Today we are covering what it looks like to pay yourself at the various stages of business, and really there’s no one way to do this at all. But what I think would be helpful is if maybe I share with you my journey and my experience paying myself at these different levels, so maybe that jogs something for you. Maybe it elicits some curiosity, a question, a different way to think about things, or what have you.
Defining the stages of business
Pre-startup.
That is you got an idea and you’re just getting it underway. You’re validating it. You’re doing your market research, you’re testing an offer.
Startup.
You have the offer, you are selling the offer, and now you are working on progressing to selling the offer multiple times and those very beginning stages of iteration while you’re setting up some of those other things in your business like bank accounts, is it going to be an LLC, an S corp, or any of those kinds of things.
Growth.
Now you have been doing this for a bit and you are starting to grow and you’re meeting new challenges as your business grows. The growth phase is very, very messy. It’s a lot of work. There is research that shows most businesses don’t actually get out of the growth phase which is very upsetting, disappointing, and discouraging to me because that’s really where you’re going to burn out. It’s just a lot of grinding through that growth stage.
Stabilize.
I think a lot of people forget about this stabilize phase before you hit scale. Stabilizing is really about just cleaning up the mess you made in growth, really eliminating things that are complicated, really looking to do less, delete, and automate so that if you decide you want to scale.
Scale.
Adding revenue without adding a lot of expense.
That is technically the definition of scaling. It’s not more-more-more because the way we often see scaling portrayed in the online business space is very expensive, the way they scale, and they wind up adding a lot more expenses on top of adding a lot more revenue to the point where it almost doesn’t make a heck of a lot of sense.
Personally, I like hanging out in that stabilize phase. It feels really grounding, scale more slowly through that. Get your bearings, watch your cash flow, and you can monitor when things are starting to get a little too expensive for the additional revenue.
Legacy.
Legacy is like you’ve been doing this a long time, you’ve done it, you’ve built the thing, maybe you’ve even delegated the majority of it. You’re really stepping back and just the visionary and working on the strategy parts of the business but other people are running your business.
This is actually a pretty rare place to get to. We’ve got a couple of clients in this area now and that’s where you start to wonder about what you’re going to be doing next with your life and with the wealth that you’ve created through the years of owning and operating the business.
Let’s talk about what it looks like to pay yourself through those phases.
The first thing that I want to say is that starting a small business actually is a really privileged thing to do. Because you are never guaranteed a paycheck. When you own a small business, you are never guaranteed that you are going to be able to pay yourself.
I don’t know a lot of people who are really able to be in that position when you maybe are a single mom. Now I’m not saying single moms don’t start businesses, they absolutely do. But there’s a lot more challenge when you think about it through that lens of somebody who absolutely has to have a paycheck coming in.
I started my business, and like a lot of people, there was a lot of privilege here in the sense that we have two people in my home who are working, both John and I work and earn a salary.
We have our entire lives prioritized making money, making more money, not necessarily killing ourselves and grinding and working hard, but making more money from the perspective of being really intentional about the skill set we have, making sure that we build up skills that are highly valued, that generate cash, sales skills, for example.
My husband tends to be in a really niche-type industry which allows him to command a much higher pay scale. When I was in undergraduate, I was studying to go to school for clinical psychology and you have to work really hard to get a degree and a PhD in clinical psychology to schools are really selective. They don’t take a lot of people into their graduate programs. You have to do a tremendous amount of volunteering and other work and your GRE scores have to be really great. It was a very intense undergraduate career for me preparing myself to go and get my PhD in clinical psychology.
I graduated from undergrad in 1998. At that time, I had been talking to a lot of therapists and stuff like that and they were really struggling with insurance at the time, they were struggling with having a PhD, but the insurance companies really wanted to send people to social workers or people with master’s degrees. It sounded to me—and I don’t know if there’s any truth to this. This is just what I’ve heard from those PhDs at the time—was they were really looking to be able to pay the social workers and the people with master’s degrees less than they would pay a PhD clinical psychologist.
When I interviewed for the school that was wanting to accept me at the time, I laugh now when I say this, but it was like $100,000 for seven years of school. That’s like four years of a state school these days. Anyway, it was $100,000 for seven years of school, and I was like, “This doesn’t make any sense. I’m going to pay $100,000. I’m going to go to school for seven years. I’m going to kill myself writing a dissertation, and I’m going to come out and be arguing with insurance companies and making a really low wage.”
I put the kibosh on that because that just didn’t seem like the math added up. Instead, I combined my love of business with my love of psychology. I went to school and I got my degree in industrial organizational psychology. Then what happened was I had taken a year off between undergrad and graduate school to figure that out. I pissed my dad off. He really wanted me to be Dr. Tara, and I was like, “No, I’m not going to do that.” That really irritated him. I took a year off to figure out what I was going to do. I went back and got a job.
I was working as an administrative assistant in contracts. I was in a contracts department—talk about dry and boring work—and I got promoted to a junior contract administrator within my first year there and I was making about $20,000. This was in 1998, 1999. I was making about $20,000 and I started grad school, and the first semester in grad school, these interns who were working for a boutique consultant came in to see if they could drum up any interns in the first-year program, because this consultant like taking interns in the first year so she could keep them the first year and the second year, and the attention that she put into training them really would pay off.
This woman was known for developing the highest-paid graduates that she had connections in all the Fortune 500, 100 companies and they would go off and work for Colgate-Palmolive, Bristol Myers Squibb, PepsiCo, all the big names in the New York City area. But she was also known to be quite a beast. She was very direct in her feedback and she was very cutting. She was known to be a little bit difficult to work for, demanding, and had very high expectations. Not a lot of people wanted to go and take that internship; it sounded too hard.
However, your girl here raised her hand very high very quickly, very fast and I was like, “I will take that internship.” But what that meant was that I would have to quit my job paying $20,000 a year—I was just about to get married too—and go work for her for $10-an hour, commuting from where I lived on Long Island to where she lived in Greenwich, Connecticut, which was about an hour and a half if we were lucky one way, so three-hour commute a day, paying for gas, now I lost my medical benefits so I would have to pay COBRA.
This is like wow, this is a big, big decision. I was all in. I was living with my husband at the time. We were planning our wedding. I think we were just engaged. He was like, “Okay, this is what you’re going to do,” and I did it and I quit my fairly, at the time, lucrative job where I worked less than a mile from my home and had flexible work hours even back then to go and work for this woman who was going to torture me in Connecticut for $10-an hour, sounds totally normal.
Normally, her interns stay with her the full time. I should have been there for two years. But she was concerned because I was a more mature student in the sense that I’d already been out in the working world and that I’d quit a job to come work for her. She was concerned so she really accelerated my development through her internship. Within nine months, she got me a job working for one of our clients where I then made $56,000 a year.
Within about a year timeframe, I pretty much doubled what I was making by being willing to take that really big risk. I’m sharing this to say this is pretty much how I’ve prioritized making money and keeping my pay up so that I could have the cash flow both in my personal life and in my business to build and create wealth.
When I went and decided to start this business, this wasn’t the first time I’d taken a leap like this.
I already had this belief that when I do big leaps like this, they double my earning potential, they really pay off for me. I said to my husband, like I said to him that time when I was taking that internship, “I’m going to start this business. I’m going to work my corporate job for as long as I can, and then we’ll make a decision.”
I started this business and through pre-startup and startup, I was working a full time job.
I took everything that I earned in the business and reinvested it into myself, into my skills, into learning how to sell, into learning how to create my offers, into learning how to price my programs, into doing the work around my emotions and my mindset. There was a lot of Reiki and energy work at this time that I was investing in for myself, a lot of my own healing, a lot of making me the healthiest version of me that I could be considering one of the reasons why I was starting my job was because I was so chronically ill at the time.
Even though I was chronically ill, I did both. I worked for almost a year while running the business and then I left because I got to the point where I could not continue to grow the business from the couch, in the corner of Starbucks, from the closet, from the car, like I was doing while I was working full time, raising two kids, class mom that year too, because I’m a glutton for punishment.
After that, I said to my husband, “Okay. I need a year, I need you to give me a year where you provide me some air cover. I’m not going to be paying myself, I’m going to continue to invest in myself and in the business. After that year is up, we’re going to talk and I’ll start to pay myself at that point.”
Year two in my business, I again did not pay myself, because I was relying on my husband to support us. I had supported us when he started his business. I felt like it was my time. I felt like I earned that right and I was going to ask for it. During that time, it was not comfortable. It was the first time in my life where I was not able to actually provide for myself on my own.
I had worked my whole life. I’ve worked since I was 15, 16 years old. It was the first time for me that I didn’t have any of my own money. It was great because I had to really learn how to not be in shame or judgment about that, how to not be self-critical, and really just how to receive what he was willing to give me as we made this commitment together.
By my third year in business, I started paying myself.
I just started to pay myself small amounts every month consistently. That’s where I started, like, “Let me get used to building this muscle,” because that’s what it is, paying yourself is like building a muscle. You have to put in the reps. There was all this fear around the uncertainty of knowing when money was coming in, not knowing when money was coming in, would I be able to continue to pay myself? Was this really going to work? Was this really going to be a viable way for me to earn a living? and so on and so forth.
What I did was let some money pile up in my account. Say I let $2,000 pile up in my account. Then I would start paying myself $500 a month, and I knew that I already had $2,000 in there, I already had money that was what we call aged sitting there, that if one month I couldn’t pay myself, I can pull from the money that was already saved and sitting in that account.
Once I was able to do that over and over and over again, I built this muscle but I also built a lot of self-trust. I said I was going to pay myself $500 a month, and I did. Then I was like, “Okay, what would it be like?” Because my biggest complaint about working in corporate was the crappy 3% increases. They’re still probably giving those today and they don’t even come close to scratching the surface of inflation. We really have an opportunity here as small business owners to do better for ourselves than we did when we were working in a traditional nine-to-five.
But are you bold enough to do better for yourself? Are you willing to take that risk? Are you willing to do what it takes to give yourself a 10% increase every year? Are you willing to be consistent in your actions to go out and sell every day so that you can give yourself these bigger and bigger increases? Because that’s what it takes.
I really challenged myself and I leaned into giving myself an increase.
It was probably something like 5% at the time. Because again, we’re building muscle. Now we have to build the muscle of increasing our pay. As I started to trust myself, as my business grew, as my business gain momentum from the consistency and everything like that, I was able to take bigger and bigger paychecks.
For the last probably five years, I’ve been consistently paying myself way more than I ever would have if I was in my traditional nine-to-five. It doesn’t make sense anymore for me to go back and consider getting a job for somebody else. Because not only did I pay myself like that over the last five years, but I’ve been consistently building my wealth to buy myself out of future work.
A huge financial goal for me is to be financially independent and not reliant on having to work within seven years.
I’m 46 so by the time I’m in my early 50s, I want to be completely done with needing to work, call it retired, call it whatever you want, but that’s where I want to be. Not only do I want to be there but I want my husband to be there. This was a goal that we set for ourselves shortly after 2020.
He owns a manufacturing business and it’s a grind, especially right now, he’s been slogging through two years of inflation. He’s been slogging through two years of supply-chain issues that aren’t getting any better.
As a matter of fact, they’re getting worse. If you look at what’s happening in the news with China between their zero-tolerance COVID lockdowns, their support of Russia, and the supply-chain issues that are over there, I’m not suspecting this is going to get much better with the way we’ve created an overreliance for our consumer products and for our products that aid our manufacturing here as a country, and then the lay on top of that, the labor shortage that we’re having, and he’s done. He’s 49 and he’s like, “I’m done.”
This is our big, big financial goal is to be accelerating our plan for, I guess what some people would call retirement, but for us, we’re calling financial independence, where anytime we could just be like, “Yeah, we’re out. We’re not doing this anymore.” Or we have some plans around what work optional looks like for us in the next few years.
Everything that I have been earning has been going towards really increasing our ability to do that. By the way, if you want to know how to do this, your financial independence is a number. You would look at how much money you need to live on in retirement. Usually that’s 20% to 30% less than you’re currently living on. You would multiply that by 25. If you want to live on $100,000 a year in retirement, you would multiply that by 25. You would roughly need to have $2.5 million invested.
Really, that’s what we’re going on. We’re going on right now paying down our debt, and meaning our mortgage, I just bought my car so I’ve got my car payment, and then increasing our investments to the point where they can support us however minimally or maximally we want that to look like in the next five to seven years.
That is why you want to steadily increase your pay.
I think having a really strong why also contributes to what paying yourself at each of these levels looks like. This is a commitment to your self-care. This is a commitment to your financial wellbeing. This is a commitment to the lifestyle that you want to live at any of these stages in business.
It’s unlikely that in pre-startup and startup you’re going to be paying yourself. You’re going to need to be really on your money, you are going to need to invest in things. It does cost money to run a business. However, the quicker that you can get out of those stages—and that is entirely up to you, and honestly your mental and emotional stuff—the quicker you can get out of those phases, the quicker you can make money, the quicker you can be paying yourself.
I will say that out of the dozen or more conversations I’ve had with people in the last week around the biggest bottleneck in their business in terms of hitting their revenue goal, it’s been their pricing and their willingness to make sales to the point where I’ve had to say to folks, “Listen, based on your pricing, your revenue goal is not attainable, which means you’re not ever going to be able to pay yourself what you want to pay yourself. Your resistance to selling your services, really building that skill, and learning that skill above marketing, everybody’s focused on the marketing, but it’s the selling that actually converts the lead to a sale.”
When I see people over-focusing on marketing and not putting any prioritization on actually converting the lead, that’s another real bottleneck between you and achieving the revenue goal you need to pay yourself and to give yourself increases along the way.
I hope that this was helpful in painting a picture of what it looks like to pay yourself at the different stages in your business. I hope that you feel like this was honest, and transparent content that gave you a perspective shift, or has allowed you to look at the situation with a little more curiosity.
