Paying yourself as a small business owner is not as easy as it may seem. You can’t simply determine your revenues and write yourself a check. There are many complex factors to consider, including taxes, expenses, benefits and compliance.
With all of these considerations, how are you supposed to determine the size of your paycheck? Here are the important factors to consider:
Understand Your Business Entity
First, consider your business entity and your role within the company. Are you a partner at a firm? Are you an officer at a corporation? Perhaps you are both an officer and a employee.
The answer to these questions determines which state and federal laws apply to your business and regulate how you’re paid.
Know the Numbers
In order to accurately determine your salary, you – and not just your accountant – must have a good grasp on the numbers. Study the numbers both now and over time, including estimated taxes, any debt service and all budgeted expenses. This will give you a solid understanding of how much you can realistically budget for your own salary.
Evaluate your tax burden
Many small business owners mistakenly take money out without considering the tax implications. Each time you take money out of your business, it’s subject to taxes.
If you take too much and end up returning it, your taxes will not be refunded. Likewise, if you leave money in your business longer than you should, it could be taxed twice: once at the corporate level and again when you take it out.
The solution? Plan very, very carefully. Remember “Goldilocks and the Three Bears.” Take out not too much, not too little, but exactly the right amount.
Consistency is key
After establishing your numbers, set a rough figure for your salary and stick to it. Though your business will experience ups and downs, pay yourself as consistently as possible.
You may be tempted to raise or lower your paycheck month to month, but maintaining a consistent monthly salary will help you figure future projections, remain compliant and stabilize your personal finances.
Balancing Personal and Business Growth
As your business grows, Countybank can assist you with managing and diversifying your sources of wealth. Need to improve cash flow? Call us today at 864-335-2440.
Note: “Fresh Ideas” are published each week by Countybank and its family of financial service companies. With financial centers in Greenville and Greenwood, Countybank has a team of highly engaged professionals ready to bring a full scope of financial solutions designed to help families and business owners reach their goals.