[CFQ] Pay Yourself First - Oct 4 2005
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In this issue:
~ Pay Yourself First
~ Marketing Tip
~ Quote Of The Day
~ Today's Recommended Resource
~ Free Download
~ Tools and Resources
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"DON'T FORGET! - PAY YOURSELF FIRST!" - by Dr. Robert Sullivan
Every small business owner and entrepreneur assumes their venture
will succeed. This is a healthy, and necessary, attitude to mimic
for those of you contemplating starting a new business. But the
fact is most successful entrepreneurs have failed twice previously.
The successful entrepreneur views these failures as learning
experiences and an opportunity to succeed next time. But will there
be a next time for you?
Consider this true story. Like so many entrepreneurs, Richard's
first business started with a single customer. He had a regular job
but had been contacted by a company that wanted to purchase a few
hours of his time to assist in solving a problem for which he had
expertise. Richard took on the work. One "little" job lead to
another and soon Richard was spending a significant portion of his
spare time working as a consultant. The extra money was great.
Eventually it became possible to quit his job and start his own
company. Initially all his work came from the company that had
originally hired him.
Richard's business grew to accommodate increasing demands from his
single customer. This growth was made possible by returning all
profit back into his new company - Richard only kept the bare
minimum needed to meet his current expenses. Unfortunately, after a
couple of very successful years, Richard lost this major and first
customer. The loss was devastating and eventually the company was
forced into bankruptcy. Richard lost his company and had very
little to show for his previous hard work!
I guess we could say Richard was a victim of his own success.
Unfortunately, because of the very traits that can make an
entrepreneur successful, he or she will sometimes forget to plan
for possible failure. One of the biggest and potentially most
damaging errors is failing to pay yourself. Many small business
owners figure that later, when the business is making a profit,
they can take a salary. This can be a grave mistake in the event of
a business failure - you may just end up with nothing for your
efforts and, worse, be left in a position where it is not possible
to try again!
It is difficult to find a book in the small business genre that
even mentions paying yourself, let along give some advice about it.
Could it be that all those authors assume it's not worth mentioning
since a business owner does not need to be told to pay himself?
As our little story above shows, it does happen frequently. Don't
you do it! Do NOT make the mistake of putting every dollar of
profit back into your business.
You may prosper for a number of years and then be suddenly plunged
into bankruptcy through no fault of your own. If this happens, and
you have not planned for the eventuality, you may find yourself in
a very difficult financial position. Remember that you deserve to
be appropriately paid for your efforts. Pay yourself first.
Most small businesses are not initially profitable and this must be
taken into account in your planning activities. If your business
will be financed by others, ensure that you have added an
appropriate salary for yourself in the business plan.
If you are financing the business yourself, the situation is a
little different. You probably have assumed you will take no salary
until the business is profitable. But when profit is available,
it's important to immediately start paying yourself on a regular
basis -- just as if you were an employee.
How much should you pay yourself? There is no easy answer or magic
formula and it is difficult to give specific advice but some
general guidelines are worth noting.
If your business is equity financed, your salary should be formally
determined based on a formula agreed to by the equity lenders. As
an example, in a recent startup for which I assisted, the equity
investment was $200,000. The two owners agreed to a starting salary
of $3000/month until the business became profitable at which time
their salaries increased based on a percentage of gross profits.
The initial salary was based on the current monthly needs of the
two partners and was agreed to by the equity investors.
If your business is debt financed (by yourself or others), your
business or strategic plan should include your own salary and its
basis. Clearly, if you are using your own money to finance a new
business you probably won't initially take a salary. In this case
you should ensure that your savings and any other sources of income
will support you until you become profitable. However, as soon as
the business starts returning a profit, start paying yourself a
reasonable salary.
Strike a balance between growth considerations and your salary.
This will be different for each business but thoughtful planning
will allow you to determine an effective split.
We all plan for success but in the world of small business, failure
is all too possible, and for reasons beyond your control. So plan
for both success and failure. Don't return every dollar to the
business. Keep some for #1, yourself!
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Marketing Tip
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Continue to add more valuable content to your site. One way to do
this is to add an article directory to your site. Allowing your
website visitors to add their articles will create good content for
other visitors and it will help get their article noticed.
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Quote Of The Day
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"You must go after your wish. As soon as you start to pursue a
dream, your life wakes up and everything has meaning."
- Barbara Sher
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Today's Recommended Resource
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Search Automator
If you do any kind of Internet research, you will LOVE this
software.
Imagine doing all your research from one location -- WITHOUT
having to enter and re-enter your keywords every time!
--> Search Automator
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Free Download
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Selling Online Secrets E-report
There are only 5 things you really need to concentrate on
to have a successful online business and yet, thousands
of people do it wrong because they don't understand the
fundamentals of how to make money online. (.PDf)
==> Selling Online Secrets (.PDF)
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Tools and Resources
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As always, drop by the website for additional tools
and resources to assist in your Internet Marketing
success!
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