How much money does your business owe you? (and will it ever pay you back?)

Why seeing yourself as a shareholder is often better than an owner

People go into business predominantly for the benefit of their families and for greater personal freedom.

The core motivation for many is more around serving others and less about personal entitlement

So is it any wonder, many small business owners often slip and prioritise others to their own personal and commercial detriment - and forget to pay themselves first?

In this article

The one mistake many small business owners make

The result is business owners and directors can begin to see themselves as the funder and labour provider of last resort, with low to no priority on the remuneration scale.

Leaders eat last, but shouldn’t forget to eat

Sometimes when conserving money is the priority, an owner or director may delay paying themselves.

  • But over time if left unchecked, this temporary choice can become a fixed mindset eroding confidence and motivation.
  • It can actually quickly skew your ongoing approach to paying yourself first or even paying yourself at all.

A new look at the owner as lead shareholder

As business owners, we spend a lot of time ensuring we can meet financial obligations like payroll, bills, and funding obligations and then setting responsibilities for the week. Many businesses also have shareholders of some form or another; partners, family, friends, or financiers. We use their particular skills, access to markets, or maybe just their money to leverage our resources and accelerate our business growth.

Banks and Directors Guarantees

The most common example of a shareholder relationship is the bank providing the overdraft trading facility.

This is usually secured by your home or by a blanket ‘directors guarantee’ hidden in the fine print. The bank demands to be paid regardless of whether you’re profitable this month and usually holds 1st mortgage priority over all other investors in your business.

What's in your director's loan account (you have one don’t you?)

Starting a business and feeding it during the lean times usually falls to the hands (and pockets) of the owner-director.

We often wait to pay ourselves last to conserve money, but sometimes seeing yourself first like a shareholder, is actually a powerful motivation to succeed.

Where does the money go?

The majority of small businesses have usually received an informal injection of funds from the owner's personal wealth. These amounts are recorded in the director's loan account. This is the paper record of the funds the business owner has lent to the business and hopes to have returned sometime in the future with interest as a ‘return of capital invested’).

Out of sight not out of mind

But many owners often shy away at disclosing or even tracking how much of their own wealth has been put into the business and how much ‘the business owns them’.

  • Many owners are hoping to just break even and many take a view they would be happy to ‘just get back what I put in,’ rather than demand a commercial return of 5% or an owner's margin of +30%

Remember it's still real money

Because a director's loan account is an on-paper account only, it can sometimes appear artificial compared with the real debt responsibilities owed to a shareholder of the business and therein a paper debt rather than an actual debt to the owner-director.

Pro tip: If you don’t track your own financial contribution to your business (and what it owns you) you will devalue yourself; and what you devalue, drops to a low-value-low-priority position in your life and business. If this becomes a regular behaviour, the end is in sight.

A simple change in mindset can help improve your momentum

The businesses that seem to have a stronger momentum and inbuilt motivation are those where the owners and directors see themselves as shareholders.

  • Their individual financial contribution to the business is carefully recorded, and insured against sickness, injury, and even death, just like any other significant key business asset.

Stop and see the significant value locked in your business

Our businesses are both an expression of our personal values and containers of significant capacity and value.

  • Your wealth is tied up in your business.
  • Your family's wealth is tied up in your business.
  • Your ability to retire is tied up in your business.
  • The stability of your family's future is tied up in your business.
  • The good you do and the stability and value you bring to your community are tied up in your business.

It's time to elevate the position your business holds in your priorities and its responsibility to you and your family.

Take a shareholders approach — know how much your business owes you

Taking the view you’re working to meet the responsibilities of the business to its shareholders can become a powerful external motivation, to help defeat the temptation during stressful times, to ‘just make enough money to survive the month and pay the bills’.

Take a shareholders approach to the money you (and your family) have lent to the business.

  • Make sure the value of your director's loan account is also insured so that if sickness, injury, or unexpected death strikes, your family's wealth is not lost.

The last word

This simple change in priorities will enable you to think bigger about your small business and help you remember you're both the owner and the lead shareholder.

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