As a business owner, you need to pay yourself
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Loading... - Kaweria Ombati
- 08 Aug 2022
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Being your own boss is exciting. You get to work on your dream, decide your own schedule, and create jobs for others.
But there are some downsides that come with the entrepreneur lifestyle. One of the biggest downsides is that unless you’re intentional with it, it’s easy to overlook the importance of paying yourself a regular salary.
Surveys show that only half of business owners pay themselves a salary. And of those who do, a majority only pay themselves enough to get by.
Many business owners draw random amounts of money from their business whenever they need it. In fact, many small business owners haven’t established boundaries between business and personal accounts – they simply take funds from either account to replenish the other whenever necessary.
Obviously, that strategy is bound to backfire at some point. Successful entrepreneurs who are committed to building sustainable businesses understand that creating a firewall between personal and business accounts is crucial.
Part of establishing this firewall is by creating a strategy to pay yourself a regular salary.
While it’s understandable that you want to maximise profits in your business, you must not forget to reward yourself appropriately for your hard work.
Just like other employees, you deserve to be paid a salary. When you don’t draw a regular salary from your business, it can distort the business’ real profits, since your salary should be factored into the company budget.
Ultimately, whether you pay yourself or not affects the taxes your business has to pay.
That said, it’s not easy to figure out exactly how much you should pay yourself. On one hand, you want to pay yourself a fair wage, while on the other you also want to minimise your business expenses.
Here are some effective tips on how to pay yourself as a business owner:
Figure out when to start paying yourself
When you’ve just set up your business, don’t expect to be able to pay yourself. In the beginning, it’s understandable that you’ll have to focus on investing in your business. With that in mind, it would be counterintuitive to start paying yourself from the business revenue.
The right time to start drawing a salary from your business is when it starts turning profits (revenue minus expenses equals profits).
With a fledgling start-up, the profits may be quite small in the first months and years. Even so, don’t be tempted to take all the profits as salary – that’s the fastest way to kill a new business. Read More…
