 Hey coach, welcome back to another episode with my friend Andrew Casal from Valor Accounting. How are you today Andrew? I'm very well. Thanks Leo, how are you doing? Oh well, oh well. Thanks for jumping on here again. I'm super excited about talking to you, well talking to you about a new topic. So today we're going to be talking about how to pay yourself, right? The thing all coaches want to know, right? Why have a business if you can't pay yourself? So I won't take the stage too much longer, over to you Andrew. Brilliant, thanks Leo. So yeah, as you said, the whole point of, you know, a business, a profit, for profit business is to reap the rewards, you know, so to speak. So it's about taking, how to take money out of your business. And we're going to look at a few factors here, because of course we're going to talk about the tax side of taking out money from your business, especially for limited companies because it's a little bit more complex in that area. But we're going to look at kind of the cash management side of it as well, as well as like using that information to plan ahead for, you know, and this is good for growing, you know, not only just startups, but growing businesses as well. So yeah, it's mainly just about the areas here, cash management, tax and planning ahead. Nice. So there's two, obviously we spoke earlier in a previous podcast that there are two main types of business structures. You've got the self-employed, which is the sole trader, and then you've got a limited company. So what we're going to do is we're going to look at both, both sides and how, what the implications of taking money out. Okay, so first one is, as we spoke about before, if you're a sole trader, you know, a self-employed, legally speaking, you and your business are the same. And it's good in a way. It's good in a way because that means that you can just pretty much take out money from your business account as and when you want to. So that's actually quite a good thing to do. You can't run payroll for yourself if you're self-employed. You can if you're a limited company, but we'll get on to that. So essentially you can just take out money and that's called drawing. So it's, you know, it's withdrawing money out of the business. Now, one of the pitfalls of this type of business structure is you have to have good cash management because sometimes I come across clients who they've got a self-employed business and they're taking out too much money and what happens is they're unable to pay their expenses. So they've got to end up putting money back. You know, so a good cash management is ideal for this type of business structure. And what I would say is just make sure you keep enough money to not only pay expenses for your business, but especially if you're looking to grow, leave some money in there to reinvest in the business. And anything after that, that's what you can take. And another thing I would say is do it on a weekly or a monthly basis and make sure that it's a consistent amount. A consistent amount. Don't just take as of when, you know, record what the amounts they are and how often and that will give you some consistency for good cash management. I like that. So I'm going to give the audience an example of some of the things coaches do. I know this is something we spoke to you about and this is poor cash management, right? So a lot of coaches are very bad with managing their money. And what they will do is because the tax year is ending, they've got to pay their taxes, they will then run these camps or clinics to try and recuperate the money that then they owe in taxes. So essentially what you're trying to say is always keep a percentage of what you make so that when we get to the tax year or the month or whenever you have to pay tax, then you've got that money reserved because a coach that doesn't, isn't good with their finances and then depends on running clinics or camps to recuperate that money that they've lost, you know, it's a massive risk because you might not make that money in that camp or clinic or it just might reign so you can't run the clinic, you might get ill so you can't run the clinic, right? So just having better cash management is essentially what you're trying to say, Andrew. Yeah, and you know what, that's such a good point that you mentioned about the tax side as well because that's a hidden expense because when you're running your sports coaching business, if you're paying for sports facilities or your monthly subscriptions, you know that's coming out but if you're self-employed, you're going to pay tax at the end of your accounting year and if you don't have an idea of how much tax you're going to pay and you haven't made any sort of like a savings pot for it or an allowance for that, then you're going to be hit with a tax bill and as you said, that's not a good time, that's not a fun time and especially another thing as well that I would mention which is a really important point is in the UK, when if you're self-employed and your tax bill goes over £1,000, then you are required to pay what's called payments on account and that is an additional 50% in advance payment for next year's tax and you would have to pay that so you have to take that into account and to be honest, I get a lot of clients who come to me in that position where they've come to me last minute and they've maybe done some rough calculations on their current tax point and then they hear about this payments on account and they're not sure what that is and they get hit with an additional 50% tax bill, yes it's for next year but you've got to pay it earlier, it's a payment in advance and that can really hinder their cash flow really badly so that's something that's so important so thanks for bringing that up Leo. Yeah and also I think it does come down to having a good accountant as well because if your accountant isn't advising you on stuff like this, then you aren't prepared. That's it and that's the thing, if you have an accountant that works with you on a quarterly basis they can tell you this is what your tax projections are, so this is the amount of tax you're looking to pay and they can advise you on how much to save, how much to keep into your business account so you're not hit with the surprise tax bill. So yeah obviously it's good but don't get me wrong, this is for, I guess that's more for growing businesses, for startups maybe you might not have enough resources to get yourself an account on a quarterly basis but these are good things to know, you can do your research, it's all on HMRC payments on account and try and build some sort of structure within your business in terms of cash management so you don't get caught out. Yeah and also for the coaches watching, because I know we've got coaches from all around the world, this is just a generic thing so make sure that you speak to an accountant in whichever city or country that you're in and they'll be able to advise you more correctly on how to pay yourself as a limited company or self-employed. Yeah yeah that's right, unfortunately I can't do you know any taxes in other countries because of different tax laws but yeah so okay now we're moving on to limited companies okay so this is a common mistake that new directors make when they set up their own company and what they're doing is let's say they make money and they just take money out of the bit of the company bank account as if it's an ATM right, it doesn't work like that, it doesn't work like that, it's a bit more, no self-employed you can do that but limited company you are a separate legal entity which means that you can't just take money as and when you want so that's one thing to be to be aware of and so how it really starts off with I'm going to just kind of go through a new business journey so it's something very similar you know you went through Leo as well and a lot of other clients of mine is especially if you are financing the business yourself then what you do is you look you'd essentially get send you know transfer money from your personal account to your business bank account and you're essentially loaning that company money now there's going to be a time where your business starts being profitable and you want to start taking money out a really good way to take money out first is by using what's called a direct loan account and when you when you're transferring money to your limited company that's going to give a credit to your direct loan account and before you know talking about you know salaries and dividends and things you can make use of this money which is the money basically you put into the company but now you want to take it out and you know you want to be obviously you want to be in a we don't make sure that you keep an eye on that you don't take out more money than you need to because then there's other tax implications where yeah it becomes problematic as well but that's a really good strategy to use before setting up a payroll scheme and start paying yourself salary and things like that okay so don't don't use your company as an ATM yeah yeah so this is the next bit now so let's say for example you're a your business and you're you've started taking out money of your DLA and your accountant says look your DLA is starting to run a bit low but you want to still take more money out of the company let's look at take you know setting up a salary for you to take out every month and what that entails is a pay as you earn scheme which is a PAYE scheme which is done via HMRC and your accountant can do that for you and what that allows you to do as a director is you know pay yourself a monthly amount it can be variable as well so let's say for example you start earning you start having some profits in the business and you want to slowly increase the money you take out so you can increase your salary there one thing I would say is there's obviously a sweet spot in terms of taking out money in a tax-efficient way and for a limited company currently the most tax and look this is the it is a case by case basis it is different if you've got other employments and you're running your own limited company or you've got a number of limited companies definitely speak to your accountant about a bit more of the intricacies around that but essentially it's paying up to your personal allowance and one thing as well to note is when you pay yourself a salary that essentially gets credited to your director's loan account I know it can be quite confusing but bear with me here it you don't actually have to take that money out straight away right because when you pay yourself a salary as a limited company is an expense for the company but having said that you do have to take it out nine months so the deadline to take out that money is nine months after your accounting year end right so it's nine months after your accounting year end you're going to make sure that any salary you paid within that accounting period is taken out otherwise it will still be money that you can still take out from the company but it won't be an allowable expense for corporation tax purposes okay so this as it that's just a little nugget of um of you know a bit of a tax nugget there um and next one is dividends so you pay yourself salary and you want to take more money out what would you do okay you want to take out dividends and that is another way on top of taking out salary to extract money from your your company one thing to watch out for is make sure that your company is is in profit yeah and what that means is dividends is anything is this kind of um the bit at the top that you can take out now if your company's in a loss unfortunately you can't take out dividends and that's what's called unlawful dividends so hopefully that gives a bit of an overview on how to take out money from your self-employed business or your limited company no i like that um so any for any coach watching that is maybe at the starting stage of their business what would you recommend in terms of going down the self-employed or going down the the limited company route in order to pay themselves at the beginning yeah so i think the best way to do it is is do your research do your research go you know go listen to podcasts um especially around this area like we've got a number of podcasts so listen to them um have an idea about how it works and then get in touch with an accountant most accountants will actually give you a you know free 30-minute consultation which might just be enough to help you set up initially and give and and and allow you to have a bit of growth first and then contact them after about other ways of going about it but definitely speak to you know a professional about it do your research and that will help you in the starting stages fantastic that that was also a great summary as well Andrew and there we are excellent all right Andrew well thank you very much if you have if you guys watching have any questions for Andrew leave them in the comment section right we will share all your questions with him and get back to you guys as soon as we can also if you want to connect with Andrew he does only work with coaches in the UK so if you're in the UK description below this video you can reach out to him to book a a call with him so Andrew before we head out anything else you'd like to add no that's it that's it you know it's an exciting journey sports coaches so um so yeah just get stuck in nice okay thank you Andrew and look forward to our next chat thank you thanks to you