[00:00:00] Fiona Johnston
We've made a lot of progress as a society in many of the areas that we needed to in the last few hundred years. But one thing that has not changed enough is money. If we want to be able to tip the scales towards the favor of marginalized people, we need to understand the secrets to making money in small business.
[00:00:20] The more we talk about money and the secrets that usually stay at the golf club, the more likely we are to be able to make money. My mission is to get more money into the hands of good people, specifically good business people like you. This is Money Secrets, the place to learn about the money secrets of successful small business owners.
Because I believe small business can change the world. And in order to do that, we need to be making a lot of money. Let's go.
[00:00:51] This podcast episode was recorded on the lands of the Wurundjeri people of the Kulin nation. And I'd like to acknowledge them as the traditional owners and custodians of this land and water that I live. Work and play on. I'd like to pay respects to elders both past and present, and note that sovereignty has never been seeded.
This always was and always will be. Aboriginal and Torres Strait Islander land.
[00:01:19] Have you been told that you shouldn't pay yourself for the first two years in business? This is one of those myths that really grinds my gears. So this is something that I hear lots of people talk about on Instagram or LinkedIn or wherever it is that they're giving advice to other business owners.
[00:01:39] This idea that you don't pay yourself for the first two years. Let's break it down. Firstly, starting with privilege. So I think a lot of people that I hear talking about the fact that they have not paid themselves a salary for two years or for the first 10 years of their business, they didn't pay themselves a proper salary or whatever it is.
[00:02:01] There is so much inherent privilege in that sentence that I think is usually not addressed by the person giving that advice. So that's the first thing to consider is that the person who is telling you that they didn't pay themselves for the first 2, 4, or 10 years or whatever it is in their business, has some level of financial privilege.
[00:02:22] It might be that they have significant savings, it might be that they have a husband, a wife, or a partner who is financially able to sustain them without earning an income from their business. It might be that they're independently wealthy. It might be that they've just come out of a corporate job working for a fossil fuel company, earning a huge amount of money and therefore have lots of money in the bank.
[00:02:46] So there are many, many, many reasons why. Somebody might not need to pay themselves from their business for the first couple of years. There's also a lot of intersectional privilege there in that. Say, for example, you are living in the country that you were born in, you are going to have so much more of a safety net than somebody who is living in a country that they didn't grow up in, or weren't born in.
[00:03:12] So people who are migrants, or refugees, or asylum seekers that come to a new country like Australia, They simply don't have the safety net, the security, the networks, the contacts, the family, the friends to fall back on if their business is not able to pay them in those first couple of years. I also want to talk about the privilege that is having a partner in the first place.
[00:03:35] So, for myself, I am a solo person in business and I'm solo in life. I do have the privilege of having my family and friends around me, which means I know that I'll never be in financial distress because I do have amazing friends and family around me. But I do not have the partner salary that a lot of business owners do.
[00:03:57] I don't have anybody else contributing to my mortgage. It's just me and Flynn. You might actually be able to hear him snoring next to me. Apologies. Flynn is my dog and at home it's just Flynn and I. So Flynn doesn't actually do much to pay the mortgage. So yeah, I don't have that financial privilege of being partnered.
[00:04:17] But I do have the privilege of living in the same country that I was born in. I have the privilege of the family and friends and networks around me. I have the privilege of a university degree and higher than university degree study. And I also have the privilege, which a lot of us are scared to say out loud, which is that I have white privilege.
[00:04:39] I wish it wasn't that way, but that is something that we always need to consider when we are thinking about telling somebody else whether they should or shouldn't be paying themselves from their business. I hope I've addressed that in a way that's covered lots of different scenarios there. So, what I'm trying to say is that everybody has very different situations and circumstances.
[00:05:02] And one business owner may not need to pay themselves a salary for a couple of years or ever. And that might mean that they're able to invest more into their business and grow it faster. There's also other reasons why paying yourself a wage is a really good idea. So we can start with the people like me who need to be making a living from their business.
[00:05:24] So there really is no Question about whether or not my business is paying me a wage. I need a wage. Peach is my full time business, has been for a very long time. And if you are working full time in your business, you need to be paying yourself a salary. Unless you have that kind of financial or partner privilege that I mentioned before.
[00:05:45] So here are some reasons why I believe that paying yourself from your business, regardless of your circumstances, is really good for your business. Now, I'm going to go for a little analogy. Let's hope it works in the podcasting format. So, for those of you who love indoor plants, like me, I'm currently surrounded by about 30 plants in my lounge room.
[00:06:07] There is a plant called Fiddle Leaf Fig. Most indoor gardeners will have heard of this beautiful plant. It is actually supposed to exist in a rainforest. When you see them in the wild, they are huge trees. That exist in, yeah, big rainforests. I think they hail from South America. That may or may not be correct.
[00:06:28] What is happening when we try to have a fiddle leaf fig inside the house is that it is not in the environment that it is used to. So, I'm going to take the analogy a step further and then I'm going to come back to the fiddle leaf fig and then I'm going to try to pull that back to why this means or what, how this relates to you paying yourself a wage or a salary from your business.
[00:06:52] So they did an experiment, I don't know who they was, it's one of those stories I read a long time ago. They did an experiment where they created a dome. So imagine a whole bunch of trees with the perfect amount of sunlight and water. The perfect soil, the perfect conditions for growing. And they put them inside this huge dome.
[00:07:15] And what happened was, despite this perfect growing conditions, the trees grew floppy. So they grew, but they didn't grow straight up, they sort of grew and then flopped over. And what the researchers realised is that trees need wind. To grow strong, it sounds kind of obvious when you think about it, that the tree would need the buffering, the sort of, you know, the force of the wind blowing against it in order to grow up tall and strong.
[00:07:45] And so, when we take this concept back to the fiddle leaf fig in our home, because this is a plant that a lot of people have in their homes. Fiddle leaf figs are supposed to be out in the wind in a rainforest. They're supposed to have very humid conditions. a lot of sunshine and that is how they grow up to be these beautiful strong trees.
[00:08:07] But when we have one in our lounge room They're not actually getting any of that wind that is required to help them grow tall and strong. So what I've been told by gardening experts is that if you want your fiddle leaf to grow up strong, you need to either put it outside in the wind from time to time, or wiggle the plant a couple of times a week to give it the feeling that there is some wind buffering it and that is going to help strengthen the tree.
[00:08:35] This is a very long analogy. Thank you for staying with me. And I hope you can visualize what I'm putting down even though it's just my words to guide you. When we put that analogy into our businesses, when we don't pay ourselves from our business, we make our business weak. We build a situation or conditions or an environment where our business simply does not have the money to be able to pay us, right?
[00:09:02] When you don't have to pay yourself from your business, you can actually do things like underprice, uh, not bringing in enough revenue, overspend on your expenses. And you won't even know that you're doing these things because you're not paying yourself a wage. It almost feels like your business has kind of like play money.
[00:09:26] Right? So when we think about the example of the tree or the fiddle leaf fig that needs wind, it needs difficulty in order to grow strong. One of the things that we can do to make our business strong is pay ourselves. So what do I mean? When we, from day one, price our products and services to be able to actually have enough profit, enough buffer to actually pay us a wage, we are always pricing at a high enough amount.
[00:10:00] Now I'm giving you permission to spend the first couple of your months, or maybe even six months, of your business working this out. But once you've got past six months in your business, I really want you to be paying yourself at least a decent wage from your business every single week. If you are unable to do this, it means that your business is not profitable enough to sustain you.
[00:10:26] Now when you don't pay yourself, maybe your thought is, okay, in the future, somehow magically, I'll be able to pay myself. But future use problem is actually current use problem that you are not dealing with. So when you set your business up in a way that you allow it to not need to pay you a wage, you are making it weak.
[00:10:51] You are making your business, you are not pricing enough for your products and services. You are overspending because you can, and that doesn't necessarily mean that you are growing a strong business. Now I'm sure lots of people will disagree with me on this one, and like anything, it's nuanced, right? So there are some businesses where, or some business models, where you really do need to invest all of your profits into building your business and you don't have the funds to pay a wage for yourself.
[00:11:24] At the start, but the percentage of small businesses that are in that business model is so small. If you are a service based business of any kind, you should be paying yourself pretty much from day one. If you are a product based business, you may find that your business model means that you may not be able to pay yourself for the first year.
[00:11:47] However, I encourage you to consider what would I need to do To be able to pay myself a wage from six months in my business. Right? What are the things that I would need to do? How would I need to price my products and services? How many would I need to be selling per week to be able to cover my wage?
[00:12:08] Are there expenses that I'm spending money on just because I can and not because I should? So am I investing in the sort of things that are building my business for the long term? Or am I investing in shiny things? That actually aren't getting me anywhere just because the money is sitting in my bank.
[00:12:29] There is nothing more clarifying about whether or not you should be investing money in something than seeing that there isn't money in your bank account to buy it, right? So when we make it too easy for our businesses, what happens is they grow weak and we allow the business to stay weak by not paying ourselves a wage.
[00:12:49] The second thing that happens is we start spending money on things that actually aren't growing our business. Aren't actually setting us up for success just because we can. So to recap, lots of people will tell you that you do not need to pay yourself or that it's normal not to pay yourself for the first few years in business.
[00:13:12] I disagree. I think a lot of people that give that advice have a lot of privilege that is often not acknowledged when they're giving that advice. Secondly, I believe that when you pay yourself a wage of some kind from your business as early as possible, it helps your business to grow strong, just like putting a fiddle leaf fig out into the wind to allow the wind to help make the plant strong.
[00:13:41] And thirdly, when you are not paying yourself a wage, it may mean that you overspend on your expenses in your business because the money is sitting in your account. When you put that pressure on your business to need to pay for your wage as well as your expenses, it can really help to get you crystal clear on not only how much you can spend on your expenses, but also which are the right ones for your business.
[00:14:09] I hope that this has given you another perspective on whether or not to be paying yourself from your business and do yourself a favor and work out how you can start paying yourself as soon as possible and if it's something that you need help with, please get in touch. I love teaching business owners how to pay themselves well.
[00:14:28] I'll see you in the next episode.
[00:14:33] Thank you so much for listening right up to the end. I hope you enjoyed this episode of Money Secrets, where we talk about the money secrets of successful small business owners. If you enjoyed the episode, I'd love it if you subscribe to the podcast, but leave us a review or share this episode with one of your friends.
I hope you learned something. I hope you got a new perspective and I really hope you enjoyed the listening experience.
