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Small Business Owners: What do you pay yourself?

I'm wondering if there are any small business owners on this forum that would care to share what percentage of their revenue they pay themselves or if they have a set goal per year that they simply take out of the business revenue?  For example if I make one million dollars this year and set my salary at $100,000 I would simply pay myself $100,000 spread out of 12 months?

I don't own a business just wondering how this works?

\/\/ /\/
Sunday, June 27, 2004

In the UK, I think it depends on two main factors.

1) The tax regime, which is pretty crap here, and getting worse, in spite of what the "government" tries to tell us.

2) What you plan to do with the business. For instance, if you want to invest for the long term, you might leave a lot of funds in the business, for future use. OTOH, you might need the cash to pay down your mortgage, etc, so pull it all out asap.

As always, there is probably not a single "one size fits all" answer, it depends on your own personal circumstances.

Steve Jones (UK)
Monday, June 28, 2004

It depends on your expenses (do you have employees?), what kind of business - corporation, sole proprietership, and what you want to put back into it to expand.

And there are other forms of compensation - like a company car, company beach house, an company private jet... Even if you're the only person in the company.

If you know what I mean.
Monday, June 28, 2004

I'd say that if the business is in a growth stage, don't set a salary for yourself.  The business must come first.  Afterall, if the business doesn't make as much as you hoped, are you going to take your salary or leave it in?

Though, as marktaw noted, there are other compensation systems available.  A company-owned car used for predominantly company business is usually a good start.

Monday, June 28, 2004

Things like company cars and mobile phones and the like are good ways of compensating yourself.  Obviously they must be for business use, but allowing the company to pay for all of the bill, including personal usage is allowable I think.  It's also a much more tax efficient way of spending the money.

If you are serious I'd recommend talking to an accountant.  There are ways to pay yourself that is beneficial to you and cheaper to the company than a straight forward salary. 

Monday, June 28, 2004

If you're in the U.S., be careful to make sure to pay yourself a "fair salary" for what you're doing.  If you decide to be clever and pay yourself minimum wage for doing a job that normally earns $80,000 so you can save on tax payments the IRS will bust you and the usual "boot on the neck" fines will come down.

Your best bet is to check with an accountant.  The internet is a good way to educate yourself about legal and financial issues but talking to a lawyer or accountant is always the best way to go.

Monday, June 28, 2004

Also, from the comments above about a 1 person company: be aware that IRS rules are a bit different for a company where you're the only employee.  Again, check with a lawyer or accountant on this.

Monday, June 28, 2004

For my little $600K/year gross revenue software company, I pay myself a $96K/year salary, do all the withholding/etc. for that salary, and take what I can in distributions (it's an S corp, with me as the sole shareholder).

Just as an example.

And, yes, the base salary is there to make sure the IRS doesn't come after me for keeping the salary artificially low in order to avoid FICA/Medicare taxes, etc.

Chris Ryland
Monday, June 28, 2004

Tough question to answer because the answer will vary widely depending on a number of factors.

For a salary, I pay myself what I would be making if I were working for someone else. Even if business is booming and the bank account is overflowing, my salary remains constant. I use the surplus cash to grow the business or just set it aside to cover the inevitable dip in revenues that happen to any business.

Currently, my company is an S-Corp, so at the end of the year all profit ends up going on my 1040 anyway, so my income is my regular salary, plus anything that is left over after expenses at the end of the year.

Mark Hoffman
Monday, June 28, 2004

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