Ask James Caan: When it comes to costing your business, keep it simple

Small business agony uncle James Caan on how to plan for expenses such as salaries in the early stages of a business.

Dear James

I’m writing my first business plan and wondered how you factor in costs such as my own salary?

Sean Johnson

This is a question every start-up I know asks — ‘how much should I pay myself?’

You must understand the importance of financial planning; cashflow, wages, budgeting, etc.

When it comes to costings, keep it simple. Work out how much comes in, how much goes out and what’s left is profit. If there is no profit, there is no business.

When you look at cash flow, you must ask: ‘Is this expense essential or nice to have?’ Of course, salary is essential. But work out exactly how much you need — be honest, anything you miss will catch up on you.

My advice is, start with a low salary so all profits can build the business. This may not sound appealing but it means a better salary in the long run.

Whenever I analyse a business’s costs, I generally find between 15% and 20% are there because they have always been there. Don’t make this mistake! There's no room for ‘nice to haves’.

I recommend you download my business secrets app which has a whole section on managing and raising finances.

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