One of the questions I get the most is “how much do I pay myself in my business?”
First of all, there is not a clear cut answer for this.
I know that you see many online entrepreneurs posting about how much money they made in their business all over the internet. But that is almost always the total amount of sales they made.
Many entrepreneurs show their total sales, not the cash they actually received and they rarely ever say how much money they spent in expenses or actually took home.
This is one of my biggest pet peeves about the online business industry.
Many people will share how much money they made, but they won’t share all the details. And they also use those numbers to tell you that you can do the same thing. All you have to do is buy their program that teaches you exactly what they did to make that money.
Spoiler alert: their program usually teaches you to say how much money you made and you can teach other people to do the same thing and over and over again.
There are a lot of people out there that are desperate to make money. So when the advertising states that you can be taught to make that kind of money too, people will waste their money.
Those business owners rarely share how much money they actually take home. So how much should you be paying yourself? That question still keeps coming up.
Now you also need to know how much your business is actually making before you actually pay yourself.
If your business is your full time opportunity, then obviously you are going to need to pay yourself enough to pay all of your personal bills. So your first job is to figure out the bare minimum that you need to pay yourself to be able to pay your personal bills and your business bills.
This number is the minimum amount of money that your business needs to bring in. But also know that this number does not include taxes or any savings or any other money to invest in your business.
Where do you start with paying yourself?
You want to figure out how much you want to receive as a minimum.
What salary do you want to pay yourself for the entire year? Then break that down to monthly.
For some easy math, I’m going to use $60,000 as the salary to pay yourself for the year. This then breaks down to $5,000 a month.
This amount is before taxes, so you actually take home $5,000.
If your business is your only job, then you want to make sure this amount will cover your personal bills and maybe leave a little bit extra.
Yes there are other ways you add to your salary throughout the year, we’ll get to that. This is just the base salary that you will pay yourself for the year. The amount of money that you can’t see paying yourself less than.
Once you figure out your base salary, then we can move on.
Splitting Money in Your Business
Now that you have the base salary you will pay yourself and your total minimum expenses to run your business each month.
The base salary from the example above is $5,000. Then let’s say the minimum expenses to run your business each month is $1,000.
Therefore, each month, your business needs to bring in at least $6,000 just to pay the minimum bills.
But if you are also going to investing in other things in your business and saving for taxes, then you obviously need to be making a lot more money than that.
I am going to use another example here. You can plug in your own numbers as you see fit.
The total income you usually bring in each month is around $20,000.
You’ll pay your business expenses of $1,000 and your base salary of $5,000 from that $20,000 first.
Then you want to save 30% (probably closer to 40% or 50% when you start really making more than $30,000 a month in your business) of the total revenue for the month. In this case, you’ll save 30% of $20,000, which is $6,000.
How to split the remainder after expenses are paid
Now you’ve set aside $6,000 for taxes into your tax savings account. And you’ve paid $6,000 in expenses. This leaves $8,000 left over.
My personal recommendation from a professional accounting standpoint here is to split that remaining amount that is left by half. Keep half in the business and half in your pocket.
So $4,000 would be paid to you as additional salary and $4,000 would remain in the business.
You can use this additional in the business to invest in resources to keep growing your business, or you can save it for something to come down the road.
Don’t forget about your business emergency fund though either and keeping that well funded.
Why put so much away for taxes?
One thing that so many business owners don’t do when they start making more money is save more money for taxes.
Then when tax time rolls around, they are stressed beyond all get out about how they are going to pay their tax bill. They really don’t understand how they owe so much money when they don’t have that much money in the bank.
But when you save so much money every month before you spend it, you have the money already set aside for tax purposes when it comes time to pay the bill.
Pssstt..Don’t forget about making estimated tax payments either.
It is much less stressful to pay your tax bill when the money is already set aside to pay it.
Having a 6 Figure Business Really Doesn’t Equal 6 Figures in Your Pocket
This is one of the reasons why I have such an annoyance when people advertise how much money they made in their business for the month, week, or year.
They aren’t showing you the whole picture.
And just from what you can see above, you can tell that not even half of the income ends up in your pocket.
Do I have to follow these percentages?
No, you absolutely do not have to follow these percentages at all. But they will help you really set yourself and your business up for success in the future.
You don’t have to spend every penny you make in your business on more courses and masterminds and coaching and just every other shiny object out there.
I am an accountant and I am giving you these percentages to help you with your business and actually pay yourself a decent salary, as well as save money for your taxes.
You can use your own percentages in your business if you really don’t like these numbers.
But keep in mind, these are all a part of running your own business that so many people don’t share.
It may be hard to wrap your mind around not actually receiving as much money as you thought you would when you saw how people were posting about how much money they made.
Paying Yourself in Your Business
It always starts with having a base salary that you will pay yourself.
Then you’ll split the month out based on the above percentages I outlined above to pay yourself. You can change the percentages as you see fit, but I’m giving you these percentages from a professional accounting standpoint and they really will help your business.
The more your business grows, the more money you’ll have to spend in both your business and your own pocket.
But if you start with these percentages early on in your business, it will be much easier to stick with them as you grow your business down the road.
All information on this site is provided for general education purposes only and may not reflect recent changes in federal or state laws. It is not intended to be relied upon as legal, accounting, or tax advice. We strongly encourage you to always consult with a tax or accounting professional about your specific situation before taking any action. Please read our full disclaimer regarding this topic.
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