Being self-employed is liberating but paying oneself isn’t always easy. Whether you’re running a big business or a startup, or a freelancer, deciding on your first paycheck is very important. Your first paycheck sets the tempo for your remuneration as the business progresses. You need to figure out three essentials to provide your first paycheck. Things like; how much to charge customers for your services, what to pay yourself, and how to pay yourself.
How Much to Charge Customers
Figuring out what to charge your customers especially as a service provider is no easy feat. Set it too high and you lose customers to your competition. Set it too low, and you are out of business before you get started. How do you do it? You can figure this out by investigating what others in your line of business are charging for their services and products. Aim for the average amount per skillset/qualification. The next step is observing the market for your business and trying to figure out what sets you apart from your competitors. Then you determine your price.
What to Pay Yourself
Deciding your first paycheck depends on how much you charge customers, your skillset, the cost of running the business, and the time invested in working.
Having done your research, it’s time to sit down and tally the available information with what you have to offer. If you’re a newbie in your line of business, you might have to keep your price at the lower end of the scale. If you’ve been able to build a reasonable and impressive portfolio or possess an advanced skillset, then don’t be afraid to set your price for what you are worth. Be careful not to price yourself too low as this can boomerang. Low self-pricing might give potential customers the stink that you don’t know what you’re doing.
From the moment your customers start coming, you must be articulate enough to keep track of the amount of time spent per job or project. This will enable you to figure out how many hours you put into your work. It will serve as a guideline for pricing when charging clients and also a guideline for setting up your first paycheck. You can easily take off the pressure of record-keeping by engaging paystubsnow as your financial record manager.
How to Pay Yourself?
This is the major question for providing your first paycheck when you’re self-employed. But why the emphasis on the first paycheck? That’s because the first paycheck sets the standard for subsequent self-payment as your enterprise continues. Even when your business grows above your starting level, needing some adjustment to your regular paycheck, the first paycheck always serves as a foundation to build on.
When working for yourself, you need to put in some effort to figure out the payment method that best suits you based on what you do. Two fundamental types of payments to keep in mind are:
The owner’s draw method
This method allows you to draw money from your business earnings as you think is appropriate. You don’t have a fixed income because you can influence how much you draw depending on your business performance. You can draw as much money as you want and as frequently as you want. So long as there is money in the account. There is more liberty and
flexibility with this method but you also must be wary of how much money is available for growing the business, paying bills, and taxation.
Taxes aren’t automatically deducted as you must be ready to do a self-report and pay total taxes during taxation time. It also requires lots of personal tax planning so you’ll be doing lots of extra work with your taxes.
Taxation with the owner’s draw will vary depending on the type of business that you are doing.
- Taxation for Sole proprietorship: Here, owner’s draws are considered as personal income, and taxation is treated that way. This is because you have full entitlement to as much of your enterprise’s money as you want. There are no shareholders/stockholders to answer to.
- Taxation for partnership: This is also viewed as personal income like in sole proprietorship. The only difference here is that one person does not claim all the revenue generated from the business. All earnings are divided among partners and taxed accordingly.
- Taxation for limited liability companies: Taxation is the same as with sole proprietorship and partnership except that the laws that control taxes on limited liability companies vary according to state laws. It’s important to check state laws before advancing.
The salary method
Here, you receive a fixed amount of money regularly. Personal income taxes are deducted automatically from your paycheck. The salary method makes it easier for you to track cash flow as you will not be taking money from the business account willingly. However, you are saddled with the choice of what amount is reasonable for you while keeping your enterprise operational.
Guidelines For Your First Paycheck
Regardless of which method of self-payment you choose, there are a few guidelines to a successful first paycheck:
- A business account must be separate from a personal account.
- If you’re using the owner’s draw method, make sure that your payments are fairly equal and withdrawal intervals are regular
- Get payroll software or a company to record your payments, generate paystubs, and customer receipt. (Paystubsnow comes highly recommended).
- Make sure that you always have enough cash for the smooth running of your business.
- Don’t delay tax payments so as not to have outrageous taxation values later on.
FAQS: How do you get your first paycheck?
Whether you work for yourself or someone, you get your first paycheck at the end of each pay period after work. every company has its pay date that is unique to them.
How much should self-employed people pay themselves?
A general rule towards paying yourself is to reserve 50% of your earnings as self-payment. This enables you to keep the remaining for the running of the business. If you have lesser needs and run a small business or sole proprietorship, you’re free to decide exactly how much you want to pay yourself. only ensure it’s reasonable and regular.