A lot of you (ahem, I’m talking to you!) end up not paying yourself enough, if anything.
You didn’t start your business to become the world’s most overworked volunteer. You started it to create something valuable. And that value is supposed to come back to you, too.
Entrepreneurs are wired to make sacrifices. You pour your money, time, energy, and attention into the business because you believe that if you keep feeding it, it will eventually become the company you imagined.
But a business that requires you to continually sacrifice – without receiving anything in return – isn’t a successful business. It may simply be a very demanding job that you happen to own. At some point, the business has to start working for you, too.
That is where Owner’s comp comes in. The concept isn’t about taking money out of the business whenever you feel like it or starving the company of the resources it needs to operate. It is about recognizing that you, as the owner, are part of the financial equation.
You have a right to be compensated for the work you perform, and your business needs to be designed with that reality in mind. Here are three things I want small-business owners to consider.
1. Stop Treating Yourself Like the Leftover Line Item
Don’t wait to see what’s left before deciding what you can pay yourself. Every expense in the company gets an opportunity to make a case for why it deserves the money. The employees need their checks. The rent needs to be paid on your space. The credit card bill arrives. Someone wants a new piece of software because it will “save time.” Then there is the marketing opportunity that absolutely cannot be missed. By the time everything else has been paid, you’re standing there looking at the checking account hoping there is enough left for dinner.
That is not a compensation strategy. That is hoping the business feels generous.
The Owner’s Comp portion of Profit First is built around a different idea: deliberately allocating money for the owner’s compensation rather than waiting for money to remain after everything else has been paid. The percentage should reflect your particular business and circumstances, and it may need to change as your company grows and becomes more profitable. The important shift is psychological as much as financial. You stop treating your own compensation as an optional expense and start treating it as something the business needs to account for.
Action step: Look at the money your business has generated over the past several months and establish a sustainable percentage for Owner’s Comp. It doesn’t have to be perfect, and it doesn’t have to be a number that makes you nervous. Start with an amount the business can support and make the allocation consistently.
2. Remember That the Work You Do Has Value
You may own the company, but that doesn’t mean the work you perform inside it has no value. You’re the designer of the whole shabang, after all. This is especially important because owners sometimes look at compensation as though taking money out of the business means they’re taking money away from growth. But compensation for the work you perform is different from the profit you receive for owning the company. You shouldn’t feel guilty about being paid for doing a job simply because your name happens to be on the ownership documents.
Action step: Make a list of the roles you perform inside your business and determine what it would cost to hire someone else to perform those responsibilities. You may discover that you’re doing far more work than your current compensation reflects. That information is useful because it gives you a realistic starting point for deciding what the business needs to provide for you.
3. Make Getting Paid Part of Your Business
The final piece is consistency. If every month you have to look at the bank balance and debate whether you’re “allowed” to pay yourself, the business will almost always find a reason to come first. There will always be another investment you can make. There will always be another problem you can solve with money. There will always be one more expense that feels more urgent than your own compensation. That’s why the system matters. You don’t want your paycheck to depend on how optimistic or terrified you happen to feel on the fifteenth of the month.
The goal is to establish a regular allocation so that Owner’s Comp becomes part of the normal financial rhythm of the business. When you do that, the amount you are setting aside becomes visible, intentional, and predictable. And if the business can’t support a reasonable level of compensation, that isn’t a reason to hide the problem by paying yourself nothing. It is information. Maybe your pricing is too low. Maybe your margins aren’t strong enough. Maybe you’re carrying expenses that don’t create enough value. Maybe the business model needs to change. Whatever the answer is, you want to know about it while you still have the ability to do something about it.
Action step: Put your Owner’s Comp allocation on a regular schedule and make it part of the way you manage the business. Start at a sustainable level, stick with it, and review the percentage as your business changes. The goal is to make paying yourself a normal business practice rather than an occasional act of desperation.
Look, you are allowed to get paid.
You’ve built this thing from scratch, and you need to stop treating your own labor like a charitable donation.
Forget about “Someday”. You may tell yourself, “Someday, when we hit $1M in revenue… someday, when we hire that next person… someday, when things finally stabilize… then I’ll take a real paycheck.”
But guess what? “Someday” is a mirage. If you just take whatever scraps are left over after everyone else eats, you aren’t running a business, you’re running a high-stress hobby.
Paying yourself first doesn’t mean you’re greedy, and it doesn’t mean you don’t care about your team or your clients. It means you understand basic economic reality. If your business can’t afford to pay its most important employee – YOU – then your business model is broken. Don’t hide the truth by pretending your time is free. Face the numbers, fix the bottlenecks, and design a company that is healthy enough to support everyone, including the person who took the massive risk to start it.
You are the most vital stakeholder. Reverse the equation, take your profit first, and let the remaining revenue dictate how you grow, hire, and run your business.
The Final Thought (Ok, homework)
Take these 3 actions this month:
- Establish your Owner’s Comp allocation. Choose a sustainable percentage based on the reality of your business and begin setting that money aside intentionally rather than waiting to see what is left.
- Put a value on your work. Identify the roles you perform and determine what the business would have to pay someone else to do that work. Use that information to have a more honest conversation about your compensation.
- Make compensation part of the system. Put your Owner’s Comp allocation on a regular schedule so that paying yourself becomes a normal part of running the business rather than something you do only when the stars, the bank balance and your guilt all happen to align.
You’re a valuable part of your business. It’s ok to live like it.
You’ve got this!
-Mike
