A common question among entrepreneurs working for themselves is how much they should be paying themselves. While many factors go into answering this question, including how much your business can actually afford – entrepreneurs can themselves take a look at their personal finances to determine how much money they require to maintain their standard of living each month.
Determining how much to pay yourself as an entrepreneur is one of the most important decisions that can help you control both your business and personal finances better, says Precious Mvulane, GAD Consulting Services’ managing director and author of ‘The Essential Finance Handbook’, a guide that helps business owners to boost their businesses’ financial performance.
A mistake that many new business owners make is failing to keep record of their spending. “In most cases if this is happening it means the business owner is also mixing personal and business finances.”
– You do not have a financial plan for your business.
– You have cash withdrawals that you cannot explain to your accountant.
– No separation between your personal and business expenses.
– Lack of clarity on where you spend your money – it just comes and goes.
– Feeling overwhelmed or anxious by money problems even when you have enough money.
The next step is to determine how much you are actually spending, says Mvulane
Start by tracking your spending habits on a daily basis for at least 30 days.
1. Determine if you are a cash user or if you prefer to use a credit card, or do you use both.
2. Record your spending, organise or complete your filing and keep track of accurate and complete receipts for 30 days.
After the 30-day challenge you will have a clearer picture of where you are spending your money.
To get on the right path, Mvulane recommends entrepreneurs set a personal budget.
Most entrepreneurs start businesses thinking they will start generating an income within the first three months, however, in most cases it takes much longer [to earn what you want]. Knowing what your personal budget is will help you determine the amount you should request from your business as a salary.
Questions to determine what should be included in your personal budget