Issue link: https://www.massageandbodyworkdigital.com/i/1488451
When I first learned to pay myself, I heard the phrase "Be the best boss you've ever had," and it stuck with me. What does a good boss do? They pay you fairly, make sure to take out the right amount for taxes, help you save for retirement, and pay you for vacation and sick time. Do that for yourself. Be your own best boss. When I sit down to handle my bookkeeping and pay myself, this is the order in which I spend my business earnings: • Owner's draw • Taxes • Retirement • Monthly operating expenses • Emergency savings, sick pay, and vacation savings • Savings for larger purchases Here's what that looks like in practice: I pay myself a draw by moving money from my business account into my personal account. Then, when that draw gets to my personal account, I set aside a percentage to pay quarterly estimated taxes. Talk to your tax preparer to determine what your percentage should be. Next, I move money from my business account into my Solo 401K, a retirement account. Then, I pay all my business bills for that month, purchase supplies I need, and track subscriptions that have been paid since the last time I did bookkeeping. Any money left after paying bills is put in a savings account for emergencies, sick and vacation pay, or savings for a significant purchase, like a new massage table or expanding my office. Once those savings accounts are fully funded, I can pay myself more! ADDING UP YOUR PORTION This is all fine and dandy, but the big question is, "How do I figure out what my draw should be?" There are two ways to determine the amount of your draw—the percentage approach and the f lat rate approach. Look at your last 12 months of income and expenses (or whatever you have if it's less than 12 months). If you made $40,000 (gross income) and spent $15,000 on rent, utilities, insurance, supplies, etc., you spend about 38 percent of your gross income on expenses. Using the percentage method, you can pay yourself about 60 percent of your gross each month. If you are contributing to a retirement account, you can draw 50 percent of your gross income and put 10 percent into your retirement fund. If you want to save for an electric massage table, you could lower your draw percentage for those few months you are saving and put the extra aside. There is f lexibility in this system. If you set aside money for gift certificates and packages, set that aside before you figure the percentage; bring it back in the week or month the gift certificate is redeemed. Using the f lat rate method, you look at the average gross income and expenses and figure a f lat rate to pay yourself every week or month. The months you are busier, you put aside the "extra" income after expenses are paid to cover the months you aren't so busy. You don't have to do this all at once. (But you can if you want!) If you haven't been paying yourself or you can't stomach the idea of sifting through a year of income and expenses because your bookkeeping is erratic, this can feel overwhelming. You can pick a low number like $100 and start paying yourself that amount every week. Get a routine going and increase that number every few weeks or months as you get a handle on your income and expenses. ADJUSTING YOUR CASH FLOW What happens if you can't pay yourself a living wage? It's time to make important decisions. You'll need to increase your gross income, lower your expenses, or both. Maybe it's time for a price increase or adding a few more clients to your weekly schedule. Trimming expenses can be as simple as finding a better cell phone provider or as complicated as looking for a colleague to share space with. You get to decide, and now you can make those decisions from an intentional and educated place. Remember, cash-f low management is a f lexible system. You can adjust and readjust your numbers until you find the sweet spot that keeps your business serving you. Allissa Haines and Michael Reynolds are found at massagebusinessblueprint.com, a member-based community designed to help you attract more clients, make more money, and improve your quality of life. L i s te n to T h e A B M P Po d c a s t a t a b m p.co m /p o d c a s t s o r w h e reve r yo u a cce s s yo u r favo r i te p o d c a s t s 85 BLOG: "3 SIMPLE STEPS MASSAGE THERAPISTS CAN USE TO IMPROVE THEIR FINANCIAL IQ" 1. Open your camera 2. Scan the code 3. Tap on notification 4. Learn! TAKEAWAY: When you pay yourself with intention, you can make better decisions about the direction of your business and your personal budget.