Many small business owners find themselves tasked with paying themselves. This can be a confusing process that needs to be carefully thought out and implemented.
Typically, business owners receive compensation in one of two ways: a salary or owner’s draw. Understanding the basics of these methods can help you decide which is suitable for your business and your finances.
Set Aside Money
Setting aside money for your business is a great way to ensure you have cash available for unforeseen expenses, such as emergencies or unexpected tax bills. It can also help keep your business in business during periods of low sales or slow growth.
One of the best ways how to pay yourself as a business owners is to use a savings account. This will give you peace of mind and help you feel secure that your funds are protected and earning interest.
Another good option is to find a mobile banking app to set up a particular savings account. You can automatically put money into this account once you get a check.
This will allow you to ensure that you are saving at a percentage appropriate for your budget and financial goals. Once you have determined how much to save each month, it will be easier to stay on track and avoid spending your savings in other ways.
The amount you should set aside depends on the type of business you have and how long it has been operating. For example, a seasonal small business that receives most of its profits over a few months should have a savings account with at least 10% of its earnings.
Establish a Schedule
One of the first things you need to do when you start paying yourself as a small business owner is to establish a schedule. A schedule consists of planning your tasks in the order they need to be completed based on their dependencies and resources. This helps you avoid bottlenecks and get the work done on time.
There are several different techniques and tools that you can use to create a schedule for your business, but it’s important to remember that the process isn’t just about writing down tasks and dates. It’s also about including resource availability and capacity planning considerations in the plan.
Once everything is in place, you must ensure you’re correctly paying yourself as a business owner. There are a few ways to do this, but each method will be based on your business structure and performance.
For example, if you’re running a sole proprietorship, you should pay yourself through an owner’s draw instead of a salary. The IRS considers sole proprietors to be self-employed, not employees.
Whether you’re choosing to pay yourself a salary or an owner’s draw, it’s essential to understand the tax implications of each. It’s best to consult with a financial professional before making your decision. This way, you can ensure you make the best decisions for your business and your finances.
Reevaluate Throughout the Year
Reevaluating your objectives and strategy throughout the year is one of the most beneficial things you can do as a small company owner. This will allow you to make educated decisions that will help your bottom line and keep you on pace for success.
Balancing work and family life is the most challenging aspect of owning a small business. The most effective approach to do this is to create a realistic work plan and set out weekly time for your chores.
In addition, you’ll want to ensure you’re up to date on industry trends so you can be a well-rounded business owner. The most recent technical advancements, customer service, and marketing will keep your company relevant for years.
It’s no secret that most small businesses are run by people who are passionate about what they do. The key is ensuring your passion for your business translates into results that will bring in the dough. The best way to achieve this is to implement simple strategies and techniques that will allow you to grow your business without taking on more debt than you can handle.
Keep It Simple
Understanding the fundamentals of self-employment as a small company owner will help you make sound decisions. This is especially critical when attempting to reconcile your demands with the needs of your business.
The first thing to remember is that you should always have your finances and your business finances separated. This is necessary for tax reasons, and it’s also helpful when managing your finances.
You should also set aside money for personal expenses, including a mortgage or car payment, utilities, and groceries. This will prevent you from drawing out your business funds for these needs while reducing the risk of running out of cash.
In addition to setting money aside, you should establish a schedule for paying yourself. Paying yourself consistently helps keep your budget straight, and it can also help you keep track of your progress throughout the year.
It’s also a good idea to reevaluate your pay schedule regularly. This can be an excellent time to consider adjusting if your business is struggling or your income needs to meet your goals. By doing this, you can ensure that your finances are not negatively impacting the growth of your business.
