How Much Should You Pay Yourself? A Guide for Small Business Owners

Why Paying Yourself Matters

As a small business owner, it’s easy to put all your money back into your business, hoping to fuel growth and stability. But you also need to make sure you’re paying yourself fairly. After all, you didn’t start your business just to struggle financially. Paying yourself is not just about personal income—it’s about financial sustainability, maintaining motivation, and ensuring long-term business success.

Factors to Consider When Determining Your Pay

Before setting your salary, you need to consider:

• Business Revenue & Profitability – Your pay should come from profit, not just revenue. Ensure your business is consistently making enough to cover expenses before withdrawing a salary.

• Industry Standards – Research what business owners in your field typically pay themselves. Sites like Glassdoor, PayScale, or industry reports can help.

• Business Structure – How your business is legally set up affects how you can pay yourself (more on that below).

• Taxes & Legal Obligations – Your personal income affects your tax bracket, and different payment methods (salary vs. owner’s draw) have tax implications.

• Future Business Growth – While paying yourself is important, you also need to reinvest in your business to help it scale.

Common Methods for Paying Yourself

How you pay yourself depends on your business structure:

Business Structure	How to Pay Yourself	Tax Implications
Sole Proprietorship	Owner’s Draw (withdraw funds from profits)	Self-employment tax applies
LLC (Single-Member)	Owner’s Draw	Self-employment tax applies
LLC (Multi-Member)	Owner’s Draw	Each owner is taxed on their share of profits
S-Corporation	Salary + Dividends	Payroll taxes on salary, dividends taxed at a lower rate
C-Corporation	Salary	Payroll taxes apply, but business expenses can be deducted

If you’re unsure about which structure is best for you, consult a CPA or tax professional.

How to Calculate Your Pay

Here’s a simple formula to help you determine your salary:

1. Calculate your monthly revenue – Total income from all sales and services.

2. Subtract business expenses – This includes rent, marketing, payroll (if you have employees), taxes, and operational costs.

3. Determine reinvestment needs – How much do you need to put back into your business for growth?

4. Set a percentage for your salary – Many business owners aim for 30-50% of profits, but this depends on your industry and business stage.

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Example Calculation

Let’s say your business makes $10,000 per month:

• Business expenses: $5,000

• Reinvestment: $2,000

• Remaining profit: $3,000

You might choose to pay yourself $2,000 and leave $1,000 for business savings or emergencies.

How to Adjust Over Time

Your salary isn’t set in stone! Consider these factors when adjusting:

• Increase when revenue grows – As your business profits increase, give yourself a raise.

• Decrease if necessary – During slow months, it may be wise to take a lower salary temporarily.

• Reevaluate annually – Review your financials each year to ensure you're paying yourself fairly.

Final Tips for Paying Yourself Right

• Separate business and personal finances – Always pay yourself from a business account to avoid financial confusion.

• Use a percentage-based approach – Instead of a fixed salary, consider taking a set percentage of monthly profits.

• Automate your pay – Set up direct transfers to ensure consistency.

• Prioritize savings & taxes – Always set aside a portion of your income for taxes and personal savings.

Conclusion

You deserve to get paid for your hard work! By using a strategic approach to your salary, you can sustain both your personal financial health and your business’s long-term success.

Are you currently paying yourself? If so, how did you determine your salary? Share your thoughts in the comments!