How Small Business Owners Pay Themselves
When you own your own business, how do you pay yourself? You want to balance your business’s growth but also give yourself the financial security needed to make responsible decisions.
If your business is registered as a corporation (C-corp or S-corp in the US), you can pay yourself a monthly salary. You get a fixed income each month from the corporation’s profits. The shareholders decide the exact amount.
As a tradesperson writing notes and checking a mobile phone notification, your structure affects how you take pay and how you’re taxed.
Once decided, pick an amount. Pay yourself a percentage of net profit to tie compensation to performance. Avoid paying yourself from debt or struggling business funds.
Owner Compensation Strategies
Why does owner compensation matter? As a business owner, it’s important to be compensated fairly for the work you do.
Pay yourself a salary. This can be tricky because there is no ceiling on how much you can pay yourself. Withdrawing limited amounts of money keeps the business afloat longer due to less expenditure. Pay yourself dividends. Dividends provide income while allowing profits to remain in the business.
How to Pay Yourself if Self-Employed
You want to balance your business’s growth but also give yourself the financial security to make responsible decisions. If registered as a corporation in the US, you can pay a monthly salary from profits. Shareholders decide the amount.
Once decided, pick an amount as a percentage of net profit to tie compensation to performance. Avoid paying from debt or struggling funds. Paying yourself helps apply deductions to salary, not total revenue.
As a sole proprietor, your "pay" is the year’s profit. Most owners pay themselves through an owner’s draw, not wages. Payment methods include draws, salaries, or both. Consider your structure and taxes when choosing.
Evaluate financials monthly. $2,500 per month is reasonable to survive on. Pay yourself regularly.