How much should you pay to yourself as the business owner? | ADW Accountants and Business Advisors

How much should you pay to yourself as the business owner?

You wanted to start a business, and you’ve done it! Everything you do is working great, your product or services are selling fine and your customers start loving your product. But if you haven’t thought of giving yourself a pay check, think again. Most entrepreneurs tend to overlook paying their salaries. Here’s why you deserve a pay check –

  • You put in the hard work and it’s your valuable time that must be credited
  • Keeps you motivated and helps you perform better
  • Helps to manage your personal finances and expenses
  • Reduces the tax you pay on the total profit

How much should you pay yourself?

The first question that arises when talking of paying yourself a salary is “How much?” Getting paid is important and necessary for your personal well-being, but this should not slow the business growth. Paying too much will take a hit on the business while paying less might not seem the right thing. So it’s important to strike the right balance on how much you get paid as a business owner. And as always, treat your personal and business finances separately! Remember this general rule of thumb: You can take 20% of the profits as your salary and put back the remaining 80% as an investment in your business.

Take your pay according to your business type

Before drawing your pay, assess the nature of your business and see how much you are “eligible” to take as per Government norms. You can refer to the Government tax websites to get these details. This varies based on the market sector and the amount of profit your business is actually making. Do some research on how much other similar businesses will pay you, and understand if the pay is reasonable when compared to your employees and if it merits your work and efforts.

When can you take a paycheck?

If your business is on a low, taking a paycheck should be your last priority. Once the business stabilizes, it becomes easier to get paid. Here are a few questions you can try answering to see if you can take a paycheck or not –

  • Has my business starting generated a sustained revenue?
  • Am I on track with the projected revenue?
  • Are all my operational expenses covered, and is my business breaking even?

If you answered Yes to all these questions, you can take a paycheck as the business owner.

Ways to take a paycheck

The best practice is to take your pay from the business profits rather than the revenue. Also remember to factor in other expenses like payroll, taxes, overheads and so on. You can choose to take a paycheck either as a Salary or an Owner’s Draw. You can choose to earn at regular intervals based on a number of hours of work or a flat rate according to the nature of your business. On the other hand, you can take a salary from your company profits.

As a business owner, it’s important that you make a point to get yourself paid. It’s completely fair for all the work you do.

What other questions do you have regarding paying yourself as a small business owner? We’d love to provide you with custom advice unique to your business. Book your appointment with our Expert Now.

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