Business Management 101 – Ensure That You Get Paid
As a small business owner, it’s important to make sure that you get paid for your time and hard work. After all, you’ve probably spent countless hours building your brand and growing your business. With all of your time is focused on your business, you have to get paid from it, otherwise, you may struggle to pay your personal bills, which can in turn hurt your business. Let’s take a closer look at business management 101.
Business Management 101: Structure Matters
It’s important to note, however, that the way in which you pay yourself will vary depending on your business structure. If you operate as a sole proprietor, you’ll pay yourself what you earn minus business-related expenses and taxes. This is the easiest, most simple format for paying yourself as a business owner.
There’s No Magic Formula
As explained by the U.S. Small Business Administration (SBA), “there is no magic formula for setting your salary.” This is because a small business owner’s salary is largely dependent on how well the business is doing, especially during the early stages. If your business is just getting off the ground, for instance, you could pay yourself the remaining profits after deducting operating costs and debt. On the other hand, if your business has a consistent trek record with high profits, you can pay yourself a percentage of its profit. Alternatively, you can choose a salary that’s relevant to your business’s respective industry.
If you need help determining an appropriate income, check out the income statistics for similar businesses. The SBA provides income statistics on its website, revealing the median salary for workers in various industries and occupations. With that said, regions (e.g. where your business operates) will also affect average incomes and salary.
Business Management 101: The Bottom Line…
It’s best to consult with a professional accountant or tax attorney to determine the most appropriate way to pay yourself. Some small business owners make the mistake of paying themselves too much, which raises red flags with the Internal Revenue Service (IRS). If your business operates as an S-Corp and you pay yourself an excessively high percentage of your total profit, the IRS may audit your business. Always consult with an accountant or tax attorney before setting a payment schedule for yourself.