Who do you pay first ?

[Burgo]

There are several schools of thought on this, so being the inquisitive type I pose the question Who do you pay first ?

When I was operating my cleaning business I thought the best policy was to pay off my account, people that I had bought and owed money to, before I took any money from the business.

However, since retiring from active work I hear of people expressing the belief that you should pay yourself first and your accounts with whats left over.

So what are your thoughts on this topic.

[Chris Bates]

Perhaps this depends more on the business structure. I pay my accounts first, before myself - because that's what I see is going to best ensure the longevity of the business. I also know that in the structure of the business, I'm still liable for the said accounts if I default on them.

I'll always put my family first, but I don't see putting the business in debt as putting them first, haha.

[JakeThomas]

My policy is to always pay outstanding accounts every Friday - Regardless of whether I have enough for myself or not.

I think building long term, positive relationships with suppliers is incredibly important for the longevity of any business - I personally don't want any animosity anywhere along my production line.

Whats your policy Burgo?

- Jake

[Felicity_Sapphire]

I agree with everyone that says to pay your accounts before you pay yourself. In doing that, you are investing back in to your business and keeping suppliers happy.

When you are in a start up phase in particular, you can't expect to get a great deal for yourself out of the business unless you are very profitable from the start.

[Tim Gosper]

You guys pay accounts?

Seriously though, nothing worse than having to chase your tail (or have others chasing it!) I have even learned to pre-pay for larger items especially in the startup phase.

Cheers, T.

[Ingress Online]

I was talking about money yesterday at Sydney Womens Networking event.

I was given a fabulous piece of advise a while ago that changed my everything finance.

Keep a note pad with you for 1 month and write down everything you spend, from your coffee's to the hair appointment or Newspaper.
After a month write down all your bills eg mortgage, electricity, phone, internet, subscriptions and if you are a sole trader you expected GST obligation and PAYE taxes

Add up your note pad and times it by 12 for the year and add the two together. That is your "Break Even Point" for you and your business.

Once you have that you know the minimum amount that you need to earn in a year. I then take that amount and divide by 52 which is my weekly wage.

You can go further and plan what type of work you need to get to reach that amount eg for me it is How many CMS websites, How much hosting and how much hourly work.

I feel this is a great way to remove the grey area of wages which is always a question with small businesses. Stick to your wage ALWAYS, don't take money out of the business whenever you want and you will have money for the bills, especially if your financial target is very clear eg your break even point.

trish
Ingress Online
More than just websites
we give you strategies for your Online Business
http://www.ingress.com.au

[Rhys]

Absolutely pay your suppliers on time: if you're not sure about this, look at it from the other side. I don't know about you but I HATE chasing debt, and if you delay paying suppliers that is what they are having to do. By saying I hate chasing debt I don't mean I feel anxious or nervous, etc, and I certainly don't avoid it, indeed if a payment is overdue it is the first thing I address. But I see it as an appalling waste of time, it adds ZERO value to me or to my client, it just absorbs time that should be spent providing service, and if you are flying solo it potentially creates a serious barrier to ongoing provision of service (I am about to create a new post on this very issue, so please look out for this).

So don't ever put your suppliers in this situation. I want my entire supply chain to hum with efficiency: I pay my suppliers the day they fall due, I expect my customers to do the same to me.

Of course this does mean the kids go hungry, but hey they're used to it (that's a joke by the way).

Cheers, Rhys

[JakeThomas]

Great way of looking at it Rhys, I agree completely - I absolutely hate chasing debt too, it's a really bad waste of time.

Hey Trish - That post was absolutely fantastic - I think with a bit of refinement it would be perfectly suited as an article on the main site. If your interested, visit this page here for more information.

- Jake

[Gab]

My wife and my kids.

The rest... can wait.

[MatthewLeigh]

Great topic and some really interesting responses.
Personally I would pay accounts first before personally taking fund out of the business. I was employed at a company where the director loved drawing funds before paying accounts (payroll was always covered) but it made the AP side of the business a stressful exercise and I thought unnecessarily so. The not paying accounts affects a lot more than many people realise.