Business Plan Pro tip: Don’t forget to pay yourself!

money jarWhile it’s tempting to improve the projected profits in your business plan by listing the owner’s payment as dividends in the Cash Flow table, it also means that these payments may exist only as that – numbers in a business plan, not money in the bank to pay your mortgage, buy groceries, etc.

Would you accept a job offer that listed your pay as “to be determined”?

If you’re serious about your business, and about your own efforts, don’t forget to pay yourself for your work. Put your expected salary in the Personnel table, and see what this does to your profits and, more importantly, your cash balance. If you are counting on that income to support yourself so you can keep running this new business, it needs to be in the financials, just like a regular employee’s would be.

Note also that doing this feeds into the automatic calculation of “Payroll taxes” in the Profit and Loss. As a sole proprietor you will end up paying something similar to employer payroll taxes at the end of the year when you do your taxes, because you will have to pay a self-employment tax, so it’s a good idea to take that into account in your plan.

Your accountant may have you listing these items differently for tax purposes; that’s okay. Remember that this is planning, not accounting, and we’re thinking in broad terms, trying to estimate the future. Shouldn’t getting paid be part of your business future?

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