It is important to keep business and personal money separate.
Running your own business can be exciting, but figuring out how and how much to pay yourself is often tough, especially when you’re just starting out.
Palesa Mabasa, business development head at FNB, says it is important to find the right balance between rewarding yourself and making sure your business stays strong.
“The first step is knowing the minimum amount required for you as an owner to meet your living expenses,” she said.
“This is vital because if the business is the only form of income you are receiving, you need to be able to ensure business revenues that support this.”
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Salary as an entrepreneur
She says a road to full self-employment begins with a side hustle that becomes one’s main hustle.
“When the side hustle makes the money, you would earn as a salary consistently,” adds Mabasa.
“Take the owner of an events company, for example. Landing your first big job is a great feeling, and it might be tempting to take a large payout.
“But if you stick to a modest salary and leave most of the money in the business, you’ll be ready when something big comes up. If you’ve saved up some money in the business, you can jump on opportunities and put on a great event without worrying about where the cash will come from.”
Savings for entrepreneurs
Mabasa highlights that savings in a business help entrepreneurs pay the bills and keep the business going.
“Banks and investors also like to see that you’re saving for the future, not just spending everything right away. Reinvesting in the business, showing commitment.”
She emphasises that having money set aside means you can:
- Navigate low and peak business cycles more proactively.
- Take advantage of opportunities like investing in new systems, software, or tools.
- Being able to raise funding for your business because banks and investors see a business with consistent cash flows and a healthy balance sheet.
Separate business and personal money
Mabasa says it is very important to keep business and personal money separate.
“Buying a van to move equipment and deliver stock makes sense for the business, but using company money for a holiday doesn’t,” she says.
“Pay yourself enough for your needs, but don’t dip into business funds for personal treats.”
She has noticed that many entrepreneurs don’t pay themselves at first, relying on savings or family support.
“As things pick up, a good rule is to pay yourself somewhere between 2% and 20% of what the business brings in, depending on your type of business and if there is debt in the business. You may need to prioritise debt repayment instead of paying yourself more.”
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Warning
Mabasa adds that whether an entrepreneur takes a regular salary or pays themselves from profits, they need to understand how it affects their taxes.
“If you have business partners, agree on pay upfront and put it in writing.
“Finally, plan how you pay yourself as part of your business strategy — not just whatever’s left at the end of the month. If you pay yourself too little, you could burn out.
“If you take too much, you could hurt the business. The best approach is to pay yourself what you really need, while saving enough to be ready for the next big opportunity.”
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