One of the questions people ask most often is - how should I pay myself? Starting a photography business has many advantages - among them is the fact that compared to many other businesses, the overhead and barriers to entry are very low.
That's great because it means that if you're smart - and run your business well - you can be profitable much quicker compared to businesses that require large staffs and inventory (like a restaurant).
In fact, the average small business owner takes 3 years before they ever draw a paycheck. Fortunately, if you run your business with little or no debt, and manage your cash well, this doesn't have to be true for you.
At the same time, it also presents challenges. It can be hard to know exactly how to pay yourself, and when. Generally, there are two ways that photographers tend to pay themselves, and I'll talk a little about both.
Most photographers, especially those who are currently working another full or part-time job, default to paying themselves from their "profit" or "net." What I mean is, they book a job, they pay their expenses (album, second shooter, etc), and they put the rest in their checking account and consider themselves paid.
For a lot of people, this works in the beginning. Although there are some problems with this method - the biggest is this: wedding photography (especially) is very seasonal. Paying yourself the net from your events causes you to have windfalls during wedding season - but a drought during your slow periods. It makes it much harder to run your business with a budget in mind, and manage your cash flow and expenses (especially if those expenses end up being year-round, like a lease, insurance, etc).
PAY YOURSELF A SALARY
A better option (and the way I am paid by my business), is to pay yourself a salary. This is harder, and requires you to project cash flow - and then manage it well. It takes a system to track your expenses and revenue - but it allows you to plan your life based on a budgeted salary. You give yourself a paycheck every week, or month, or whatever.
It's harder because you don't always know how much you're going to make. You don't always know how many weddings you're going to shoot, so you don't always know what your revenue is going to be. While this is true, I don't necessarily think it matters - I think it's a great opportunity to be disciplined, and develop habits for the long-run.
So, how do you start yourself out right, and pay yourself a salary? Here's a few tips.
1. Assuming you have a grip on your business expenses from the beginning, decide to pay yourself a salary from your first wedding. It's January so this is a good place to start.
2. Knowing what your business needs to pay you, figure out your pricing based on your expenses and your salary. Will you make this salary the first year? Probably not. That's okay.
3. Take a look at what you currently have on the books, and determine the salary you can pay yourself for the year. Remember to factor in your income and self-employment taxes.
4. Divide that out by 12 (or 26, or 52 depending on how often you want to get paid). I recommend paying yourself monthly to start.
5. Commit to paying yourself - with a check from your business account to your personal account - from the beginning. Some banks offer free, or very inexpensive payroll solutions if you direct deposit with them. You set up the numbers and every pay period - they do all the work (including transferring and paying the appropriate taxes).
6. When you book more weddings, the net from those allows you to give yourself a raise until you reach your salary goal.
7. Once you've met your salary goal, the additional income is business profit. You can choose to reinvest it in the business, or give yourself a bonus.
The major benefit here is that you're able to really manage and budget your cash flow. It gets you in the habit of managing your business as a business - and not as a personal slush fund.
Tell me what you think. How do you handle paying yourself? Leave a comment below!