How to Pay Yourself as a Business Owner - Life Beyond Certificate

How to Pay Yourself as a Business Owner

How to Pay Yourself as a Business Owner

You know that sweet feeling of being your boss, right?

Well, you can only have this feeling if you own a steady state of income as a business owner.

Who is a Business Owner?

A business owner is a sole proprietor or owner of anything that markets goods or services to render these goods and services in exchange for profit. It varies from an e-commerce store to or freelance writer. It could be managed by an individual or a group of people. In our world today, most of the richest men have been labeled as business owners. This tells us that owning a business is a way to make a fortune. Most people juggle working for the government and running a private business for themselves. Still, whichever is the case, people must own a business to widen their financial horizons.

What Does it Mean to Pay Yourself as a Business Owner?

Most business owners never have the thought of paying themselves. They are acquainted with the culture of spending without calculation. They often make expenses from their capital which may denature the business gradually or rapidly.

Paying yourself as a business owner means setting aside an agreed amount made from the business for yourself, it depends on you to set the payment window, which could be daily, weekly, or monthly, so this is you paying yourself your salary or wages.

Why You Need to Pay Yourself as a Business Owner

  • Paying yourself gives you a good feeling that your hard work is paying.
  • It helps to sort out bills without altering your business capital 
  • It helps to save for future expenses 
  • It gives you an understanding of your business if it is worth the hard work.
  • Investors view business owners who pay themselves as highly committed. 

How to Pay Yourself as a Business Owner?

Understand your business

Before taking the actual step of paying yourself as a business owner, you must understand the nature of your business. This entails how the business works and the income flow. It’s the foundation for the entire payment process and will help point out the right payment style for you. An accountant could assist you while taking this step.

Decide A Comfortable Payment Method.

After understanding your business, at this point, you should be able to figure out a comfortable payment style for yourself. Deciding a comfortable business plan hangs on facets like your business type, the age of the business or years spent in this business, your Business plan.

Also, while figuring out a payment plan, business owners must understand corporations.

What Is a Corporation?

A corporation is a legal entity that is separate and distinct from its owners. Under the law, corporations possess many rights and responsibilities as individuals. They can enter contracts, loan and borrow money, sue and be sued, hire employees, own assets, and pay taxes. There are two types of corporation practiced by business owners

· C- Corp

· S- Corp

Difference Between C Corp vs. S Corp

These two corporations differ in their tax idea.

 C corporations pay tax on their income, plus you pay tax on whatever income you receive as an owner or employee.

 An S corporation doesn’t pay tax. Instead, you and the other owners report the company revenue as personal income.

Back to figuring out a business payment plan. There are two types of plan 

Owner’s DrawMost small business owners pay themselves through an owner’s draw. An owner’s draw is an amount of money taken out from a sole proprietorship, partnership, limited liability company (LLC), or S corporation by the owner for their personal use. It’s a way for them ta o pay themselves instead of taking a salary. 

  1. Salary

A salary is a continued payment you earn every interval, including payroll tax withholding. Before this is done, there is a check for the balance between profit and expenses in the business, leading to an increase or decrease in salary.

Things You Should Avoid As A Business Owner When Paying Yourself.

  • Business owners should avoid joining their personal and business accounts or not transferring their salary to your account. This may lead to a miscalculation and other accounting complications. There has to be a separate business and personal account for accuracy.
  • Business owners should avoid heaping unpaid tax bills. These could accumulate a huge sum of money that may be difficult to pay. Taxes should be paid quarterly with the help of software that helps for accuracy.
  • Not paying yourself as a business owner is a mistake and failure to be consistent in the payment plan is another mistake. Business owners should take the idea of paying themselves seriously.

According to Payscale, U.S. small business owners make, on average, $70,300, although most business owners do not pay themselves in the foundational stage of the business.

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