Financial Intelligence: Why You Should Pay Yourself First
There's a peculiar phenomenon in the entrepreneurial world that we need to address: the tendency to treat our business income like a mysterious force beyond our control. We wait until year-end, fingers crossed, hoping there's enough left over to pay ourselves after everyone else gets their share. (Spoiler alert: there rarely is.)
Let's flip this script entirely. What if, instead of treating profit as an afterthought, we made it our starting point?
The Hidden Cost of Financial Passivity
Walking the entrepreneurial path comes with enough uncertainty without adding financial ambiguity to the mix. When we take a passive approach to our numbers, treating profit as whatever happens to be left over, we're doing ourselves a profound disservice. This mindset often stems from our experiences as employees, where our salaries were predetermined and non-negotiable.
But here's the liberating truth: as business owners, we have far more agency than we realize. We're not merely passive recipients of whatever income our business generates – we're active architects of our financial future. (Yes, that includes deciding how much we pay ourselves!)
The Entrepreneurial Paradox
Running a business involves more stress, responsibility, and sheer effort than traditional employment. Yet paradoxically, many entrepreneurs pay themselves less than they'd earn working for someone else. We've seen countless talented business owners who, after years of hard work, are making less than market value while carrying all the risk.
This isn't just unsustainable – it misses the entire point of entrepreneurship. While the early years might require reinvestment and lean living, the end goal must include healthy profits. Otherwise, we're essentially creating a very demanding, underpaying job for ourselves.
Reimagining Profit: The Power of Intentional Planning
Traditional accounting defines profit as what's left after subtracting expenses from revenue. We're proposing a radical shift: decide your profit first, then adjust your expenses accordingly. This approach completely transforms how we think about business finances.
Here's what this looks like in practice:
Years 0-2: Focus on breaking even and establishing sustainable operations
Years 2-3: Begin implementing consistent owner payments, even if modest
Years 3+: Scale both salary and profit intentionally, with clear monthly targets
The beauty of this system lies in its psychological impact. When we know we'll receive a reliable percentage of revenue, no matter how small initially, our entire relationship with our business transforms. We become more discerning about investments, more strategic about growth, and more confident in our decision-making.
The Monthly Growth Strategy
Rather than setting intimidating annual targets, we've found success in implementing small, consistent monthly increases in owner payments. This gradual approach helps avoid the resistance and doubt that often arise when facing ambitious financial goals. Each small win builds momentum, creating a powerful snowball effect over time.
Your Business, Your Rules
Remember those empty shelves that somehow always end up filled with stuff? Money works the same way – if it's sitting in your business account, you'll find ways to spend it. By establishing clear profit and salary allocations upfront, you create boundaries that protect both your personal income and your business's financial health.
For businesses generating up to $250,000 in revenue, consider this allocation framework:
50% for owner salary
30% for operating expenses
15% for taxes
5% for additional profit
These percentages can shift as your revenue grows, but they provide a solid starting point for intentional financial planning.
Embracing Financial Agency
Taking control of our business finances requires more than just technical knowledge – it demands an emotional shift. We must release the employee mindset that makes us passive recipients of whatever income comes our way. Instead, we need to step fully into our power as business owners who actively shape our financial outcomes.
This journey from financial passivity to intentional profit-making isn't always comfortable. It requires us to face our money stories, challenge our assumptions, and sometimes make difficult choices. But the alternative – running a business that doesn't adequately compensate us for our time, effort, and risk – simply isn't sustainable.
The path to entrepreneurial success begins with paying ourselves first, even if it's a modest amount. These early acts of self-investment create the foundation for sustainable growth and long-term prosperity. After all, we're not building businesses just to create jobs for ourselves – we're building them to create lasting wealth and impact.
RESOURCES:
Teach on Marvelous
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