As a business owner, you have a few options when it comes to paying yourself. One of these includes adding yourself as an employee to the payroll system. But you need to always balance your own pay with the financial needs of your business. So what’s the best way to do that?
Think about your pay
If you’re a business owner thinking about your remuneration, ask yourself these questions:
- How do you pay yourself? The options are salary through payroll, dividends, loans and taking money out as needed.
- How much should you take? Enough to get by? Enough to be comfortable? More than the highest paid employees?
- When should you take money out of the business?
- Is it ever okay not to pay yourself?
In this guide we’ll help you answer these questions, so you’ll know how and when you should pay yourself.
Businesses must be built
Before looking at paying yourself, you need to think about the flow of money into your business. Businesses need investment to grow. In fact they often need it just to keep pace with developments in their market.
Some investment comes in the shape of employee skills, which is why it’s important to hire the right employees.
But some investment needs to be in the form of cash, which might come from:
- Financial investment. This may come from you, fellow owners or directors, or anyone else. Investors need to be paid back under agreed terms. These usually include providing a return on the original sum.
- Grants. These tend to be for specific uses so are only worth applying for if you need what they fund.
- Profit. This is the money left over after salaries, taxes and other costs have been met. It can be freely reinvested in the business.
In the early stages, your business will probably consume all the cash it receives from these sources. So with all of this need for money, where does your pay fit into the picture?