Oh woe, a conversation I had yesterday about a business owner’s earnings – or lack of – sparks this week’s tip.
Never mind the details of the conversation, the important part is this: if you don’t ask your business to pay you properly, it won’t.
Rid yourself right now of the notion that “I am the business owner therefore I will be satisfied with the crumbs that are left after everyone else has been paid”. And boldly replace it with “I am the business owner, I need to be remunerated for my technical and leadership roles in the business plus a return for the risk I am exposing myself to in owning this business.”
Many business owners reward themselves with the profit that is left in the business at the end of the year. The trouble with this strategy of course is that profit in a business is like a packet of chocolate biscuits in the pantry: easy to furtively nibble on and all gone by teatime.
So here’s the tip.
Very shortly I expect, you will begin the process of planning and budgeting for the 2011 financial year. When you do so, factor in the personal earnings you want from the business.
To do this, start the budget process by working backwards and ask yourself the question: “What net profit does the business need to make in 2011 to give me the earnings I want?”
Take this net profit figure and plug it into your budget to see what gross profit figure the business will need to make. The gross profit figure will give you an indication of how the business will need to be performing differently next year to compensate you.
Of course, you will have to figure out how to achieve that gross profit figure – sell more or raise prices – and how to organise the business to do so. Tough but you will have the impetus to fathom it out.
If you don’t put your earnings in the budget however, you will be disinclined to do anything radically different in your business. And guess what, next year the business won’ t be paying you anything radically different either.
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Julia Bickerstaff’s expertise is in helping businesses grow profitably. She runs two businesses:Butterfly Coaching, a small advisory firm with a unique approach to assisting SMEs with profitable growth; and The Business Bakery, which helps kitchen table tycoons build their best businesses. Julia is the author of “How to Bake a Business” and was previously a partner at Deloitte. She is a chartered accountant and has a degree in economics from The London School of Economics (London University).
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