Paying Yourself a Regular Cake Maker Salary

One of the toughest things when starting a business is knowing you'll be getting a regular salary or wage. As a cake maker your salary is largely dependent on how many cakes you make and how much you charge for them. However, many cake makers live with feast or famine, as the orders and cash flow are rarely consistent. Working out a Cake Maker Salary is tough, but working out how to not live on an all or nothing basis is the hardest.

You have a business and you work in it. Pay yourself like an employee. - this is a line I will repeating several times in this blog post, because it really does sum up how to pay yourself regularly and properly.

Hourly Rate

The first thing I'm going to tackle is making sure you're charging enough for your skills. In the UK (and many other countries) there is something called the Basic Wage. When you are 'employed' you legally have to receive the legal wage. However, many small businesses, and especially cake makers, don't do the same for themselves.

I also, very strongy, believe that the more experienced you are, the more you should be paid. For example, if you were 'employed' somewhere for 5 or 10 years, you'd expect to be paid a little more for your experience and expertise than you did when you first started. Well, this applies when you're running your own business as well. Don't undersell yourself, don't underpay yourself. There is much more about this in my post How Much Do Cake Makers Earn? but lets stick to the basics for this post.

When you price your cakes, are you actually charging for your time correctly? At the basic level you should cover 4 things, if you're a bit more business savvy, you'll cover 5 things.

1. Your costs - ingredients, boards, boxes etc
2. Your Expenses/Overheads - utilities like electricity, petrol and car use for collecting supplies and deliveries, phone bill etc
3. Tax and National Insurance
4. Your Hourly Rate
5. Profit

Get the right Bank Account

Now, we have established that you should be charging the correct amount for your time and skills, how do we even out that cashflow. It all starts with planning and having a good bank account.

Once upon a time I knew of business owners that had several bank accounts. They had a bank account to save for their tax bill, a bank account to hold their money for running costs, maybe a bank account to hold their profit, and another to hold their pay. However, modern bank accounts have addressed this.

There are many new banks that have small business or sole trader accounts where you can have separate spaces. This is the absolute key to evening out your money over the year!

I have a Starling Bank Sole Trader Account, but there are others out there as well. Basically it's like having a handful of cash, and dividing it into different envelopes. You still have the same amount of cash, you have just started planning properly and have split the money up.

This bank account should be totally separate from your own personal bank account. Remember, you have a business and you work in it. It's always best to have a bank account for yourself, and a bank account for your business.

Dividing Your Money Up for a regular salary

Now, here's how to actually start getting paid regularly. And it's all about remembering you have a business and you work in it

When you get paid for a cake, you divide up the money. Personally I try to do this by the end of the day that the money comes in, so I don't miss it. But in busier times I may do it on a weekly basis.

I have 5 spaces in my bank account. Each space get's a different percentage of the cake payment. I will tell you how I divide mine up, however, not everyone is the same and some people have different tax and national insurance payments, so please bear that in mind.

This is how I divide mine:
50% remains in my main space to pay bills and buy ingredients etc
15% Goes into my Tax and NI Space
10% Goes into my Profit Space - which I use to do things like buy training courses, or leave in there in case something drastic like my oven blows up.
25% Goes into my Wages Space

Paying Yourself a Regularly Cake Maker Salary

Now, the next bit takes a bit of experimentation and time to get used to. But now you have to decide on your regular salary that you want to pay yourself. Firstly, will you pay yourself weekly or monthly? I used to have a corporate job and have always been paid monthly, so that's what I opt for. But it's just familiar for me - there is no right or wrong here! You do whatever is best for you.

Then work out how much you can afford every month/week. Now estimate how much will go into your wages pot over the year and divide it by either 12 months or 52 weeks.

So for example, if you think you'll be putting £7,000 into your Wages Space over the year, when divided monthly it'll be £583. That means your monthly salary will be £583.

Then every month, on the same day, you transfer £583 from your Wages Space into your personal bank account. Treating yourself like an employee of your business.

Like I say this may need a little experimentation. Depending on the time of year you start, how much money you have in your account and if your estimations work out right. It may be that you want to work in reverse, and calculate how much money needs to be transferred to your personal bank account every month, and set that as your cake maker salary.

What should happen is in the busy months you'll be leaving money in your Wages Space, that come the quieter months will be used.

Personally I find that by October, if I've had a busy summer, there is money left in my Wages Space that I am grateful for come January and February. If you go a whole year and you've earnt more than you estimated, you can either give yourself a bonus, or readjust your monthly payments the next year, giving yourself a pay rise!

Reviewing and Updating your Cake Prices and Salary

At first this method will need a bit of experimentation to get right. However, I also highly recommend you reassess your prices regularly to make sure they are covering your costs, and your Wages Space isn't being diminished by the cost of ingredients. The cost of basics like butter and sugar is fluctuating all the time. Having a 6 monthly look at it will mean your regular Cake Maker Salary will remain unaffected.

Also, the joy of this method will mean because you have been putting money aside for tax every time someone pays, that tax bill shouldn't be a surprise when you get it. Likewise, if you have money in your Profit Space, and your oven hasn't exploded and needed renewing, why not look to use the profit on something to improve your business or how you run your business?

For more general information read an Essential Guide to Starting a Cake Business.

For more information specifically on Tax and Finances, listen to our podcast episode with Claire Tovey from Beyond the Oven.

This is very loosely based on a method called Profit First, which I recommend reading if you have time.

To get more orders from your quotes read Preparing and Sending Cake Quotes.