How much should I pay myself as a business owner?

Did you know that you should pay yourself first as a small business owner?

For many small business owners, answering yes to the above question seems counterintuitive. You are busy investing in your business with both time and money. How can you then take out money to pay yourself?  It almost seems selfish to pay yourself, especially if it seems that you cannot afford to do so.

However, compensating yourself is essential for the financial accuracy and health of your company. So, how do you go about it when it seems like a ‘forgivable’ cost?

Choose from two approaches

–   Owner’s Draw

Draw money from your business profits using an as-need basis. You may also decide to take out draws at regular intervals. This option allows for flexibility as your compensation can fluctuate based on the way that your business is performing. However, choosing this method will also lead to a reduction in your business equity.

–   Salary

Pay yourself as a regular employee, including the tax obligations. This option is easier administratively and allows for more stability in your business finances. It also makes it easy to keep track of your income as a business owner. The only challenge that a small business owner may face is what to do when cash flow is low.

Alternatively, you can combine these two approaches. This would mean that you pay yourself a nominal salary, and then an owner’s draw when you experience high profits.

A few tips that you should remember when paying yourself: –

–   Pay yourself from your profits, and not your revenue.

–   Use good accounting software to help you work out and track all your expenses.

–   Set your pay based on industry standards, your profits, and your expected earnings.

Your business should be a source of joy and fulfilling a dream, not a source of anxiety. Furthermore, you should not be working for free. Therefore, if you are not yet ready to pay yourself as your business grows, plan for it and give yourself a cut-off date. If you go too long without paying yourself as a business owner, you will experience frustration and anxiety. To understand the variables that may impact how much you should pay yourself, reach out to an expert business advisor at RCN Accounting & Business Advisors today. Book a Discovery Call.