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How to Pay Yourself as a Small Business Owner

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August 11, 2021

Owner’s Draw, Personal Pay, Owner Distribution, Salaries… as a small business owner, you’ve probably heard all of those terms when it comes to paying yourself and you might wonder which one is best for you. 

As a business owner, you work hard to get clients in the door, provide them with your services and maybe even employ other people, but, you can’t do all of that for free! You need to pay yourself just like you would if you worked for someone else, but also pay close attention to the cash flow needed to support your salary or distributions.

However, before you start paying yourself, you need to have a plan in place for your personal finance needs until you have enough money to start paying yourself. The best way to do so is by budgeting and creating a cash flow plan. 

If that’s something you need help with, sign up for my 6-week program, Chart Your Course to Financial Success

For a complete explanation of how and what to pay yourself depending on your type of business, watch this week’s video. 

 

Determine Which Plan is Best For You

  • A Single member LLC, a partnership, or sole proprietorship that is not taxed as an S-Corp, then you will take owner draw (sole proprietorship), partner distributions (partnership) or personal pay. This type of pay is for the business owner that is not an employee of the business. As the owner, you should have a plan in place of just how much you will pay yourself after you have paid all of your expenses.
  • As a non-employee owner, you have many options when it comes to paying yourself, but it is best to keep it consistent. This makes bookkeeping easy and it’s less of a red flag in case of an audit.
  • A S-Corp owner, that means you are not just the owner but also an employee and the IRS requires you to pay yourself a reasonable salary. Which means you are taking a salary from the business, paid as W-2 income with income taxes withheld, and your business pays a portion of your taxes as well. This type of owner needs to be paid through payroll. [Click here to check out my payroll video about Gusto. Receive a Visa Gift Card when you sign up using my link and run your first payroll through Gusto. https://gusto.com/r/stephanie7623]

 

Gain a Better Understanding of Bookkeeping for Your Small Business

If you are at a stage in your business where you are looking to get a bookkeeping system in order, enroll in my free bookkeeping course!

This course will help you understand the terminology and the who, what, when, where and why of bookkeeping for your business. Enroll Today!

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