Paying yourself as a small business owner shouldn’t be put on the back burner. After all, you are the most dedicated employee and most likely have regular bills each month. This leaves you questioning how to take money out of your business.
Before you can pinpoint how money should be withdrawn, you need to analyze your personal finances to determine the amount you need. In addition, you should look at your business’s financial health and cash flow to determine what your agency can reasonably afford.
In this article, we will go over the importance of paying yourself as a small business owner, how to determine a reasonable compensation structure, strategies for balancing personal and business finances, and how to keep long-term goals in mind.
The Importance of Paying Yourself as a Small Business Owner
It’s not uncommon for small business owners, especially travel and tourism agency owners, to prioritize reinvesting profits into the business rather than paying themselves. Reinvesting a couple hundred dollars each month can give you the cash flow to add more employees, expand your agency offerings, and sustainably grow your company, but what’s the trade-off?
Usually foregoing paying yourself does come with consequences, such as personal financial instability and burnout. You can be left working endless hours with nothing in your personal checking account for your hard work. This might leave you feeling defeated and with a poor outlook toward your business.
Your personal finance situation needs to remain a priority when it comes to planning business expenses. Once your compensation is factored into expenses each month, you can find other areas to save, such as unused subscriptions.
Although it might seem like a good idea to purchase more assets, you need to keep the big picture in mind. Finding a balanced approach that includes taking care of personal financial needs, while still ensuring the growth and sustainability of your business is essential.
Setting a Reasonable Salary and Compensation Structure
How much should you pay yourself? There are a few different factors that you should consider. First, what kind of service are you providing in your agency? Your compensation needs to be reasonable. You shouldn’t pay yourself $100/hour for filing paperwork and answering two phone calls a day. Conducting market research and benchmarking can help you understand industry standards and competitive compensation. Keep in mind the potential salary differences between public and private companies.
Next, you want to think about your personal financial needs. What expenses do you need to cover each month? Is it a car payment, a personal loan, or other debt, like a mortgage? What about taxes, family expenses, or a credit card bill?
Deciding the expenses you can expect to pay each month out of personal accounts can give you a baseline salary from your business. Be sure you factor in the success of your agency. You don’t want to worry about bouncing a payroll because you don’t have enough cash on hand.
The good news about establishing regular salary transactions is that you can always change the amount based on your revenue levels. If the financial statements of your business begin to show steady growth and profitability, you can increase your salary or pay yourself a bonus.
When it comes to determining a reasonable service rate, it’s important that you consult with a financial advisor instead of relying on salary calculators. You want to be sure you are following the proper government processes for setting up and running your payroll.
Strategies for Managing Personal Finances Alongside Business Finances
Effective control over your personal and business finances can be a delicate balancing act. A majority of your time might be dedicated to your travel agency managing operations, but you don’t want to put your personal financial situation on pause.
Prioritizing a personal finance budget can help you stay on track with your success. How much should you be investing each month? Are you planning on taking any vacations or a trip in the next few months? Your budget will outline the capital you need to pay for regular bills, giving you the ability to withdraw the right amounts of money from your business.
When you take a personal salary from your business, it’s important that you have clear account separation. At a minimum, you should have separate business and personal checking accounts. This helps you maintain proper legal separation and can also make keeping detailed financial records easy.
If you feel overwhelmed with manually tracking your budget and business finances, consider using the assistance of technology. Technology and financial tools can help you streamline the financial management process and effectively manage your situation. Software programs to consider include QuickBooks and Zoho Books.
Long-Term Wealth-Building Options for Small Travel Agency Owners
One of your top priorities as a business owner might be to build long-term wealth. This includes saving enough for retirement, investing extra funds, and acquiring real estate. As a small business owner, these strategies need to be a top priority.
You want to consider the benefits of each option, highlighting their potential to secure a stable financial future. Look at how each investment diversifies your portfolio and gets you one step closer to your long-term financial goals.
As a busy travel agent, you might also want to consider seeking professional help to track investments. A financial expert can uncover the right strategies for your situation, suggest areas of improvement, and manage your overall financial situation.
Conclusion
Paying yourself as a small business owner in the travel agency industry is beneficial beyond just receiving a regular paycheck. In fact, you can reach your long-term growth goals, improve your personal financial situation, and enjoy an extra business tax deduction.
It’s important that you establish a reasonable salary that’s based on data found within your industry and meets your financial needs. Running a small business shouldn’t mean sacrificing your personal financial health.
