When you first open a business as a freelancer there are often a lot of questions you’ll find yourself asking. Such as, how do I get more clients? And how do I grow my business?
One that is frequently asked, especially once you secure your very first customer, is what’s the best way to pay myself?
Pay Advantage is a really popular way for freelancers to get paid. It can integrate with invoicing software like Xero, offer your clients more flexible ways to pay, and assist in chasing late payments. Once you are paid, you’ll need to determine how you pay yourself. There are a few things to consider first.
What’s my income and expenses?
Before you decide how you want to pay yourself,you need to understand your expenses and desired income. You’ll also need to understand how you plan to pay your expenses to keep things ticking along. Most freelancers and small business owners have operating expenses. These are costs that you’ll need to pay for certain systems and tools to help your business run smoothly.
It’s important that you pay yourself just like an employee but also remember that you’re responsible for managing the expenses the business has. Paying these expenses will need to take first priority.
Make sure you keep your business and personal finances separate.
Do I Pay Myself a Salary?
Yes! Once you know what your expenses are, you can deduct this from your monthly gross income. Don’t forget to also put aside operating income to pay your tax bill. What’s left can be divided up each month as your salary.
Consider talking with an accountant or bookkeeper to determine what the best salary amount would be for you.
Should my salary be weekly, fortnightly or monthly?
The frequency you pay yourself usually depends on the frequency clients pay you. If you invoice your clients monthly, you may want to pay your salary monthly. This will make tracking payments easier.
How much should my salary be?
As a freelancer your income can fluctuate. You might perform ongoing retainer work and may also may offer your services on a one-time project basis. This will make calculating a set salary more complex.
It may be useful to determine a base income point, which is an amount you want to pay yourself that covers everything you need income for.
Don’t Forget About Benefits & Superannuation
It’s important that freelancers create a benefits package and make sure these costs are covered. Each time you pay yourself, you should be setting money aside for healthcare and paid time off including sick days.
When you work for yourself, it’s up to you to provide for your retirement. Many freelancers receive income primarily for their labour, which means when you stop working you’ll stop getting paid. You can plan for that day by putting part of your income into a super fund.
You should consider having your super funds automatically withdrawn whenever income hits your business account.