You do a whole lot every single day trying to grow your small business, support your family, and take care of your employees. Sometimes, you’re so busy taking care of everyone else that you forget about yourself. You forget that you still have to eat and pay your bills (wouldn’t it be great if forgetting your bills just made them go away with no ramifications?)
How can you take care of yourself? You can pay yourself. Look at your business’s numbers – do you have the money to pay yourself? If so, great! Try to pay yourself on a regular basis so you can keep your cash flow pretty consistent (in your personal life and in your business).
How much should you pay yourself? That’s a pretty personal question – one that can be hard to answer. So, ask yourself some questions to figure it out:
That All Sounds Great. But, How Can I Actually Pay Myself?
As a small business owner, you have a few ways to pay yourself. It mostly depends on your business’s entity type, but we strongly encourage you to talk to a tax consultant to determine the best option for you and your business.
If you become a W-2 employee for your own company, you’ll pay yourself just like you pay your employees. You’ll cut yourself a paycheck, withhold taxes, and make payments for the employer share of those taxes.
If you’re a shareholder in your company, you can pay yourself regular dividends based on the company’s profits.
Dividends are simply money paid regularly to a company’s shareholders out of the company’s profits.
If you’re a shareholder, you also have the option of loaning yourself money from your business. To do this, treat it like any other loan – you must have a stated interest rate, maturity date, and an agreement outlining what happens if you don’t pay the loan back.
If your business operates as a sole proprietorship or partnership, you’ll pay yourself through an owner’s draw. But, you can also take an owner’s draw if you’re an LLC or S-Corp.
An owner’s draw is the withdrawal of cash or other assets from the company for the personal use of its owner. An owner’s draw will reduce your capital and equity in the business.