How to Pay Yourself as a Business Owner

April 22, 2024

Business owners at a table with receipts and paperwork deciding how to make payments

As a business owner, it’s important to know how you’ll pay yourself – and how much you should take. Below, we explore the different options available so you can decide how to pay yourself from your business.

How to Pay Yourself From Your Own Business

There are various ways you might pay yourself from a small business or company. The most common options are:

Salaried payments
Drawing from profits

Which method you choose depends on many factors, such as the business structure, tax liabilities, and your long-term business goals. Let’s consider each option in turn.

Salaried Payments

A salary means you take a regular paycheck – just like employees. The salary shows as an expense in your business accounts, and you pay income tax on the amount.

Drawing From Profits

An owner’s draw means you take payment from your business profits. This is usually on an as-required basis. You might not take an owner’s draw as regularly as a salary. You won’t pay taxes right away for these payments, but you will need to pay taxes at a later date.

You might also use a combination of these methods. You could, for example, take a small salary as well as distributions.

Does the Business Structure Affect Your Options?

Yes. You might be required to pay yourself in a certain way, depending on your business structure.

S-Corps and C-Corps

If you’re employed as an employee with your S-corp, then you should take a regular salary. However, if you’re not an employee, you can take an owner’s draw.
Similarly with a C-corp, you can take a salary if you work for the company as an employee or, otherwise, take a draw as the owner.

LLCs and Partnerships

If you run an LLC or partnership, your options are:

Paying yourself a salary if you’re taxed as a corporation; or
Taking a draw from the business profits.

Sole Proprietorships

Sole proprietors don’t technically work for the business, so they wouldn’t normally take a salary. Instead, sole proprietors draw from business profits. You can write a business check or, alternatively, transfer business funds.

Non-Profits

Once you set up a non-profit, you can pay yourself the same way as you do from S-corps and C-corps. Meaning, you can draw from business profits to pay yourself an income.

What to Pay Yourself as a Business Owner

Young businesswoman at a desk with a laptop and calculator working on her company

Is there a set amount you should pay yourself? No – it comes down to what your growing business can afford.

Be conservative about your salary, at least in the early stages of the business.
Make sure you can meet your business obligations, like tax bills and employee salaries, before taking payment.
Ensure you leave enough money in the business to cover “rainy day” expenses for unexpected disruptions or slowdowns.

How Often to Pay Yourself From the Business

There’s no hard and fast rule here – it all depends on your unique situation. What’s important, though, is that you’re consistent about when and how you pay yourself. This could mean paying yourself weekly, monthly, or quarterly, depending on your business needs.

Paying yourself at regular intervals makes it easier to manage your finances. It also helps you manage business cash flow, profits, and losses. Just as you determine how you will pay employees in advance, you should include self-payments as part of your overall business plan.

When to Start Paying Yourself

It’s not uncommon for entrepreneurs to avoid taking a salary when they first start a business. However, as mentioned, you do need to factor in your own income at some point during your business planning. So, it might make sense to start paying yourself even a basic wage as early as possible.

If you’re unsure when to start paying yourself, or how to pay yourself from your business, don’t hesitate to get financial advice.

What Is the Best Way to Pay Yourself as a Business Owner?

The best way to pay yourself from your business comes down to two things: your business structure and your growth plans. Ideally, you’ll pay yourself a regular salary or take frequent distributions, but it all depends on what works for your company.

Aside from thinking about business income, you might also want to think about how you’ll finance your company’s growth. That’s where financing – such as business loans or lines of credit – can be useful.
At Yarrow Financial, we’re committed to helping business owners like you get the money they need to grow their business. If you’re looking to get a business loan fast, explore your options on our website and use the calculator to estimate your rates!