How to Pay Yourself When Starting a Business
Starting your own business is not for the timid. It will take personal sacrifice and dedication to get your business off the ground, but the rewards can be great when you succeed. One concern of new business owners is how to pay themselves when starting a business. While you are likely spending a lot of your own money to get your business up and running, you must also pay your other bills. It is important to pay yourself correctly so that you can cover outside bills while still growing your business.
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Instructions
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Consider the structure of your small business. Remember that sole proprietors are not considered employees, but business owners; corporate owners of an LLC that provide services to the corporation are generally considered employees. In a corporate structure you must pay yourself like any other employee, while a sole proprietor can choose to remove or reinvest any portion of the business profits.
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Pay yourself every other week or once a month. Note that even if you are a sole proprietor who can remove profits at will, it is to your advantage to schedule when you will pay yourself; this will help with accounting and keeping track of exactly where your business's money is going. Set up a separate account for your business expenses and personal expenses, and make a transfer from the business to the personal account on a regular schedule.
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Budget to pay yourself in a percentage rather than a fixed amount. Notice how this will cause your paycheck to be tied directly to the performance of the business. If you are receiving a fixed amount no matter how the business performs, you may be less motivated to work; however, when your pay is a percentage of profits it becomes vital for the business to turn a profit.
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Remember to keep track of taxes. Note that if you are a sole proprietor you will pay taxes differently than if you are an employee of your own corporation. Hire a professional accountant to aid you with your taxes; it will cost more than doing your taxes on your own, but can save you time and ensure that your taxes are done correctly the first time.
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Set goals for future business growth. Remember that if you intend to continue growing your business you will need to invest more of the profit back into growth; once you are satisfied with the size of your business you can take out more of the profit for yourself.
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Tips & Warnings
The most important thing to remember is to balance your financial needs with the needs of the business.
