The beauty of working for yourself means YOU have your schedules, times, and ways. You also can choose projects that you want to start with. You also probably battled through many challenges that people who work in 9-5 jobs never understand. I know that because I live with it. One of the challenges is getting paid monthly or regularly like an employee who works for a corporation.

There are many ebbs and flow as a business owner – sometimes up and down that you cannot predict. You have a lot of revenue in some months because you launch products, services, and courses. Some months you will not have any income. So, building an owner salary reserver is very important that you can get paid every month consistently regardless of whether you have clients coming or not. Of course, depending on your niches, some can build retainer clients, which giving you a consistent income stream, but owner reserve is a must, regardless.

In this post, I have suggested the way to calculate and how to build the reserve. Of course, if your business revenues never reach the point to have profits, you will need to pay attention to your sales and manage your business expenses. So, there is an assumption that your business makes profits. Also, if you manage your personal expenses well, the first couple years into the business, you will not need a lot of profit to cover your needs.

Once you reach a certain level of profits, the numbers and process may change.

The formulas are as below:

Step 1: Calculate how much you need every month to cover your personal expenses and retirement investment.

Step 2: Calculate pretax profit: get the number from step 1 dividing to (1- tax rate)

For example, your tax rate is 25%, and you need $3,000 per month for your personal life need. You get $3000/(1-0.25) = $4,165 per month. This is the profit your business needs to make per month.

Step 3: Calculate how much your business needs to operate. You add all of the expenses in operation.

For example, you need $2,000 per month.

Step 4: Calculate your sales target per month.

Adding step 2 and step 3, you will have the sales target. Please note that this is the target you need to make to bring home $3,000 per month (or your personal needs). If you like to make more, your target can be higher.

In this example, you will have $2,000 + 4,165 = $6,165.

Step 5: Percentage of step 1 and step 3 over the sales target:

In this example: $3,000/6,165 = 48.6%. 

Step 6: This means that you need to save 48.6 dollars for owner pay for every $100 sale your business makes. Transfer this money to the owner pay reserve. If that month your business makes $10,000, do not spend them all. Transfer $4,860 to owner reserve. Every month, you transfer yourself $3,000 from the reserve fund. 

It is also worth noting that you calculate the pretax profit in this case because any dollars you make a profit, remember to save the percentage to pay tax. Many business owners feel overwhelmed when they receive a tax invoice. The good thing is that you make profits. The not so good is that you did not save to pay tax. So, remember to save for tax bills. In this post, I also have not mentioned business reinvesting funds. It may be another time.

I hope this helps you planning your earnings. If you would like to have more details, please let me know. I can put in a guide, spreadsheet pre-formulated so you can download and calculate your way.