πΈ Handmade Business Owners: Discover How Much You Deserve to Get Paid πΈ
Sep 24, 2024π§ Listen to this blog post as a Podcast instead #18 - What should I pay myself, as a handmade business owner?
π Wondering what you should pay yourself in your handmade business? ... it can be a tricky one πͺ
πΈ In this episode I walk you through how I manage my finances as a handmade business owner and the steps I take to keep my personal and business finances separate
β‘οΈ I unpack everything for you to consider, from when you should start paying yourself, your personal and business financial commitments and goals
π Whether you're a solopreneur or managing a team, we'll help you navigate the decision-making process with confidence
π¨ Don't miss this essential guide to setting your own salary and ensuring financial stability in your online handmade business on Etsy or your own website.
As a handmade business owner, one of the most important financial decisions you'll make is determining how much to pay yourself. This can be a tricky and often daunting task. You need to balance your personal financial needs with the long-term growth and sustainability of your business.
In this blog post, we'll explore the key considerations and strategies for deciding the right salary for yourself in your handmade business.
Separating Business and Personal Finances
The first step in establishing a sustainable salary for yourself is to keep your business and personal finances completely separate… it’s not as complicated as it sounds!
It not only helps with bookkeeping and tax purposes, but it also provides a clear separation between your business and personal expenses.
Many successful handmade business owners, including me, use dedicated business bank accounts and savings spaces to manage their finances. It allows me to easily track and categorise business-related expenses, such as supplies, marketing, and overheads, while also setting aside funds for personal use, taxes, business investments and the odd spa day here and there.
Determining Your Salary: Balancing Reinvestment and Personal Needs
When it comes to determining your wages, there is no one-size-fits-all approach. It's a delicate balance between paying yourself a fair and sustainable wage while also reinvesting in the growth of your business.
The First Year: Is All About Reinvesting Profits
Now I’m no financial expert but I really recommend that during the first year of your handmade business, you should not take any money out for personal use. Instead, all profits should be reinvested back into the business to help it grow and establish a strong foundation.
This approach may seem challenging, as you may be eager to start drawing a salary. But, the long-term benefits of reinvesting can be significant. By focusing on business growth in the early stages, you can position your business for greater success and profitability down the line, ultimately leading to a more sustainable and lucrative income stream for you.
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Striking a Balance: Paying Yourself and Reinvesting
Once you've passed the one-year mark, it's time to start considering paying yourself a salary… woo hoo! However, it's important to strike a careful balance between your personal needs and the ongoing investment required for your business.
A good rule of thumb is to start by paying yourself a modest, yet meaningful, amount that doesn't completely drain your business's resources. You could use a percentage-based approach, where you allocate a certain percentage of your profits to your personal salary, while the remaining funds are reinvested into the business.
For example, you might decide to pay yourself 20% of your monthly profits, while setting aside another 20% for taxes, 10% for business investments, and the remaining 50% to reinvest in growth initiatives. This allows you to meet your personal financial obligations while also fueling the long-term success of your handmade business.
Adjusting Your Salary Over Time
As your business grows and evolves, it's important to regularly review and adjust your salary. Factors such as inflation, increased expenses, and changes in your personal financial situation should all be taken into account when determining appropriate pay increases.
It’s a good idea to tie your salary adjustments to the cost of living or inflation rates in your area. This’ll help you to keep pace with the dreaded rising costs of living, allowing you to maintain your standard of living while also continuing to invest in your business… remember those spa days!
Building a Rainy Day Fund and Other Financial Safeguards
For me it’s crucial I have financial safety nets and contingency plans for your handmade business. This includes building a rainy day fund, setting aside funds for taxes and other expenses, and maintaining a healthy profit margin.
Rainy Day Fund
A rainy day fund is a great security blanket for your business, it can help you weather unexpected financial storms, such as slow sales periods or unexpected expenses. I aim to have enough funds set aside to cover at least 3-6 months' worth of business expenses, including your salary.
By having this rainy day fund in place, you can avoid the stress and potential financial ruin that can come from a sudden drop in revenue or an unexpected crisis. It provides a cushion to keep your business afloat and allows you to focus on long-term growth rather than short-term survival.
Tax and Expense Planning
Another important financial safeguard is setting aside funds for taxes, VAT (if applicable), and other recurring business expenses. This ensures that you're always prepared to meet your financial obligations, rather than scrambling to come up with the funds at the last minute… there is literally nothing worse than having this hanging over your head.
Create dedicated savings spaces or accounts for these expenses, making it easier to track and manage your financial obligations. This helps you stay compliant but also provides peace of mind, knowing that you have the necessary funds set aside.
Maintaining a Healthy Profit Margin
In addition to building a rainy day fund and planning for taxes and expenses, it's so important to maintain a healthy profit margin in your handmade business. This means carefully monitoring your costs, pricing your products appropriately, and finding ways to optimise your operations for greater efficiency and profitability.
By maintaining a strong profit margin, you can ensure that your business is generating enough revenue to cover your personal salary, reinvest in growth, and build financial resilience. This, in turn, helps to create a more sustainable and successful handmade business.
Strategies for Increasing Income and Reducing Expenses
If you find that your business is not yet generating enough revenue to pay yourself a satisfactory salary, there are several strategies you can explore to increase your income and reduce your expenses.
Increasing Income
Some effective ways to increase your income in a handmade business include:
- Improving your conversion rate by optimising your product listings, marketing, and customer experience
- Increasing your prices to reflect the true value of your products and services
- Exploring new sales channels, such as wholesale, consignment, or online marketplaces
- Collaborating with influencers or other businesses to reach new audiences
- Diversifying your product offerings to cater to a wider range of customer needs
- Sign up to my free training today to help you make more sales in 7 days - https://www.handmadebosses.com/conversion
Reducing Expenses
On the expense side, you can look for ways to optimise your operations and reduce unnecessary costs, such as:
- Negotiating better deals with suppliers or finding more cost-effective materials. I do this every year when my insurance is due for renewal or on Black Friday.
- Automating or streamlining administrative tasks to save time and money
- Reducing overhead expenses, such as rent or utilities, by working from home or finding a more affordable workspace
- Cutting back on non-essential business expenses, such as subscriptions or memberships
- Exploring ways to become more energy-efficient or eco-friendly to save on utility costs
By implementing a combination of income-boosting and expense-reducing strategies, you can work towards a more sustainable and profitable handmade business that can support your personal financial needs.
My final thoughts
Determining the right salary for yourself in your handmade business is a complex and ongoing process, but it's a crucial aspect of building a successful and sustainable enterprise. By separating your business and personal finances, striking a balance between reinvestment and personal pay, and establishing financial safeguards, you can create a solid foundation for your business to thrive.
Remember, the journey of entrepreneurship is not a linear one, and there will be ups and downs along the way. By staying adaptable, continuously reviewing your financial strategies, and making adjustments as needed, you can navigate the challenges and maximise the rewards of running a handmade business.
Love Steph xox
π₯³ Do you want to learn more? π₯³
We’ve got loads of resources to help you scale your handmade business:
1οΈβ£ β¨Are you starting a new business? Here's my best resources:π Start here π
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3οΈβ£ β¨Ready to grow your business? Here's your to-do list: π Grow here π
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β¨ My book “how to be a handmade boss” is like a super intensive course on getting your first sales (plus, it’s a book/workbook hybrid!) π Find out more here
β¨ The Shop Doctor - Shop not doing so great? Getting views but no sales? No views at all? Overwhelmed with it all? Check out the shop doctor: π Join here
β¨ My FREE masterclass on how to increase your Etsy conversion rate. It's the KEY thing most Etsy sellers miss when trying to make more money and get more sales in 7 days. π Join here
β¨ Chart-topping podcast it's an unfiltered and honest view about what it takes to grow a handmade business π§ Whether you’re a complete beginner on Etsy, or want to scale your handmade business to multi-6 figures, the “How To Be A Handmade Boss” podcast gives you actionable advice and workshop style episodes to grow your handmade business on Etsy, your own website and beyond π Listen here
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