wage, even if it is not a fortune starting out. Here are a few reasons why:
It helps keep business and personal expenses separate. When personal expenses get balled up into business costs, it creates a slew of problems. For one thing, it makes accounting more complicated since differentiating between true operating costs and other purchases adds time to the process. Additionally, it can be bad for employee morale to treat a business like a debit account. Lastly, using business funds to purchase personal items runs the risk of a business owner losing sight of how much they are spending, which can quickly drain resources and put a strain on a business’s cash flow.
It gives you something to invest in your future. Far too many Americans neglect to actively think about their retirements, or fail to invest in a nest egg that can give them something of value later in life. By paying themselves a wage, small business owners are able to give themselves some resources with which they can prepare for life after they move on from their business. While it is true that many business owners regard their business itself as a nest egg and put their capital back into it for this reason, it is still prudent to set aside separately in order to be prepared for all eventualities.
It creates added incentive to work. When a business owner is cutting themselves a wage, no matter how substantial it is, it helps to reinforce the fact that the more they grow their business, the better their return will be. While all business owners know this conceptually, sometimes the immediacy of having cash in hand is what it takes to cement the link between reward and performance in someone’s mind.
Photo Credit to Thomas Galvez on Flickr