How to pay yourself as a creative shop owner
Keep your bank accounts separate
This seems obvious but I know for a fact that most people don’t have a separate account for their business and use their personal bank account instead – at least when starting out. If that’s you, this needs to change now. If you are taking your business seriously, you can’t mix your personal/household finances with your business finances. It makes everything more complicated and confusing.
So the first step here is to open up a bank account for your business. It’s also a great psychological trigger and can help you think of your business in a more professional way.
All expenses related to your business need to come out of this bank account (supplies and material, website hosting, etc.).
All the revenue from your sales need to go into this bank account (yes, even the ‘cash’ sales from your latest market fair needs to be deposited in this bank account).
It’s from this bank account that each month you will pay yourself a wage by having a portion of your revenue transferred into your personal account. This way, you can use that wage for your personal groceries, entertainment, etc without feeling guilty and like you’re using your shop’s dollars!
This simple step will help greatly with organizing your business finances.
Cutting yourself a wage
Paying yourself for your work is SO important. Many shop owners do this last, after they’ve paid for their expenses and reinvested a bit of money in their business. That’s not a good way to look at it. You have to look at your wage as an monthly expense and pay it as if you were employing someone.
You wouldn’t pay them last would you? Then, there’s no reason to do that to yourself 😉
“Mmh.. ok so how am I going to pay myself then?” – you’re wondering.
Well, your labor costs are part of your pricing formula (and so are your fixed monthly costs, and your variables costs). The price for each of your item will therefore incorporate your labor cost. At the end of the month you will have:
Step 1 // Sales x Price = Revenue
Step 2 // Revenue – Expenses = Profit
You should use your profit to set money aside for tax, re-invest in your business, and… pay yourself!
Decide on a percentage of profit you want to allocate for each and do the math – here’s an example:
If your profit (after paying your expenses from your revenue) is $1500, you could
- Put 25% of it away for taxes: $375
- Write yourself a check for 55% of it (as a business owner): $825
- Put 20% aside for re-investing in your business, upgrading your equipment, etc: $300.
In our example, that means you pay yourself $825 from your share of the profits 🙂
You have to find an allocation of the profit that works for you of course, starting with figuring out how much you need to be putting aside for tax – but do yourself and your business a big favor and write yourself a check consistently. Pay it into your personal account to keep things separate and organized.
This is the foundation of an healthy business – and life!
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