Business Revenue Not Equal Personal Income

When you are a Solopreneur or even a Small Business Owner, especially in the early days, sometimes you wonder why you seem to be generating decent business revenue, but it isn't translating directly into the same amount of personal income.

In separating your business finances from your personal you will come to realize that your business revenue and your personal income, while related, are definitely not one and the same.

Business Revenue ≠ Personal Income

You may have started by keeping your business and personal finances separate (which is definitely a must), but there is more to it than that.

The first indication of this inequality is all the business expenses that come off the top including taxes. Expenses will also depend on if you sell products or services or both, and those expenses can take a significantly different percentage of your revenue, thus leaving a significantly different percentage “left over” to pay a salary to you as an employee and potentially also a distribution as the owner, depending on the business structure you have implemented.

You are going to want to fund the employer side of a retirement account for yourself, as well as other benefits and potentially health insurance too. Because you are Solo, you are responsible for providing Retirement and Benefits to yourself just like you would receive if you were working at a Fortune 500 company.

I can already hear you protesting that you can’t afford to fund retirement accounts and benefits, but I consider those items mandatory. Just because you have chosen to go Solo doesn’t mean you have to forgo those kinds of things, it just means you have to fund them from your business revenue.

Remember, your business needs to have a reserve account too - just like you are going to create your personal life, and that is an additional item to subtract out of gross business revenue that won't land in your personal income.