How to Pay Yourself as a Small Business Owner

When you are a small business owner, it is important you are paying yourself properly. The reality is that many small business owners neglect to pay themselves or are confused about how to do so.

Let’s find out.

  1. Know how much to pay yourself

This is where the dilemma starts for most small business owners. You have to consider your business situation, the industry or market you are in and your business turnover and structure while ensuring that profit is split between investment and your wage.

At the start of your business, you may pay yourself just enough to cover daily expenses, and this ensures that adequate funds are left for investment. Luckily, there are plenty of resources online to help you decide how much you pay yourself as your business grows. 

  1. Know your business structure

Is your business a sole-proprietorship, a partnership or a limited liability company? Knowing the exact structure helps you to know how to pay yourself. Depending on the structure of your business, you will be able to ay yourself in different ways. However, you can only figure out what these ways are once you know the structure of your business.

  1. Pay yourself in dividends

If your business is registered as a limited liability company, you can pay yourself in dividends. Dividends refer to the money paid to shareholders in a limited company when it makes a profit. Once taxes, overhead costs and other expenses have been settled, you may pay yourself a dividend from the leftover profit. The percentage to be paid will depend upon the percentage of shares you own in the company. Remember to have enough funds for daily expenses, as paying yourself more than the available profits as dividends are illegal. 

  1. Paying yourself a salary: you may choose to pay yourself a salary if you work daily. You may also be required to do so if your company is a Close Corporation (C Corp), you can examine your job roles and match them with those of people playing the same roles to know how much to pay yourself.
  2. A payroll schedule

Create a payroll schedule for yourself. As a small business owner, you are responsible for how the business funds are managed. A payroll schedule will guide you, so you don’t dip into funds indiscriminately. Decide whether you want to pay yourself weekly, bi-weekly, monthly, or quarterly.

These are a few tips to help you pay yourself without running out of personal funds or draining the business accounts. Paying yourself can seem tricky at first, especially when you are the business owner. Most business owners don’t want to take any money from the business for themselves in the early stages, and while this is a noble thought, you must also ensure that you can make ends meet outside of work. Paying yourself a fair wage is the only way that you can achieve this.

Posted in: Personal Finance

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