Today’s video is called, Why Paying Yourself Less is Actually Costing You More? It’s actually among my favourite topics. Just as always, if you found this video useful, then please remember to like, share and follow, and watch out for the next video as well.
Let me get straight into it. You may have heard of a guy called Mike Michalowicz and his system Profit First. It’s actually a really good system, and I’ll explain why.
Firstly, what Profit First means and how it links into Why Paying Yourself Less is Costing You More is what Profit First means is whilst most business owners pay themselves last, they pay all their suppliers, they pay their staff, they get everything else covered and then take what is left over. What Profit First says is why don’t you pay yourself first and then pay everything else you need to. Then whatever’s left over, it goes towards the most important things.
This might seem crazy to some people. They’re, like, “Well, how can we commit to things if we don’t know how much money we’re going to have left over to pay for them?”
This kind of system works when you don’t just look at it month-to-month. What you really need to be doing is looking at it more of a long-term plan.
The reason paying yourself more is better for your business is because you may have also heard of Parkinson’s rule. Parkinson’s rule is a task will expand in complexity to fit the time and resources allocated to it. That also relates to expenses. If you’ve got something in your business and you’ve got a load of money set aside to pay for it, let’s say because you made personal sacrifices by not taking money out of your business, and as a result, you’ve got this big pot of money sitting in your business, then whatever that task or project is that you’ve got to run, the complexity of it will keep on expanding until it’s used up all the money that you’ve put aside to cover it.
The reason why paying yourself first and paying yourself more makes a lot of sense is by paying yourself more and paying yourself what you deserved, you reduce the amount of money that’s left over in your business for certain projects. Because you’ve reduced the amount of money in your business for those projects, what you are then having to do is then start making choices about things that are really important and less important. When you’re trying to land that new project, do you go in all bells and whistles? Or do you just do things that are essential that add 80% of the value, but only cost 20% of the amount? Or do you do it all, and then have 100% of the cost?
By going down this route where you’re reducing the money for projects and other expenses to expand into, what you’re actually doing is creating a really good level of cost control, but you’re also rewarding yourself fairly for the work you do in your business.
If you want to know more about how much to repay yourself from your business and how to build a business that can consistently pay you what you need to build your dream lifestyle, then come and talk to us. We offer a free game plan session, which we explain exactly what the next steps are to building your dream business. So take us up on it. I’d love to hear from you. Thanks.