Paying yourself a Salary
Artists are Small business owners.
We all know it and we as an artistic community often reject the fact that as artists, you are small business owners, Self-employed and dependent on customers. These are difficult realities to face when we cling to an idea of creating for the sake of creating and art being about expression and not money. These ideals that many of us grow up with, experience in our communities of creatives and see in our media and history however aren’t often rooted. We all have bills to pay, housing, food, materials, and every other thing under the sun that need to be covered by some means or method. Many artists, have day jobs, many are working poor, however we all need income to allow us the means to survive and to create.
With that we want to take a moment to look at the business side as we so often do here on department45.eu. In this article I specifically want to talk about making a clear decision to pay yourself a salary from your business, as a step in your small business journey. Why it’s important, how to do it and what things to think about when paying yourself a salary.
Salary and Paying yourself.
When solo operating or self-employed in our creative bubble, the idea of paying a salary might seem like unnecessary or a silly thing to need to do. All the money you make and spend are all right here in front of you. All the income you make goes into the same account and goes out all through your own hands so why would adding to this complexity be important.
First let’s define what we mean by a salary. I am considering a specific payment or amount moved from the business account to your private account on a fixed interval, weekly or monthly. This salary should be something the business can afford but should be paid as a key liability of the business to you’re the artist for your time just as the rent is paid to the bank/landlord. There are good reasons to pay yourself, out of your business, so let’s look at them.
Disclaimer:
Please note that for most of this article when I mean salary, I mean to have a payment specific to yourself, representing the business paying you. As a self-employed person with your own company, depending on the company structure you won’t need to pay yourself, or pay income taxes of that money. This is not meant as an account salary but more as a goal and targets payment to cover your time and effort, as well as separating the business from personal economy. Be mindful of your company structure, your local legal framework, and if in doubt always speak to an accountant.
Motivation and Reward
Many small business owners, across all business, not just creatives, tend to leave all the money a business makes in the business accounts. The need to reinvest in the company for materials, product, or other expenses, being a constant source or concern and worry for the business owner. And in many cases studies show that most new businesses, don’t make a measurable income to the owner in the first year to 18 months. As any cashflow in the business is needed or invested into growth. While growth is important, and a business needed to have the funds to function pay its bills and grow to the pace desired. It’s also important to remember why we have a business in its core. To pay bills and support ourselves, our families, or our personal goals.
That’s why to this end we see the salary being something a business pays to you the business owner on a regular basis being a reflection on this personal side of being a small business owner. Pulling value from the company to ensure that your work is valued, your bills are paid and that you’re able to see the value in your own effort is immensely rewarding. The fact that you can see more and more of your personal bills and expenses be paid by your business efforts, can be a great motivator to draw from as you continue to put your time into the business.
Target and Goals
Many new businesses will struggle with cashflow and resources in their first month’s days and even years. The ability to pay yourself a salary we understand may not be possible in the first timeframe, and the need to continue to grow the business, can.
outweigh the ability to have a standing salary expectation. The need of the business however shouldn’t stop us as business owners from having goals, including financial goals. One of these financial goals could be to pay yourself a salary as soon as it’s possible.
Setting an amount for a weekly or monthly payment to yourself from the company funds makes a very important and impressive milestone. One that can be set by yourself, and when achieved will give a great positive measure of the strength of your business and reflection of the work you’ve put into it. Creating a salary goal should be on the list of business goals, even if the salary is modest to begin with.
Snot for sig og Skæg for sig.
There is a common trend for many small businesses especially new ones or small creative businesses to have no real separation between the finances of the business and the private. The incomes and payments, for personal bills and business come from all accounts making it difficult to separate and organize. In Danish we have a saying, “snot for sig og skæg for sig”. It means to keep your snot and your beard separate or to keep your things separate.
Having a good separation of your business costs, incomes, and expenses clearly apart from your personal finances is a wonderful thing when you get it organized. To be able to with a simple look see both how your business is performing to overview your costs and see how your income is from the business. Will always help you make better decisions and understand the overall health of your operations. The same goes for the personal economy, without having to consider business expenses, or how much money is coming in or wondering if you can spend the rest of this money or is there an incoming business expense.
Separating the two economies will help you in endless ways and in that separation of business and personal finances, paying yourself a salary from the business account to the personal account is going to be the way we keep our snot out of our beards.
Setting the Salary
We know now why setting a salary goal, and paying ourselves a salary from the business to our private accounts is important. The question now comes to what salary should we set. What amount or math should we create that sets the right salary and expectation.
The first key element is to ensure that your company can afford a salary. If you have the room in your company’s budget to pay a reoccurring salary figure, then do so. Set the value based on what your company can afford initially. This will be the most sustainable value and will be in line with your business’s performance.
Secondly if the values vary or if your business needs as much capital in it to reinvest in the business, then look for a simple benchmark. This could be paying yourself, minimum wage in your region or location. That would be representative of paying yourself the same as any job and is a value that is understood, generally affordable to the companies that do so and is a good benchmark and goal. Additionally, if you have a good understanding of your own personal economy and expenses, taking that starting point to set the salary by is also possible. By knowing the minimum amount, you need to cover your personal expenses then you can set that as the goal to pull out of the company monthly based on covering the needs of own situation.
All these suggestions are starting points and should be seen as dynamic. The wonderful thing in being self-employed is you have the full control and can set this salary monthly or as a percentage of revenue that month. It doesn’t really matter the key message here is to ensure that you as a business owner, creative and driving force of this business see some direct value from your work and see benefit as soon as possible. As that benefit will drive you to continue your growth and sustain your personal situation.
Summary
Paying yourself a salary from your small business, should be a goal that all creative and small business owners set for themselves, as a clear reward and motivation for the work you are putting into this. With a clear separation between your business and personal economies, will help make the overall financial situation easier to see and give a better sense of financial control. Setting the salary to some affordable and specific value is a task that can be adjusted and explored over time but it’s one that we recommend strongly as a way to set a goal and milestone for your company’s growth and progress.
If you need help to review your finances or to help get to the stage of setting yourself a salary goal, please reach out to us by email timh@department45.eu, on our website (www.department45.eu) or on our Instagram where we will be happy to work with you on setting and achieving your goals.
Thank you for your time!
Tim H. Lead Consultant.
