Your business exists to support you and your life, but if your cash flow isn’t on point, you’ll have a very hard time managing to pay yourself what you need. Don’t worry, this is a common cash flow mistake a lot of entrepreneurs make, so don’t feel like you did something wrong — because you didn’t!
But first… In this post, we talked about what to do when you don’t have money in your account even though you're being paid and how to address this cash flow mistake. I’d recommend catching up because it’s helpful information!
Like I mentioned in that post, there could also be a cash flow issue when it comes to wanting to pay yourself, which we’re going to discuss now. I’m sure you’re thrilled (cash flow is everyone’s favorite topic).
As the joke goes, you can’t make everyone happy, you’re not Prantl’s Burnt Almond Torte (If You Know, You Know). But you can make everyone happy when it comes to business and money. Yes, we’re making the seemingly impossible possible today!
Cash Flow: Put On Your Oxygen Mask Before Helping Others
You’re in business to make a profit and take money home. This isn’t just a hobby. And as much as it would be fantastic to pay yourself a lot of money, there are responsibilities and obligations to others that you have to be aware of so you don’t overdraw your account in your determination of taking a certain amount for yourself.
For example, let’s say you want to pay yourself $2,000 and you’re going full Tom Petty because you won’t back down, not about this. So, you take money, then a week later can’t pay your contractors because you already pulled down $2,000 from the business.
It all goes back to making sure you can track your money and noting if there’s a mismatch between what’s coming in and what you need to make sure is available to go out. In this example, you didn’t have a clear projection of what expenses and responsibilities you had coming up to know whether $2,000 was a figure your business could support.
That’s why it’s so important to have a high-level lay of the land. It’s the financial equivalent of putting your oxygen mask on before helping others. You may feel like you’re pushing your needs to the bottom, but you’re actually ensuring you are making reasonable responsible choices. And that is protecting yourself. There’s nothing worse than asking a vendor to change a payment date. Or having to borrow money to cover an expense.
How to Pay Yourself, Pay Others, and Make Everyone Happy
To have the cash flow to pay yourself as well as the rest of your obligations, it goes back to a bigger issue of needing to reserve money for certain expenses in your business. Having a separate checking account for separate activities (like I mentioned in this post) can help you with that.
If you can’t support the number you want to take home, start by finding the number your business can support right now. To find that number, look at your cash flow to see what you have available to you in your checking account. When you see what the amount is that you’re able to sustain right now, you can work towards your goal number.
Levers You Can Pull to Get Your Cash Flow Jackpot
Let’s say your goal is $2,000, but you can’t draw down that amount all at once. Look for places where you have a positive cash flow after expenses and move some of that money to a separate reserve account. And to get to that positive cash flow state, it comes down to reducing expenses or increasing income.
So you say, “Okay I need more clients” or “I need to look long and hard at my expenses and I can cut out some things I don’t need. Maybe I don’t need that VA, I can take on some tasks myself or for the next 3 months, I’ll write my own copy.”
There are levers you can pull if you’re trying to get to a positive cash flow amount that you pay yourself, but it all starts by having the data clearly laid out in front of you so you can make decisions from an informed, confident place.
***
Eventually, you will get your business to the place where you can pull down the money you need to support yourself and your family and you are confident in doing so because you know you have money to do it all.
Further, you’ll be able to get control of your accounting and have a clear picture of your numbers so you can make decisions in your business and know that your cash flow and finances are supporting you and your dreams!
If this is hitting close to home, you may also be guilty of the other two money blunders I see almost every entrepreneur doing. Don’t worry - I’ll show you exactly how to correct these mistakes so you can feel confident when it comes to your numbers and have peace of mind that your numbers are in order so you can get back to doing what you do best!
