Edmonton Business Advisor

How To Pay Yourself As A Business Owner

As a business owner, you have a lot of business responsibilities and several expenses to take care of. The decisions that you take has an impact on your business operations. One such important decision is to determine how to pay yourself. If you are finding it difficult to get an answer to this question, then here are a few useful tips that can help you to take the right decision.

Understand Your Business Structure

Your pay will depend on the type of your business structure. You can have a sole proprietorship, a partnership firm, a limited liability company, or a corporation. You will either receive a draw or a salary based on your business structure. A draw is a portion of the business’s profits that you get, whereas a salary is a fixed amount that you can pay yourself on a regular basis.

  • As a sole proprietor, you are the only owner of your business and own all the assets and are liable for all the business liabilities. You do not get paid like any other employee in your organization. You are free to decide the amount that you should pay yourself every month.

  • A partnership firm owned by 2 or more business partners that have the same legal rights pertaining to their business. A part of the profits is distributed to the partners depending on their job responsibility or their share of investment. Partners can discuss the amount they should be receiving and can pay themselves accordingly.

Know Your Productivity

Suppose you need to hire someone for doing the job that you do. Ask yourself how much would you pay that person. This will help you determine how much you should pay yourself. To determine the pay, consider the industry standards or compare your organization responsibilities with other organizations of similar sizes located in your city.

Consider the Profits

Before taking a draw, you need to take a look at the profits your business earns. If your business is hardly making any profits, you can reduce your draw or income so that your business can function easily without facing a crisis in the future. Similarly, if your business is earning a lot of profits, you can increase your draw amount too. Most business owners limit their salary to 50% of profits. So, you can consider the same percentage to draw your salary.

However, if you have any business expansion plans, you will need extra funds in the future. You will also have to hire new employees for business expansion and pay them salaries. Make sure you keep all these points in your mind while deciding the salary you want to pay yourself. Don’t end up paying yourself too much as it will only lower the business reserves and affect your expansion plans.

In order to churn out higher profits for your business, you can consider talking to an Edmonton business advisor who can share tips to increase your profits. An Edmonton business advisor can suggest you ways to enhance your business profits and further guide you on how to pay yourself as a business owner.

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