Let’s face it, you know you went into business in the first place to make money and you want to pay yourself in your business.
We all have this desire to change the world and make a difference and at the same time we all set out to do what we love AND make a difference AND make a living.
Right now, some of you are still trying to figure out how to get your costing right so that the business makes enough revenue to cover costs. We need to start with profit and paying yourself in the business.
It’s SUPER important to pay yourself so this is an important question:
As a business owner, how do I pay myself?
Let’s talk about that right now!
There are two ways to pay yourself out of the money you make in your business.
You can pay yourself through your Payroll or by taking money out in what is recorded as Owner Drawings account.
What’s the difference between the two?
With Payroll, you set yourself up as an employee and process the payments through the payroll part of your accounting software – you pay tax, superannuation or 401K, you accrue leave – all just as a normal employee would.
With an Owner Drawings account, you transfer money from your business bank account to your personal account – and your accountant makes the calculations at the end of the year, or quarter.
How do you know which option is right for your company? And is this the same now as it will be in the future?
“It depends” will be my answer.
“It depends” will be my answer.
You need to consider these factors:
- Your business entity type. For USA: is it LLC, S-Corp, Sole Proprietor? In Australia: is it Company, Sole Trader, Trust?
- Your available cash flow – when we use the ‘pay yourself first’ methodology, you factor in a payment to yourself, no matter now small, from the start!
- Profitability over the last few years
- The investments you’ve made into the business
- Your personal goals.
There are some rules which apply that might make this decision for you.
For example, if you’re running at a profit in your company or S-Corp, there is an obligation to take what’s called a “reasonable salary.” This means the business needs to pay you a salary based on your earning capacity and available cash flow.
If you are a Sole Trader or Sole Proprietor all the monies that come into your business are deemed your income. You deduct all the expenses and costs and what remains is deemed to be your “salary” in the eyes of the Tax Office.
Decide how much you want to pay yourself from the start
It’s much better to figure out how much you want to pay yourself from the start and use this to determine your pricing models!
You want to set things up the right way from the beginning. Start as you mean to finish. (One of my favourite expressions!)
When you set yourself up in payroll, it’s important to set it up properly.
If you’re using a basic Owner Drawings account to pay yourself, make sure you’re following the rules! If you are in any doubt – talk to your accountant or call the Tax Office.
My guess is that you are here because you want to build and grow a successful and profitable business
I’m here to help you.
Everything I do in my business, every decision I make is based on this question:
Will this contribute to help you take the steps to create and build your successful, viable and profitable business so that you can achieve Financial Independence?
This is why I do what I do
There are 2 ways you can access all my best material:
Read my book! It is a Business 101 and can answer pretty much all your business questions. It is your step by step guide to launching and growing your business smarter and faster.
“So You Want to Start a Business”
You can order your FREE copy right here – you only pay for postage and handling: click here
I’m excited to share it with you.
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