Can't Afford to Pay Myself as the Owner
You're working 60+ hours per week but taking home less than your employees. Here's why—and how to fix owner compensation without destroying your business.
The hardest truth in small business: you can be "successful" on paper while personally broke. Good revenue, happy customers, growing business—but you're taking home $3K per month while working 60-hour weeks. This isn't success. It's self-exploitation.
You deserve to earn a living from your business. Here's how to make that happen.
This is the silent crisis in Santa Cruz small business:
You started this business for freedom and income. Instead, you're working more hours for less money than you made as an employee. Your staff makes $50-70K. You're taking home $30K. Something's very wrong.
"I'll pay myself when the business can afford it." That's what you said 2 years ago. Business is fine. Revenue is good. But you still can't afford to pay yourself fairly. When will it be enough?
You're subsidizing your business with unpaid labor. If you hired someone to do your job, you'd pay them $80-100K. You're doing it for $30K or less. That $50-70K difference is hidden subsidy. It's not sustainable.
Your personal finances are suffering. Can't save. Can't plan for retirement. Living paycheck to paycheck despite running a "successful" business. The stress is crushing.
You feel trapped. Can't afford to keep going like this. Can't afford to close. Can't afford to sell. Every option feels impossible. But staying in this position will break you.
Several factors create this problem:
You price based on what you think customers will pay. Not on what the business needs to generate. Your pricing doesn't include fair owner compensation. It can't, because you've never calculated it.
You treat yourself as the flexible expense. Rent must be paid. Employees must be paid. Vendors must be paid. You're the only one who can wait. So you always wait. And you never catch up.
You don't separate owner roles. You're the CEO, manager, employee, and investor. Each role deserves compensation. But you lump them together and pay yourself nothing for any of them.
Your profit margin is too thin. If there's barely profit after expenses, there's nothing to pay yourself. Thin margins work for corporations with volume. They don't work for small businesses that need owner income.
You grew revenue without growing profit. More customers, more revenue, same profit (or less). You added complexity and work without adding margin. Growth that doesn't increase owner income isn't real growth.
First, determine what you actually need to earn:
Living expenses in Santa Cruz. What do you need monthly to live? Rent/mortgage, food, insurance, transportation, basics. Be realistic. In Santa Cruz, this is probably $5K-8K per month minimum. That's $60-96K annually.
Taxes and benefits. Self-employment tax is 15.3%. Plus income tax. Plus health insurance (not cheap). You need to gross 40-50% more than your take-home to cover these. If you need $70K net, you need $100-105K gross.
Savings and retirement. You're not building wealth through equity (yet). You need to save like an employee would. Add 10-15% for retirement. Another $10-15K annually.
Risk premium. You carry all the risk. No unemployment insurance. No paid time off. No job security. You should earn 20-30% more than you'd make as an employee for equivalent work. If you'd make $80K as an employee, you need $96-104K as an owner.
Your total number. Add it up. You probably need $100-150K annually to live, save, and compensate for risk in Santa Cruz as a business owner. That's your target. Anything less is unsustainable.
Here's how to fix this systematically:
1. Make owner salary a fixed cost. Not "what's left over." A line item in your budget like rent and payroll. Calculate your number ($100-150K). Divide by 12. That's your monthly owner salary. Build your business to support it.
2. Redesign pricing to include it. Your pricing must cover: COGS + overhead + employee labor + owner salary + 10-20% profit margin. If current pricing can't support this, pricing is wrong. Fix pricing first.
3. Increase revenue or reduce costs. If you need $10K more monthly for owner salary, either add $50-60K in new revenue (at current margins) or cut $10K in expenses. Run the numbers. What's more feasible?
4. Eliminate low-margin work. Stop doing things that generate revenue but no profit. That $5K client that takes 40 hours? They're costing you money when you factor in your time properly. Fire them.
5. Build profitability before growth. Don't chase revenue growth if it doesn't improve owner income. Focus on profit margin improvements, pricing optimization, and cost efficiency. Profitable first, big second.
You can't go from $30K to $120K overnight. Here's the path:
Phase 1: Pay yourself $50K (months 1-6). Bare minimum livable wage. Requires immediate pricing increases, cost cuts, or revenue growth. Focus on quick wins. This gets you out of poverty mode.
Phase 2: Pay yourself $75K (months 7-12). Approaching sustainable. Requires operational improvements, better margins, or significant revenue growth. You're investing in systems that support higher throughput.
Phase 3: Pay yourself $100K+ (months 13-24). Sustainable owner income. Business runs profitably. You're compensated fairly. From here, growth is optional, not mandatory. You've built a real business.
What if you can't see the path? If you can't envision getting to $100K owner income within 24 months, your business model might be broken. Consider pivoting, restructuring, or exiting. Life is too short to run an unprofitable business indefinitely.
Here's your action plan:
Week 1-2: Calculate the gap. What do you need annually? What are you currently taking? What's the monthly gap? Example: Need $120K, taking $36K, gap is $84K annually or $7K monthly. Face the number.
Week 3-4: Identify path to close gap. Pricing increases? New revenue? Cost cuts? Client firing? Run scenarios. What combination gets you to target? Be specific. "We need to raise prices 15% AND add $3K in new monthly revenue AND cut $2K in costs."
Month 2: Implement changes. Execute price increases. Launch new offerings. Cut unnecessary costs. Make hard decisions. The discomfort of change is less than the pain of staying broke.
Month 3: Measure and adjust. Did revenue increase? Did margins improve? Can you pay yourself more? If not, why? What's blocking progress? Fix that. Keep iterating until owner income grows.
Ongoing: Treat it like rent. Owner salary is not optional. It's not flexible. It's a fixed cost. If the business can't pay it, the business is broken. Fix the business or exit it. Don't spend years subsidizing a broken model.
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