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View Full Version : Pay yourself first? What's this mean?


billc
02-26-2004, 09:33 AM
In the "Tips" section, eslawns wrote:

<b>"Pay yourself first. No, I don't mean salary. I mean invest. 10-15% off the top. Don't convince yourself you can't afford to. You can't afford not to."</b>

What does this mean??? Buy stocks? Real estate?

What have any of you done?

lawnGUYnMD
02-26-2004, 10:03 AM
I would say it is saying to make sure you are making a living by paying yourself first and then go thru paying everything else. Alot of people will pay everything else first and then they have nothing left and are struggling.

LawnScapers of Dayton
02-26-2004, 01:33 PM
It goes back to the old saying of setting aside 10% for retirement. Hence, the "No, I don't mean salary" statement.

Derek

Kelly's Landscaping
02-26-2004, 06:10 PM
The money is either there or it isnít you can't pay yourself what you havenít made and if you do you will end up like my ex employer always bouncing employee checks owing 46k in sales tax having your f350 rack body reposed losing key employees because they get sick of the games and being banned from all the local suppliers because heís bounced checks on every nursery in 2 counties lot of good paying himself did him. What he needed to do was clean up his books and bill at the proper time of the month and budget his expenses if you are careful and do you job well there should be plenty of money left over after all is paid.

ALL AMERICAN
03-01-2004, 03:34 PM
Reading assignment:

The Richest Man in Babylon :D

billc
03-01-2004, 03:44 PM
Originally posted by ALL AMERICAN
Reading assignment:

The Richest Man in Babylon :D
Waiting for this one from amazon.com, too!

mtdman
03-01-2004, 11:40 PM
I am not necessarily sure about the "paying yourself first" idea. In most small businesses, ie--retail, you don't make any profits at first. Often you lose money at startup, and bills like payroll, inventory, etc HAVE to be paid in order to stay in business.

Lawn care is a bit different, I believe. The overhead isn't as high as in other businesses, if you do it right. You can turn a profit early on, but if you decide that your salary is more important than investing in the business, you're not going to go far. Going into business doesn't always mean making money for yourself up front. Sacrifices have to be made for the business in order to make the business successful.

I spent my first 2 years doing this as part time. The first year my partner and I pretty much made enough to pay for our crappy equipment. 2nd year we put aside money to upgrade our equipment, become more efficient and professional. We did make enough to pay ourselves a modest income that year, but nothing great. If we hadn't put aside savings and invested in our business, but bled it dry to take home a few extra $$, we would have been stuck pushing 21 inch crapsman mowers and doing scrubby work for the next year. And chances are we wouldn't have been able to double our workload in our 3rd year.

I'm not in this business to go broke, don't get me wrong. But being in business for yourself doesn't mean you're going to get rich. Being successful means looking ahead and planning for the future. Sometimes you have to lose a little at first to make big steps in the future.

Now, if you've been in business for a while and you can't seem to make ends meet and you're not turning enough profit to earn a living, it's time to re-evaluate your business and what you are doing.

ALL AMERICAN
03-01-2004, 11:51 PM
The whole concept behind paying yourself does not mean to pay yourself before your bills. In simple terms it means that if you make (for example) $1,000 a month after all your bills are paid and this is what you have to live on, you should save 10% minimum of that $1,000. It's another way of saying that you will never have money if you don't save. Learn to pay yourself FIRST, have the beer and other pleasures later, when you can. Three great books to read:
Richest man in Babylon
Who moved my cheese
The greatest salesman in the world
:)

swim
03-02-2004, 12:00 PM
I'm going to say that I think it means to reinvest 10-15% of your money into your business. For whatever you think you need improvements in. Wither it means better equipment to make you more productive, better or more advertising to pull in more customers, or whatever needs to be improved to make your business grow.

If you don't it won't be long before you are out of business.

I find it very interesting how so many people can see the exact same information to mean so many different things.

ALL AMERICAN
03-02-2004, 12:38 PM
Read the book.

:)

Not to say that you can't do that for your business...that SHOULD be a common business practice.

swim
03-02-2004, 12:48 PM
l0l I didn't know we were talking about a specific quote from a book.

:o

ALL AMERICAN
03-02-2004, 12:59 PM
Sorry...Not a quote, a concept.

:)

SIRCAESAR
03-03-2004, 12:57 PM
I agree with many of you in saying that your expenses should definetly be paid first. if your trying to grow and expand, some of your net profit should be used towards reinvestment, this figure of cost will vary on your individual situations..if your just starting up. with minimal equipment you definetly have to make wise decisions..like buying used, making the most of your initial profits. like Kelly's landscaping and Mtdman said, its going to require sacrifice in many areas, especially if your planning on spending up the profits on yourself. if your doing good work, your net profit will grow and you will have more then enough to cover bills expenses taxes etc, I am truly convinced that most lco's don't make it due to poor management. The guys who make it are people Like Kelly's landscaping, mtdman and many others of you who have given wise advice here on lawnsite. establishment and wise decisions are critical in the early stages of business, we all have different budgets, and we need to adhere to them. for many of you who left corporate america you were used to budgeting from your paychecks, its the same with business. the only thing that has changed is your customer is the boss and you have a whole new set of expenses. Not to mention the experience and wisdom here on lawnsite. as you all know it does not take long to look thru a few threads here on lawnsite to find answers to questions you want. this site is truly unsurpassable in the Lawncare/Landscaping/Green industry.

Emerald Cut Lawns
03-06-2004, 11:54 PM
Good advice for us newby's...our accountant advised us that since we are just starting, to set up seperate funds for reinvestment, equipment,gas/oil,advertising, and even if we have to take 5.00 away per fund to pay ourselves atleast 50.00 per week as a draw, at least for tax purposes, in the first couple years....because if ;you don't exceed what you put out in the begining, we can claim it, as well as the 50.00 a week off our taxes....is this true???

Kelly's Landscaping
03-07-2004, 04:29 PM
got mixed around some how

Kelly's Landscaping
03-07-2004, 04:38 PM
Originally posted by Emerald Cut Lawns
Good advice for us newby's...our accountant advised us that since we are just starting, to set up seperate funds for reinvestment, equipment,gas/oil,advertising, and even if we have to take 5.00 away per fund to pay ourselves atleast 50.00 per week as a draw, at least for tax purposes, in the first couple years....because if ;you don't exceed what you put out in the begining, we can claim it, as well as the 50.00 a week off our taxes....is this true???

First of all it depends allot on what type of business you have and I donít mean lawn care. I mean Sole proprietor, Partnership, limited Liability Corporation, S Corporation or C Corporation. The C corp. you can forget about if your making less then 10 mill a year and have fewer then 50 share holders you donít need that type.

I happen to have an S corp. there are 2 shareholders myself and my partner itís a 60/40 split we take draws when we can afford too. This year we want to take a much larger amount for our selves so were not always broke so were probably take 2-3 draws of 20-30 k each. What we have learned is the draw is not and expenses employee pay is but not owner pay so you wont get out of any taxes that way. Draws and new equipment all count as profits but you do get to deduct the cost of new trucks and equipment. So even though it is income and its now your assets you will be able to lower your overall tax liability. For instance we think were gona net around 200-300 k this season that would be considered profit we will divide up according to our shares 60-90 k will be split and paid out the rest is being reinvested. So say we made 250k and put 200k into the business that means I took home 60% of 50 k or 30,000 dollars and I made another 120,000 that was put in to the business. So I would owe taxes on 180 k however I put in 42,000 of my own money last year so that would come off the top. Then we bought equipment with that money and what was made last year so around 100 k worth of equipment that is being deducted so thatís 60 k of deductions for me over 5 years but last year it could be accelerated to 1 year because of the recession. Now this year would be another 120 and you can immediately write off 30-50% of that. So that 180k gets reduced by the 42k I put in 60 k roll over from last year and 50k or so from this year and whets left 28,000 minus personal deductions. And despite making nearly 200 k in our second year my tax liability could still be 0 with roll over deductions in to the next year.

As long as your buying equipment and trucks every year you will have some very nice tax benefits to help ease the cost when you stop buying then your tax bill will go up until after year 5 you have no deductions and then you could be paying 100 k in tax on that same 200 example.