Are you working hard in your business but seeing little money in your pocket? Are you feeling you are paying everyone else except yourself?
Well you might well be.
A mistake I’m seeing a lot lately is failing to include a business owner salary in operating expenses.
In business you have fixed and variable expenses you pay each month in order to stay in business and deliver your product or service.
When working out how much you need to charge, you MUST include your salary! Yet many business owners are not.
As a result they are paying themselves last out of profit (if there is any) and working hard just to pay everyone else including suppliers – and in many cases earning less than they would in a job with far less responsibility and hassle!
If you are happy with what you are getting then read no further. If you are not, then let me share some wisdom and suggestions.
First, let me ask you a deep and meaningful question….if you are NOT paying yourself a ‘proper’ salary and have NOT included your salary in operating costs…why not?
RED FLAG WARNING!
Or do you believe you should be paid last? Do you need to look after everyone else first and then yourself? Or deep down do you feel you can’t achieve a higher salary?
Our businesses are an extension of ourselves and how we think.
To have what we haven’t had before, we usually have to think differently! Either through gaining knowledge or personal insight.
If you didn’t realise you needed to include your salary or the business is under three years old then ok, please make sure you do.
However if you have even a hint of self doubt about paying yourself, I strongly suggest you explore this further because your business will only grow as much as you feel you deserve!
You cannot have the cash in your hand until you honestly own it in your head and heart.
If you want to include your salary, great! Decide how much you need this year – this can be reduced slightly if the business is under three years old but showing steady growth, or you consistently have profit each year.
Take your monthly wage and include it in your total monthly operating costs that you need to cover. Then spread your total monthly costs over however many products or services you sell each month, on average. This gives you a dollar value you need to charge. Monthly variations in sales? That is quite normal so average it out across a whole year. The peak months must make up for the slow months.
If you add your salary and feel your prices are now too high, you have some further work to do and questions to ask – see Step 4. If prices seem ok, then great, you are now in a better position to ensure you get paid as well as everyone else each month.
If your prices now seem too high, what information are you basing this on? Be careful you are not underselling yourself. Re-read the Red Flag Warning! 🙂
Another question to explore is whether you are selling the most profitable products/services? Often businesses are selling what easily sells but the products are not profitable. Do you know your profit margin, the true cost to deliver each of your products? This can be a real wake up call.
You must work out the true cost to promote, produce, deliver and service each of the products or services you sell. Otherwise you could be busting your butt to sell 100 of Widget C that gives you $20 profit each instead of selling only 20 Widget A’s that gives you $100 each and far less work.
Now, assuming you can’t increase your prices, the next action is to explore if you can reduce your overheads somehow? Can you increase efficiency?
Assuming prices can’t increase and overheads and efficiency are about as good as it gets, then how many widgets do you need to sell to provide your required salary? What will it take for you to sell this many?
Adding in your salary to overheads can be a healthy kick up the arse to change what you focus on selling, and/or change your pricing packages. And it can solve the mystery of why you are not seeing dollars in your pocket each month.
Worst case scenario, if you can’t sell enough or charge enough, you may actually have a hobby and not a business.
The above is a quick and basic overview of something that can take a few hours or longer to workout. If your pricing or profit is concerning you I can conduct a pricing audit with you to determine what you should be charging and how. This is a 5 hour package and includes a face to face session and worksheets and is an essential step prior to paying for any marketing because you may be promoting the unprofitable products or wrong prices!
Normal price is $1,100 but for the first 5 businesses that contact me it’s only $479 plus GST.
Offer valid until Oct 31, 2015.
Contact me at the email below with name, business name, phone number and email address.
Troubleshooting Expert and Business Coach