You're a business owner, which means
you're the boss and you cut the checks.
Even your own.
And paying yourself as a business
owner gets pretty complicated but
it's worth it because, money.
If you're more of a reader, check
out the article and don't forget
to hit like and subscribe to see the
rest of our series, Ready, Set, Goals.
There are two ways to pay yourself,
salary or draw.
Salary: pick a number and pay yourself
that amount when payday comes around.
The good thing about salaries,
taxes get taken out of your paycheck
automatically, so less math for you.
And the not so good, adjusting your
salary and following IRS guidelines.
Your other option is to take an
owner's draw.
This means you take money out of the
business whenever you need it.
The good: it's flexible.
If business is booming, you can
pay yourself more.
And if it's not, pay yourself less.
The bad: it reduces the business's...
equity.
Which is how much of a business you own.
And less equity means less money to
spend in the future.
Those are the two options.
But this isn't a case of eeny,
meeny, miny, mo.
The way you get paid depends heavily
on what type of business you own.
To break it down, let me take you through
this little thing I like to call...
The Big Book of Business.
It lists the different types of
businesses and our recommended payment
plan for each.
Sole proprietorships.
You and the business are one.
You're the monarch, you rule the castle
and get all the profits to yourself.
But you also assume all the
responsibilities.
Stuff like taxes, liabilities, debts,
that's all on you.
And to pay yourself, you simply stick your
hand in the equity jar and draw money
out when you please.
Perks of being the boss.
Now step down from your throne because
we're talking partnerships.
Think of a partnership like
having a roommate.
Or better yet roommates, you
split everything.
Rent, chores, bottles of wine.
So instead of pocketing all the
business profits, you split it with
your partners.
To pay yourselves you draw money
out of the equity jar at any time.
Limited liability company: known by
its friends and family as LLC.
Here, you can be the ruler or a roommate.
If you're a one member LLC, pay
yourself the same way you would in
a proprietorship.
If you're a multi-member LLC,
you guessed it.
Roommate method.
The big difference of an LLC is the
limited liability part, which means
that you are separate from your business.
So you're not personally
responsible for the company's debts.
Now buckle up, because we're
headed into salary territory.
First and only stop: corporations.
There are two types of corporations, a C
Corp, and an S Corp.
Corporations are separate entities
from their owners.
So the owners get treated as employees
of the business and receive salaries.
In a C Corp, you get paid a salary
plus a share of the company's profits.
And in an S Corp, you can take part
of your pay as a distribution,
which just means you don't have to
pay taxes on it.
There you have it.
The types of businesses and the
best way to pay yourself in each.
Now you're probably asking, but how much?
The truth is I can't give you
an exact number.
Your compensation as a business owner
isn't set in stone.
It might just depend on how well your
business is doing.
Someone once said, "You should
only pay yourself from profits, not
overall revenue."
That was me.
Just now.
Another factor to consider, the stage
of your business.
If you're just starting out, some
people put a lot of their profits back
into their business.
And be sure to compensate yourself
reasonably, The IRS has guidelines for
this, check them out, or else they might be
paying you a visit.
Lastly you have bills.
Your rent, your Wi-Fi, your
monthly bagel subscription box.
Make sure you're taking enough home to
cover the essentials.
If you want more info on how to
pay yourself as a business owner,
click the link below to read
the full article.
Happy payday.