At what stage do you start paying yourself lawn care business income?
When you set up a lawn care service, the idea is to work for yourself. In a small business, paying yourself is very important; otherwise, it defeats the entire purpose of being self-employed in the first place. Would you work for someone else without pay? Don’t do that to yourself.
You can hold off paying yourself for a small period when you start a lawn care business if that is in your plan and you have the savings to cover it. You should be fine if your business were not undercapitalized when you started. Fortunately, the financial entry level for a lawn care business can be minimal. Many people go out with a lawn mower and a trimming machine, and that is it. This does not require a lot of finance.
Start keeping track
Start by keeping your business account separate from your personal account. You will now need to go further and keep a business account strictly for business only. You won’t be doing yourself any favors if you grab money from your business account when needed. No pies on the company card when you fill up with gas.
Any payments going from the business account to your account must be structured and made regularly. You cannot pay yourself in an ad-hoc manner. Remember that the company bank account is not your personal piggy bank.
You need to set up a regular pay period and stick to it. I pay myself a set amount every week without fail and have been doing so for the last decade or so. Having regular payments allowed me to get approved for a home loan.
Banks can have an issue with self-employment, and when I started, I found it hard to get any finance. It used to frustrate me when people who worked for me had fewer problems financing than I did, and I can guarantee you that my income was more secure than theirs. As your business grows and your profit margin grows, you start getting a history of regular payments from your company. It will become easier to get personal finance when you need it.
Why regular income payments are best.
Having a regular income payment from your business can help in other ways, too. It will make your household budgeting easier as you will know beforehand what is coming in. Having a set amount each week allows you to plan your household expenses.
Another major problem with erratic payments is that it will eventually attract the wrong sort of attention. The IRS dislikes business owners irregularly paying themselves. If this continues for an extended period, then this will raise a red flag, and you may be marked down for close examination.
Even if you run your lawn care and landscape business entirely above board, this can still be a huge distraction and a waste of time and money. You are better off avoiding this entirely by not sending out this sort of signal in the first place.
Now it is time to do the sums to pay yourself as a salary for a lawn care business. Wondering how much lawn care professionals make. Read more about that here Lawn Mowing Income – How Much Can You Make With a Lawnmowing Business?
Growth over income
Some lawn care business owners run their companies for years and pay themselves a minimum wage or, even worse, nothing at all. The other day, I heard of a business that was taking in over a million dollars a year, and the owner was still not taking drawings. Their partner worked a full-time job to bring in money. If you are so focused on growth that you find yourself in this position, you have truly lost your way. Isn’t the whole idea of self-employment to employ and pay yourself a salary for a lawn care business?
Leaving some money in your business to enable it to grow is good, but that is not the be-all and end-all. You must focus on your goals and build your business to suit them.
When I started my lawn care business, I wanted the largest one I could build. Everything I did was focused on moving towards that goal.
Fortunately, I paid myself from day one (although a bit erratically at first). Within six months, I had a fixed amount in regular weekly drawings from my business. I grew my customer base to over 450 but focused on the wrong thing. I was focused on growth and should have focused on building a profit-driven company. It worked out okay, and I did make a good amount of money, but looking back, I now think I could have done better.
I could have built a smaller lawn mowing business with fewer lawns and made the same profit.
Sometimes, leaving money in your business is your best investment.
When weighing up your options, if your business is growing optimally and highly profitable, then that can be the best place to put your money to keep the business going in the right direction. You will have to decide if this is the best thing for you.
For new lawn care companies, your aim should be to get 40 hours per week before you even begin thinking about employing other people.
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Five ways to pay yourself a salary for a lawn care business?
You may want to research how best to pay yourself based on your business type, such as Partner, Sole Proprietor, etc. I won’t cover that here, but if you visit this site about business structures. , you will find information that will help.
You can pay yourself with a small lawn care business in five ways.
- As you need it (not recommended)
- Enough to cover living costs – good to start with, but not as a long-term plan.
- The lawn care industry average for your role plus a bit more – good once you have grown.
- What you think you are worth – (not recommended unless it is pegged to turnover)
- Whatever is left over – is the worst idea.
Starting your lawn care business with no idea what you should be taking can lead to you overpaying yourself and not even realizing it until your expenses become due.
You need to know your numbers. Every business is different. I will list my business percentages at the end of this post.
Yours will not be the same, but they may be similar.
Before working out your pay rate, the final thing you should do is work out the break-even point for your business. That way, if your drawings are eating into your expenses budget, you will know and reduce your overhead costs or increase the average cost of lawn before you run into problems.
I am going to discuss this here briefly, but if you want a complete guide, you will find courses on how to do this at the lawnmowing101 membership
Wondering how much to pay yourself as a lawn care business owner?
The figures in this industry are all over the place, but from my experience, I would put the figure at around 50-60% of turnover. Also, remember to put money aside for taxes.
If you have a turnover of $2k a week, you would be spending 40% ($800) on expenses and paying yourself around 50-60% ($1000-$1200) before taxes. You can reduce the running costs if you pay attention to the details.
When starting your business, the worst thing you can do is draw more money than your company can afford to pay you. It is easy to do and may end up crippling your fledgling business. The method I would use to determine your starting income is simple.
- First, go to your personal bank account.
- Then, go through all the expenses you have made in the last three months.
- Separate your expenses into two columns. The first column is the necessary expenses, and the second is luxuries.
- Divide column one by twelve.
- Add 25% to allow for taxes.
- You now have the weekly income you can pay yourself for the first three months.
Hang on, you might say. I am just starting, and I haven’t got 5 lawns yet, so I can’t do this. If this is the case, these are the savings you will need to put aside for the first three months.
Please note that you can skip step five if you are using savings. You will not be paying taxes on your savings. If you do not have the savings or access to the funds, you will be going into this business undercapitalized. Starting a business without funds does not mean it won’t work, but you must be hard-headed and put in twice the amount of effort if you want to succeed.
Do your first evaluation of your drawings after three months. If you are still not paying yourself after three months, start now. Your next three months should have regular payments going into your personal account. Get used to your drawings and treat them like wages. Learn how to start to live frugally for a little while now and reap the rewards later when you start paying yourself a great salary from a successful lawn care business.
Other things you may need to consider in a new business.
What happens if you want to spend extra money on a luxury item? You can still do that if you plan it right, but you will have to do the work. If you aim to bring on eight new customers monthly in your business plan, aim for more and pay yourself a small bonus if you get over that amount.
It won’t hurt your business if you are doing a little bit better than predicted so that you can reward yourself. On the other side of the coin, if you are continually failing to meet targets, you will have to tighten your belt and re-evaluate your objectives to make sure they are not unfeasible.
You want to aim to get your income to an industry level within twelve months and then add a bit more (for the stress of self-employment). Research here and ask yourself how much I would pay someone to do my job. That is an excellent place to start.
You may be thinking, “What if my business can afford to pay me more than that”? If you are in this fortunate position, don’t take the profit piecemeal as a bonus. Wait until the end of the year and then make a lump sum payment to yourself. If you are making this payment in October, it will undoubtedly help with the winter squeeze.
Looking for a few ways to increase your income by upselling to existing customers? Read more about that here. Upselling Lawn Care Customers Can Unlock More Profits
Do not attempt to reduce your taxes by keeping yourself on minimum wages forever. This behavior is another red flag for the IRS, and unless you want them to come “knocking on your door,” don’t even think about it.
We have found it pays to be honest about income. You can’t exactly go to a bank to buy a house and say, “On paper, I earn 32k, but I actually earn 50k”. You can’t sell a business like that either. To succeed, you need proof of income.
Tax organizations also run algorithms to pick up discrepancies in expenses, such as the amount spent on fuel and the amount of income produced. They have industry figures on all these things made with information from thousands of businesses like yours. If you continuously fall outside these industry averages, you can expect a friendly visit from your local tax office.
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There are legitimate personal expenses that your business can cover.
This list is just a general idea, as different locations have different rules. You will need to see an accountant for professional advice for your business.
Health insurance – We have some of our policies covered by our business. Others don’t qualify, and we must personally pay for these.
Home office – If you have an area set out in your home solely for business use, you can claim it. This claim will not cover the kitchen table but include a desk in the corner of a room.
Using your personal car for quoting – If you do a lot of quoting or visiting customers in your family vehicle, you can claim this. You will need to keep a logbook.
There is a multitude of other expenses that can be covered, therefore reducing your taxable income. IRS has a list of them in this article about IRS expences.
General running costs
As I said earlier, I will review a few of my percentages. These may be similar to yours if your business is turning over less than 350k per year.
If you are over that mark, things begin to change as you will have different overheads needed to run your business.
I will start with an owner-operator first. My wife and I now aim to pay ourselves around 60% of turnover these days. We allow 35% for running my business and leave 5% in the company as a buffer.
When we had staff and worked actively in the business, we aimed for 40% of turnover. Every sole-operated van we put on the road increased our income by 20% of their turnover. Running costs can get up around 35-45% when you employ people as you always seem to have an endless supply of equipment that needs repair. As a side note, we always bought new equipment, and the repairs were mainly due to the rough handling of the gear.
If you want to keep things simple, you can pay yourself 50% of whatever you turnover every week. Then, your business will always be healthy, and you can pay yourself a little yearly bonus at tax time.
Growing your assets
One good way to increase your assets with your business is to buy your own company building if you ever get to the size where you need one. You can then pay yourself rent and produce an income while building the value of your business.
Remember why you became self-employed in the first place.
Finally, I would like you to consider your motivation, money, or lifestyle.
If this is solely a money-making venture, grow the business and return any spare cash to your company. If you work hard for four to five years, you may be able to build a business that doesn’t need you. Be cautioned that this is not as easy as it sounds, but with diligence and determination, it is doable.
If you are getting into lawn care for a lifestyle change and do not want to employ people, then focus on maximizing your returns to achieve the best income for the least amount of time spent in the field and ensure a steady income stream.
If you started the business, you could spend time with your family. Then don’t plow all your extra time back into the company if it takes time away from your family. Remember why you started the business in the first place.
I hope this helps and that you now have a plan for how you will deal with your personal income going forward.
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