When Should You Start Paying Yourself
The Amplified Impact Podcast
October 10th, 2023
So you started a business, and things are going great. You’re killing it… you’re inevitably going to ask yourself “When should I start paying myself?”
When you’ve created a sustainable business, you’re ensuring you can afford to pay yourself fairly. This not only benefits you, but also lays the foundation for future growth and the ability to step back. So here are the steps I took when decided it was time to start paying myself:
Establish financial stability for yourself first.
Determine your ideal profit margin.
Pay yourself the difference to reach that margin.
Aim to pay yourself market rate as soon as possible.
TWEETABLE QUOTE:
“If you’re running too profitable, then you need to be reinvesting that to bring it back down to that margin. That’s how you create this flywheel, this sustainable engine that just continues to grow upon itself.”- Anthony Vicino
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Episode Transcript:
Anthony Vicino:
Welcome to Amplified Impact. This is the podcast where we talk about how to build better businesses, invest in real estate, and how to hyper focus on the things that matter most so that we can maximize our return on life. I’m your host, Anthony Vasino, and I’ve written a few bestselling books, built a few seven and eight figure businesses, and currently manage a $70 million real estate portfolio. But the thing I’m most proud of is that I managed to turn my ADHD into a superpower. This podcast is all about the story, stories, lessons, and strategies I wish I had learned sooner in the pursuit of living a life beyond the apex. I’m psyched to have you here. Now let’s go make some amplified impact. So I got asked a killer question the other day from a young scrappy dude who’s crushing it right now with his window wash.
Anthony Vicino:
Actually, I don’t know. Do they wash window? I don’t think he’s a window washing company. He is a power washing company. So they power wash houses and commercial residences. And that is a fantastic business. By the way, when I talk about my first business being a window washing company, what I don’t talk so much about is the fact that power washing made up a very large percentage of our revenues. It is such a good way to make easy money. You just go out and buy a power washer for like, $1,000 and then just go around cleaning people’s houses, clean their roofs, clean their sidewalks.
Anthony Vicino:
And if you can get commercial assignments on commercial buildings, you can make a ton of money doing this with very, very little effort, very little training. So that’s a hack right there. Anyway, this kid, he’s crushing it. I don’t remember what his revenue numbers are, but they’re more than you would expect for a young 20 year old dude with like two or three workers and power washers. They’re crushing it. But his question is, when should he start paying himself? Specifically? He’s like, right now, I’m just kind of in reinvest mode. I’m putting everything back into the company and growing, and I’m just trying to figure out when should I start taking my own pay? And this is a really good question. It’s hard to answer depending on the type of business, but I’ll share how I think about this.
Anthony Vicino:
Number one, as the CEO, the founder of a company, you have two primary responsibilities. Number one, to yourself and your family, to your community, to your life. Right. You need money to sustain that. If you are not taken care of, you are not going to be in a position where you can therefore take care of the number two thing on the list, which is your business, your employees or customers, right? So if you are struggling for money and you can’t get by and you’re making questionable decisions because every day is filled with stress because you don’t know how you’re going to get by your business is going to struggle. Okay, that’s just a truth. This is why I recommend usually not starting a business until not jumping fully into the business at least full time and leaving your primary income stream until you are making enough money to comfortably be able to pay yourself. From that side, hustle and know that you’re going to be able to sustain it or until you have enough in reserves that you can go a year or two without having to take any money anyways.
Anthony Vicino:
I think you need to pay yourself sooner than later and as soon as possible is the ideal. In fact, I believe from day one, if you can manage it in a business like this where it’s power washing, it’s very service oriented and you’re making a lot of cash flow, you should be paying yourself market rate almost from day one. And the way that you do this is that you determine, well you might not be able to pay yourself the full market rate at the beginning, right? Like you might just not have the margins or the revenue flow. But what you can do is start by figuring out what is your ideal margin that you’re trying to generate on this business. In the window washing industry, it’s pretty typical to be doing between 30 and 40% margin. And so that is what we targeted. And so what I was doing in the beginning is saying, okay, if our margin is above that, then I’m going to take whatever excess cash is in the business to bring it down to that margin. So in the beginning maybe you only have a little bit of money, you can’t pay yourself the full market rate, but your margins are better than maybe you’re at like 40% margin.
Anthony Vicino:
So now you’re paying yourself the 10% difference to bring yourself down to 30% and whatever that 10% ended up being. That’s your salary. And your goal is to get to the point where you’re paying yourself the full market rate that you would be paying if you were to hire that role out. And you need to get to that place as soon as possible because if you can’t get to that place then you’ll never be able to step out of the business. Understand that, right? Like if you can never get to the point where you’re paying yourself full market rate and the business’s profitability is dependent on you working for free or working for sub market rate, you will never be able to step out of that business because nobody else is going to be willing to come in and do the work for less than market rate. And you’re never going to be able to sell the business for what it’s truly worth because nobody else because you’re tied into the business. Right? And they know they’re not going to be able to get an employee to come and do that. So you need to be able to pay yourself that market rate.
Anthony Vicino:
And then when you get to that point, you can replace yourself with somebody else and then take a step back again. And if the margin is over that target, pay yourself that difference. That now becomes your new salary for whatever the thing is that you’re doing. But this is a really powerful way that I found to make sure that you’re getting paid from the beginning, make sure that you’re targeting the correct margins. Because I think that a lot of times when you’re first starting your business, you’re just trying to make money and you’re not really concerned about the margin, but you need to go into it and ask and be saying, this is how much I expect to be profiting. Because until you have that budget and that plan, everything else is like all wishy washy. And it’s like, are you spending too much over here? Are you making enough over here? You don’t really know because you don’t have that target that is serving as the North Star guiding light. And so you need to establish, this is how profitable I expect to run this company.
Anthony Vicino:
That needs to then become the standard by which you do everything within the business. And then as soon as you’re above that, that’s not good either, right? Especially if you’re in growth mode. If you’re running too profitable, then you need to be reinvesting that to bring it back down to that margin. That’s how you create this flywheel, this sustainable engine that just continues to grow upon itself. So wanted to share that with you. If you’re in that position where you’re trying to figure out, when do I pay myself? This is a model of doing it. And generally I think the better you can start taking money out of your business, the better. Don’t prolong it.
Anthony Vicino:
You’re not doing yourself any favors, I can guarantee it. So hope that brings you guys some value. I’ll catch you guys back around these parts tomorrow, but until then, stay hyper focused, my friends. Hey, what’s up, guys? Real quick. I’ve been working really hard to amplify my social media presence recently, and recently just started diving into Instagram Gram, which has actually been a ton of fun. It’s a cool platform for connecting with y’all in just a more personal way. So if we aren’t already connected on Instagram, let’s change that. You can find me at the Anthony Vasino, so go connect.
Anthony Vicino:
Let’s do it. All right, let’s get to the show.
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