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Are You Paying Yourself Enough?

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Paying yourself should be the easy part of running your own business. Yet while many struggle to work out exactly how much they should pay themselves, there are also plenty of others who are unable to rewards themselves with what they deserve.

Working Out Your Salary

First things first is working out how much you should give yourself. When you’re starting out often you can’t give yourself a top CEO salary but you do need to be covering your basics. So work out all of your outgoings – and maybe scale a few down – and check that they leave room for your pay. Don’t be modest and don’t be over-the-top.

Breaking even or even seeing a profit increase for a few months doesn’t mean you can start upping your salary significantly. You need to make sure your company is truly profitable and not benefiting from a short term boost in customers. If you do want to give yourself a bit more though, why not consider rewarding yourself with a bonus made up of a percentage of your profits that month?

After a long run of successful months, you can feel safe to start upping your pay to truly reflect the time and effort you’ve sunk into your business. But what if things have been going well, but you’re still struggling to make the cash you deserve? Your sales have been up every month yet breaking even never seems to get easier. What’s happening?

Review Your Cash Flow

One of the most common problems when it comes to rising sales with no rising income is late payments. It doesn’t matter how much product you’re shifting, if you’re not getting paid for it, it’s not helping. Businesses are more global nowadays and this isn’t just a problem in the US, UK companies are relying on small claims courts to get what they’re owed, while in Australia the government has had to step in with a Prompt Payment Protocol to tackle the issue.

In other words, whether your customers are domestic or international, actually getting paid for your services is an important step in paying yourself. This is why including a late payment clause in your contract is highly important. Include interest and penalties for when your client doesn’t pay up as this will not only encourage them to pay on time, but it’ll make sure you’re not out of pocket when they finally do.

You’ll most likely have some protection in your state, so be sure to research what legal means you can use to get what you’re owed.

Balance Your Books

If you’re not having cash flow problems, yet you’re still struggling to see your fortunes improve, it looks like you’re going to have to balance your books. Money is leaking out somewhere and you’re going to need to fix it. Take a long, detailed look on where all your money is going and try to trim the fat.

It doesn’t have to be one big cut either. By changing electricity provider, looking into free software alternatives, or renegotiating your office rent you can make small savings that can add up to bigger ones. It might even be worth looking into alternative sources of revenue. Got a spare desk no one’s using? Then rent it out to local freelancers for a bit of extra cash.

Finally, if you’re still struggling to make your way despite getting paid on time and cutting any waste, it’s time to re-think your business model. Is it actually sustainable? Are you charging enough? Is your company structure just not viable? It might be that you’re spreading the work too thin and need to cut back on staff or that you’re simply selling yourself too short.

In the end, you deserve to get paid a decent wage for the time, energy and ideas you pour into your business. Spend some of that time making sure that you do.

Making It To Medium: Managing Business Growth

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So much is written about business growth and the number of start-ups that fail in the early stages that it can be easy to underestimate the next biggest hurdle: moving from a small to a medium business. What are the challenges management face when an enterprise experiences rapid growth, whether that’s from increased sales and production or acquisitions?

According to a group of founders and senior managers of high growth companies surveyed by Forbes, the three issues faced over and over again as companies scale upwards are cash flow, capacity and culture. Each plays a vital role in ensuring the long-term success and liquidity of a growing business but to complicate matters, in certain situations they can be in direct competition with each other, as when the recruitment of new staff necessary to provide sufficient capacity clashes with a need to minimize overheads to maintain a pool of working capital.

What are the issues that owners and senior managers of small businesses face as they seek business growth and make the leap to becoming a medium sized company?

Cash Flow And Access To Funding

According to a group of founders and senior managers of high growth companies surveyed by Forbes, the three issues faced over and over again as companies scale upwards are cash flow, capacity and culture. Each plays a vital role in ensuring the long-term success and liquidity of a growing business but to complicate matters, in certain situations they can be in direct competition with each other, as when the recruitment of new staff necessary to provide sufficient capacity clashes with a need to minimize overheads to maintain a pool of working capital.

Expansion and working capital are the most common reasons for businesses to seek outside finance according to the UK Bond Network survey. A need for more working capital can indicate a cash flow crunch precipitated by coping with a sharp uptick in demand. A study of high growth small businesses by the LSE showed that although they seek funding for expansion and acquisitions more than other SMEs, they’re most likely to seek finance as a source of working capital.

Companies often need to finance expansion in head count, premises, production or marketing long before they will see returns and while waiting for existing invoices to be paid. This means that the so-called “funding valley of death”, where expenditure outstrips income, is an issue for established smaller companies looking to expand as well as bootstrapping start-ups. In the worst case scenario, this can result in a company either failing to grow to its potential or facing insolvency due to serious cash flow failures.

High growth businesses in the LSE study, which the university defines as a company that experiences 20% year on year growth, criticized banks for not understanding SME growth points and for being too slow in making funding decisions, which is particularly damaging when businesses are fueling expansion through acquisition.

Capacity

Growing businesses need to ensure that they have sufficient staff and space to facilitate growth – and founders need to be able and willing to step away from aspects of day to day management to become strategic leaders.

Despite making up only 1% of the business landscape, fast growing SMEs who had a turnover of £1 – 20m and a 20% year on year growth rate created 68% of new jobs between 2012 and 2013. A rapid growth in staff numbers brings its own challenges for business owners and directors.

One of these is the process of recruitment itself, particularly in sectors facing skills shortages. There’s a balancing act between employing enough staff to maintain capacity, offering the wages and benefits which attract top flight staff and maintaining a sustainable cash flow. While recruiting people who are at a more junior level in their careers and training them can provide a solution, this isn’t always suitable when someone needs to start their job able to lead or grow the company in a new direction.

A side-effect of a rapidly growing business can be that staff skills, workflow and management systems lag behind the realities of the workplace, potentially fomenting problems from staff disengagement to breakdowns in delivery.

Culture

“Company culture is generally formed fairly early on by founding members and key management personnel,” Matt Grebil, an Operations Director at rapidly growing small business, says in Forbes.

 “As you start to add new personalities, it can become a real challenge to assimilate all of these individuals and maintain the company culture.”

As something intangible, it can be easy for establishing and maintaining a suitable company culture to be bypassed in favor of seemingly more urgent priorities. This is particularly true when the original start-up had its own strong culture. However over time and as the company expands, this can either become diluted or simply not a good fit for the existing company, especially if growth is fueled by acquisitions.

The effect of mismanaged culture can be far-reaching. As well as putting off potential recruits, existing employees can become disengaged when they feel disconnected from company culture. And this leads to very real impacts on the bottom line, as employee engagement drives productivity and profitability. In one Gallup survey, the businesses which ranked well for employee engagement were twice as likely to succeed as those that didn’t.

Making it to medium is far from impossible, but founders and managers need to be aware of how cash flow, capacity and culture work together to navigate its challenges successfully.

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