So you own your own business! Owning your own business is very exciting but knowing how to pay yourself in your business can be a little tricky. Chances are if you are here you are looking for How to Pay Yourself in Your Small Business, correct? Well, lets jump right in!
When it is time to get paid you should be paying yourself out of your profits, not your revenue. Just because you may be getting a lot of cash flow coming in doesn’t mean that you can just take that money. You still have expenses and payroll (if you have employees) that need to be budgeted out.
How To Determine Your Salary
When it comes time to pay yourself for your business you need to make sure that you’re looking at how much profit you are bringing in, where your business is located, what industry you are in, and your expenses. All of these things are key elements that will factor what your salary will be for your business.
You want to make sure you are paying yourself not too much and not too little for the industry you are in. You need to pay yourself a good salary/wage that you are living comfortably and not struggling to where you are now stressed about personal issues and this can and will affect your business.
Typically the first year of the business you won’t turn over a profit. Don’t let that stress you out. It is normal and is expected for most businesses. You should however still pay yourself because this is your job. Just don’t pay yourself a large sum of money that can hurt you in the future. Calculate and determine what amount would be reasonable and allow you to live comfortably during that first 1-2 years.
Your compensation should be reasonable and you shouldn’t be constantly digging into your company profits. You should be on a regular pay schedule. Weekly, biweekly, or monthly. Have it match the same pay schedule as your employees. Always remember to pay your employees, pay your loans and creditors before paying yourself. It is not only the moral thing to do but it is a good business practice and will help you succeed in the future.
Looking for more bookkeeping information or tips? Check out our post on Are You Prepared for Year End?