They say you need to be crazy to go into business... here's the proof.
Business owners wear many hats: boss, salesperson, owner, manager, cheerleader, visionary, psychologist, counsellor, quasi- parent. But they perform two broad roles: a director actively working in the business, and a shareholder seeking a return on their investment.
You and your business are two separate legal entities, often with wildly differing objectives, so it’s important to delineate the two. Too often, the owner is the business. It’s too easy to get caught up in the day-to-day doing, and look through rose-coloured glasses at this creation you’ve nurtured and developed. That’s why at certain times it’s vital to don your shareholder hat to look objectively at your business.
Are you happy with its performance? Is it returning you a profit? Is it paying you sufficient dividends? This removed, calculated thinking is critical to accurately assess performance, and to plan strategically to improve it.
Making just enough to survive
Most business owners make enough money to survive, and no more. The business owner is the last person to get paid after wages, rent, suppliers, bills and tax. The owner takes whatever is left. No wonder it’s so difficult to make a comfortable living, let alone get ahead.
The owner supports their business at the expense of their lifestyle, when it should be the other way around: your business exists to support your lifestyle.
If you don’t have a clear idea of what you want to achieve, subconsciously you’ll simply do enough to get by. That may be fine for most, but if you want to take things to the next level you need a stretch target; otherwise complacency seeps in, and you end up treading water.
How to separate yourself from your business
The best way to separate yourself from your business is to pay yourself a wage in addition to taking profit as a shareholder.
This forces you to find the extra profit you need to give yourself the lifestyle you got into business for in the first place. Treat your wage, and any profit distribution, like any other expense. You have to pay rent, pay suppliers and pay your team members. And you have to pay yourself as well.
And don’t give me this “I don’t pay myself a wage for the tax benefits” garbage. Don’t focus on tax outcomes. Always focus on your primary activity, which is building a self-sufficient business. Ask any good accountant about a tax-effective way to pay a director’s salary/ package (I know a few).
Take it a step further and pay yourself more each year. This will force you to continually look for revenue growth. It’s a frightening idea for many owners, but if you don’t the tendency to simply get by will be too great.
In addition to taking wages, you should also draw a profit distribution. Just as a shareholder of any publicly listed company demands dividends, you should demand them from your business.
Force your business to support your lifestyle – not the other way around.
Learn how to Have your cake and sell it too.
Contact Jason on (03) 8888 4000 or via email, or visit thepractice.com.au.