How to pay yourself from your business

A lot of owners pay themselves whatever's left. At the end of the month you look at the bank account, figure out what the business can spare, and take that. Some months it's good. Some months it's nothing. Most months you're not sure.

It starts innocently. Early on, every dollar goes back into the business and you get used to being last in line. The problem is it never stops. Years later you're running a real business and still living off leftovers.

It costs you more than stress. When your pay jumps around, you can't plan your own life. It also makes the business harder to read. If you took $12,000 one month and $2,000 the next, the profit on paper swings with it, and nobody can tell what the business really earns. That includes you, a lender, and anyone who might buy it someday.

There's a simpler way. Pick a fixed amount the business can cover even in a slow month, and pay it to yourself on the same day, every time. Treat it like rent or payroll: a bill that gets paid, not a question you ask each month.

To find the number, look at your slowest three months from last year. What was left after every other bill got paid? Start your fixed pay a little under that. If that number is too low to live on, that's worth knowing too. It tells you the business needs a pricing or cost fix, not a harder-working owner.

Then, once a quarter, look at what profit is left above that. Set aside what you owe for taxes, keep a cushion in the business, and take the rest as a bonus. You get a steady paycheck and a share of the good quarters, and the business shows a clean, predictable number.

How you pay yourself, whether as salary, draws, or distributions, depends on how your business is set up for taxes. That's a question for your CPA. The habit of paying yourself a set amount on a schedule works the same no matter how the business is structured.