5 Reasons Why Your Business Can't Afford to Pay You - And How To Change That
We’re in business to pay ourselves. After all, that is what separates a business from a hobby.
But unfortunately, many micro business owners aren’t able to do so. This post dives into five reasons why your business may not be able to pay you, and how to change that.
You’re not charging enough.
Pricing is one of the most challenging aspects of business. You want to make sure your price reflects the quality of your offer and is fair to your target audience, but many of us fail to price well. I’ve found that most women tend to underprice themselves. I was one of them, and it’s the biggest mistake I made when starting my business!
Whether you’re experiencing money blocks or aren’t sure how to price yourself, it’s important to work through whatever is holding you back as on point pricing is the foundation of a strong business.
There are many methods of determining your price, my favorite is reverse engineering.
The Fix: Reverse Engineer Your Pricing
1.) Determine how much you’d like to make per year.
2.) Determine your fixed expenses.
3.) Add the two together.
4.) Calculate your variable expenses based on this number.
5.) Factor in taxes, and add that to your earning and expenses number.
6.) Take this final number and divide it by how many offers you think you can sell per year. Keep in mind that some months may be slower than others.
Note: There is some back and forth as your variable expenses and taxes are based on your net income. So the more you increase net income, the more these numbers will increase. My Begin Your Business online course includes a Business Budget Excel template with instructions on how to use it.
You’re Procrasti-learning.
Many business owners feel that they need to be qualified to justify charging people money. While I agree that certain certificates and trainings are required for different fields, many of us use learning as a way to hide behind our insecurities.
If you’ve met the base requirements of your industry, you have clients, and you’re not able to pay yourself- STOP LEARNING.
Your main priority right now is earning an income because if you can’t afford to pay yourself, you won’t be able to afford to stay in business and help people.
The Fix: Budget
Focus on free webinars and make a list of all the paid classes you’d like to take, then add an item in your budget for professional development. Be sure to stay within that amount!
You’re not working in your zone of genius.
So you’re in business to make money, but does that mean you need to take on every project that comes your way? Absolutely not.
When you’re not working in your zone of genius or working with clients outside of your target market, you end up spending more time getting the job done. That leaves you with fewer hours to work on the projects you’re good at that you love and that make you the most money.
The Fix: Stick To Your Offers
Be rigid about what your business does and doesn’t do and be clear on your target market. You want to maximize your time so that it generates the biggest return- and maintains your sanity.
You’re overspending on things you don’t need.
There are necessary, non-negotiable expenses when being in business and then there are expenses that are helpful but not so necessary.
While it may be nice to have the latest equipment or while certain items may enhance your customer experience, if you’re overspending on these, you won’t be able to stay in business and continue helping people.
The Fix: Budget
Just like with procrasti-learning, set a budget on these bonus items and stick to it.
You haven’t calculated your taxes correctly.
A huge mistake business owners make when budgeting is not calculating their self-employed taxes correctly. Not only does this lead to a hefty payment at the end of the year, it could cause fines.
Self-employment taxes are double that of straight employment taxes because your business is responsible for the employer and the employee portion of taxes.
Employer Tax + Employee Tax = Self-Employment Taxes
Your taxes owed are based on your business’ net income BEFORE your owner’s draw.
Income - Expenses = Net Income
Then, multiply the net income by your tax rate. I highly recommend reaching out to your accountant to find out what your tax rate is as it’s a complicated figure based on your filing status, deductions, etc.
In the U.S., estimated self-employment taxes are paid quarterly. But since this is the government we’re talking about, quarters don’t fall on annual quarters (January, April, July, and October). Refer to this page on the IRS’ website for the most up-to-date quarterly tax deadlines.
The Fix: Plan Ahead
Figure how much your estimated payments will be and include the amounts in your budget. Always be sure to leave that money in your business bank account.
Bonus: You’re not marketing yourself.
Marketing may seem like an expensive, time consuming endeavor but the payoff is worth the investment. Marketing your offers allows people to find you, thus generates more income for your business. We cover a variety of marketing channels in Self-Employed School, as well as how to find the effective marketing plan that works for your business - without requiring a lot of time or money from you.
You deserve to pay yourself from your business. Be mindful of your budget and always review your Profit & Loss Statement monthly so you can stay on top of what is going in and coming out of your business.
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Just getting started in business and looking for a roadmap? Check out my Begin Your Business online course. We’ll cover everything from pricing to forming an LLC, assembling your team to getting your first clients, and everything in between.
Been around the business block and looking to grow? My Self-Employed School online course provides a deep dive on topics including website SEO and design, e-newsletters, social media, public relations, and more. It all culminates in creating an easy and effective marketing strategy for your business.
Hey there! I’m Meg:
LOVER OF CATS, ROLLER SKATING, AND VW BUGS
I also love business and share all kinds of tips and resources to help you grow yours.
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