Don’t Forget to Pay Yourself as a Small Business Owner

Starting a business is a dream for many people, and while it can be incredibly rewarding, it is also a significant financial risk.

As a business owner, you pour your time, energy and resources into building your company, often sacrificing your own well-being in the process.

According to the U.S. Small Business Administration’s 2022 Small Business Profile, there are over 33 million small businesses with 500 employees or fewer in the United States. And here’s an interesting fact - these small businesses employ 61.7 million people or 46.4% of the U.S. workforce.

Unfortunately, many business owners forget to pay themselves or prioritize their own compensation. This can eventually lead to burnout, stress, or financial strain.

TIP: In this article, we’ll explore why business founders often get paid last along with offering a few tips on how to make sure you’re paying yourself what you deserve.

Why Business owners often get paid last

One of the main reasons business owners may get paid last, is that they prioritize reinvesting their profits back into the business. It’s common for owners to focus on growth and expansion over their own compensation. This is especially true in the early stages of growing a business. Additionally, many owners are passionate about their work and don’t set paying themselves as a priority.

However, it’s important to remember that paying yourself is essential for your own financial well-being and the success of your business in the long run.

TIP: Learn how improving your business efficiency can help maximize your profits.

The cost of not paying yourself

Are you asking: Can a business owner not pay themselves?

When business owners don’t pay themselves, this can have serious consequences. Here are just a few of the costs associated with not paying yourself:

Burnout and stress - When you’re working tirelessly on your business without seeing any financial benefits, it can lead to burnout and stress.

Financial strain - If you’re not paying yourself, you may be relying on personal savings or credit to cover your living expenses, which can lead to financial strain and debt.

Difficulty attracting investors - If you’re not paying yourself, it may be a red flag to potential investors that you’re not taking the financial health of your business seriously.

How do most small business owners pay themselves?

Now that you’ve had a chance to explore why business owners often get paid last, it’s time to discover some tips for prioritizing your own compensation.

Set a salary: Determine what your salary should be based on your personal financial needs and the financial health of your business. This can be challenging, but it’s essential for making sure you’re paying yourself what you deserve.

Create a budget: Once you’ve determined your salary, create a personal budget that includes your living expenses and any other financial goals you have.

Separate personal and business finances: It’s important to keep your personal and business finances separate to avoid confusion and ensure you’re accurately tracking your compensation.

Be transparent with your employees: Let your staff know that prioritizing paying yourself is essential for the long-term success of the business.

Seek professional advice: If you’re unsure how to determine your salary or navigate the tax implications of paying yourself, seek out professional advice from an accountant or financial advisor.

FAQ #1: How much should I pay myself as a business owner?

As mentioned earlier, the amount you should pay yourself as a business owner depends on both your financial needs and the financial health of your company. It’s important to strike a balance between the two and pay yourself a fair and sustainable salary.

Consider factors such as:

• Personal living expenses

• Cost of running the business

• What is the industry standard for similar positions

TIP: It’s also important to review your salary on a regular basis, factoring in things like the annual Social Security Cost of Living Adjustment, to make sure your compensation is still in line with your growing needs.

FAQ #2: What are the tax implications of paying/not paying myself as a business owner?

When you pay yourself first as a business owner, it’s important to consider any and all tax implications. Your compensation is subject to different taxes depending on the structure of your business: sole proprietor, general partnership, or corporation.

Work with a tax professional to make sure you are complying with all applicable tax laws and regulations such as self-employment tax, income tax and other taxes. You’ll need to keep accurate records of your salary, or owner’s draw, and other expenses related to your business to help you maximize tax deductions and minimize your tax liability.

It’s not just about pay

As a small business owner, it can be easy to put the needs of your business before your own. However, it’s important to remember to pay yourself in order to maintain a healthy work-life balance and ensure your own financial stability.

Try not to get too caught up in the daily operations of running your company that you forget about your own well-being. But the good news is, we are here to help take away some of the stress when it comes to employee coverage.

Did you know that our self-funded benefits program provides flexible health coverage for small to mid-sized businesses? From five to 500 employees, we can help you find a plan that meets your needs.

TIP: Visit our website to get started on your quote today.