By Nina Hendy
Sydney creative agency owner Tamlyn van Zyst admits she didn’t pay herself a salary for the first nine years in business.
“Luckily I had a very supportive husband who was happy to pay the mortgage. But looking back, it was crazy given that the business was successful from the outset.”
Reinvesting in the business
The owner of Tamlyn Creative had valid reasons for not paying herself a market-rate salary.
The money that would have been her wage was instead being reinvested back into the business, she says.
“The money that would have been my wage was always needed for something else. When you’re setting up a new business, you need new equipment and to pay staff. There’s always something.”
As the business grew, she hired more staff and of course paid each one market wages, but continued to deny a wage for herself.
She also hired an accountant and leadership mentor, which is how the non-payment issue was discovered. Together, they worked out a strategy to gradually carve out a market wage for running a small business in her industry.
Self-funding
However, van Zyst is by no means alone.
SME growth coach, accountant and entrepreneur Tanya Titman has worked with hundreds of business owners in the past 20-plus years who don’t pay themselves a market-rate salary – sometimes for several years.
“Almost 60 per cent of the people coming into our courses aren’t paying themselves a market salary. Sometimes this goes on for years, even despite their business thriving. And yet often, they see themselves as having a profitable business,”
Not paying themselves a wage means that a small business owner is essentially self-funding their own business. What many don’t grasp is that small businesses need capital to grow, she says.
Poor financial literacy could be a barrier to growth for SMEs.
Titman, who runs a course for women wanting to improve their financial literacy, says many people she’s worked with admit they didn’t realise that the road to self-employment is harder than they anticipated.
“Self-employment can be a tough road unless founders have the business and financial skills to ensure their company delivers greater financial rewards than traditional employment,” she says.
“Starting a business is a long and challenging road and not for the faint-hearted. The rewards need to be there to support and justify the journey.
“And unless you’re clear on why you’re starting or continuing your entrepreneurial journey and are willing to commit to the challenge, the financial rewards are simply unlikely to be there.
Simple adjustments
Often, some simple adjustments such as a more robust business plan and a restructured pricing strategy can lead a struggling small enterprise into profit, she says.
Speak to your accountant about how to implement a market wage for your position at the helm of your business, bearing in mind it could take some time to build up to a full salary, Titman says.
The need for better financial literacy looks only set to increase given the growing number of Australians with dreams of small business ownership.
Almost a third (31 per cent) of Australian adults are either currently self-employed (13 per cent) or are considering becoming so in the future (18 per cent), according to a survey conducted by Pureprofile.
Young people are particularly keen on small business ownership. The research found that 36 per cent of those aged 25-34 years expressed an interest in starting their own business. The national Pureprofile survey included 1000 Australians aged 18 years and older.
The findings align with a global trend towards entrepreneurship, with Millennials starting twice as many businesses as their parents, according to the 2016 BNP Paribas Global Entrepreneur Report.
Four years ago, van Zyst started paying herself a market salary. She recommends other small business owners pay themselves properly from the outset.
“I regret not doing it sooner, to be honest. There’s no point being in business if you can’t financially look after yourself. I actually gave myself a pay rise recently. It’s rewarding when you can do that in your own small business.”
Five questions to ask before taking the step into self-employment
- What is your end goal?
- Are you passionate and confident enough about your business idea to take the risk?
- Do you have sufficient resources to support your journey?
- Have you mapped out a business plan and a realistic pricing strategy?
- Do you have the right support networks around you?
Source: The Age
