As a small business owner, you must put in lots of money, time, and resources to bring your company to life. It can be very easy to get wrapped up in the mission to grow your business and help it turn a profit. During this process, many small business owners forget to organize methods by which they pay themselves. Doing so can be a confusing process, but managers must get the most out of their business.
Start Making a Plan
First, you have to understand that paying yourself from your own company is not the same as getting a paycheck as an employee. First, you have to decide how much you can pay yourself. Will you deduct your payment from your business’ income, or pay yourself a salary or organize an hourly rate? Next, you will have to decide just how much payment you should get. You can choose a number yourself, or consider asking for outside consultation.
Identify Your Business’ Structure
Your options by which you can pay yourself depend heavily on your business’ structure. Before you can proceed, you will have to identify and understand the requirements of your unique entity. There are a few different types of businesses, such as sole proprietorship, partnership, single-member and multiple-member LLCs, and corporations. The structure of your business is left completely up to the decision of business owners. Consider researching each one to determine the benefits of each.
Compare Your Profits and Expenses
Choosing your salary requires an in-depth look at the yearly profit your company makes. Pull your numbers from the past year and compare the money you made to the money you needed to spend to keep your operations afloat. Doing this will give you a much clearer picture of how much you can spend on paying yourself. It is wise to shoot for a slightly lower number than what is available. This gives you extra financial padding in case of an emergency in the future.
Be Reasonable With Yourself
Remember that your business exists to create revenue for you. When paying yourself, keep in mind that you need to allocate enough money to cover your personal expenses and living costs. Many business owners hold back from paying themselves what they consider “too much” because they fear taking away from the integrity of their company. Give yourself what you truly need, while being reasonable and mindful of the effect on your business profits.