Starting a business is an exciting experience for any entrepreneur, but it’s also incredibly expensive. You have to cover costs for resources, employees, locations and marketing. Another critical expense is your paycheck.
Most business owners skimp on personal paychecks for several reasons including building a reputation, saving money or protecting their profit. While the ideas seem reasonable at the moment, undervaluing your work leads to severe problems in the future.
Problem #1: Undervaluing your worth
Initially, entrepreneurs start working for either little or no money due to their experience in the field. For example, a freelance photographer may take a bunch of pictures for free of a client to include in the portfolio or receive positive testimonials.
However, when you work for free or for little money, you under-price your products or the company’s perceived value. You don’t want to under-price your product to get customers in the doors significantly, and then lose out on profits or funds to maintain the business. Make sure you pay yourself a proper wage to establish your real value.
Problem #2: It’s illegal
Some business owners make a mistake by working for no money while starting their business. The owners might reinvest their salary back into the company or set aside wages for other employees. Either way, it’s a mistake that can turn into a criminal conviction.
According to the Internal Revenue Service (IRS), business owners are employees of the company, which means they need to receive “reasonable compensation” for the efforts they contribute to their trade. While you should not overly-compensate yourself, you need to establish a fair salary to support personal needs and your company.
Problem #3: Makes you do work that you hate
Freedom is an essential aspect of running a small business. However, the minute you stop paying yourself is the minute you lose financial freedom. Money allows us to pursue what we enjoy. Without money, we tend to accept projects or jobs that we don’t enjoy to pay the bills or maintain the company.
Back to the freelance photographer example, a photographer may want to focus specifically on weddings. But they end up taking senior photos, pet portraits or any project that comes their way because they are adequately paying themselves.
It’s critical that every business owner takes the time to determine a fair wage for their work. Once you have an adequate number, stick to that salary until it’s no longer appropriate. You will run a better business and have a happier personal life.