How Much to Pay Yourself as a Small Business Owner
The ability to choose your own salary sounds like a dream come true for many people. The truth, however, is a little more challenging for small business owners.
As a business owner, you can only pay yourself from your profits, not from your revenue. You must also account for items like taxes, wages, fixed expenditures, and overheads before taking your cut.
Hiring a part-time CFO or accountant can assist you in determining how much you can afford to pay yourself. Instead of income or turnover, they will keep track of all expenses, calculate profit, and identify places where you might claim tax deductions.
Your salary will get determined by your region, industry, profits, and the amount you wish to make. However, there are a few factors to consider that can assist you in arriving at an acceptable price.
Don't Overvalue Yourself
If you're just starting out, you might not make any money in the first year. This isn't to say that you shouldn't pay yourself. Personal financial problems are a significant source of concern, and when you're stressed, you're less likely to make smart business decisions.
Undervaluing your time and the work you perform can hurt your productivity and your business, so ensure you pay yourself enough to live comfortably. Remove what you don't need to keep your business and personal life running smoothly.
Add Yourself to Payroll
Don't merely take money out of your business when you need it. In your payroll system, set up payments for you and your employees and keep to them.
Build your salary into your business plan from the beginning, increasing it as your company expands. You'll become accustomed to the quantity of money you receive and won't worry about taking out large lump sums on occasion.
Consider Your Small Business's Legal Structure
The legal structure of the business you manage may limit how much and when you can pay yourself.
If you're a sole trader, for example, you're typically allowed to pay yourself whatever and whenever you choose. That's because you don't have to answer to shareholders or investors.
However, in other businesses, such as incorporated businesses, the owner is frequently on the payroll. Like any other employee, they would get paid regularly.
Before making any decisions, consult with your accountant. Ensure that all transactions get recorded so that you have an audit trail.
At Baystate Advisor's Group, we will ensure your financial transactions are up-to-date and there's enough money to pay yourself.
We can assist you as a part-time CFO, ensuring your small business is set for growth and profitability.