As you’ve built your business, you’ve probably gotten used to wearing multiple hats.
In the beginning, you’re basically the entire company. As a result, you may perceive the money you bring in as belonging to the business, not to you specifically.
In any case, it’s natural to want to plow anything you make back into the company — to “pyramid your profits” so you can build them higher. You may think you’ll get a better return on your investments that way, and you may very well be correct.
But if you’ve heard it once, you’ve heard it a hundred times before: If you want to build a successful business, you have to pay yourself first.
And there’s good reason for that. We entrepreneurs tend to pay ourselves last. We’re too willing to sacrifice, and not just monetarily. We’ll give up sleep, health, even sanity to make sure our businesses succeed. While this makes sense to some extent, you still need to eat and pay bills.
Admittedly, you might not be able to pay yourself a fair market wage at first. Generally, the experts recommend you plan for different levels of paying yourself.
Before you start making a profit, focus on just getting by. Later, as your business takes off, be sure to pay yourself a fair, competitive salary (the IRS requires it). It’s easy enough to check other businesses like yours to see how much that should be.
Reasons not to reinvest it all
You may still want to put some of your salary back into the business, but there are good reasons (besides having to pay bills) not to reinvest it all:
Anyone who lends you money will need to know how much the CEO salary is, among other things, and that it’s competitive.
Related to the above, it’s not much of a business if it can’t provide the CEO with a decent salary.
If you don’t get a decent return, it might be hard to maintain your interest in the business given how hard you have to work.
The higher the salary, the higher your social security check upon retirement.