2016-11-09 00:00:00 Finance and Accounting English Learn about choose a salary amount as a small business owner. https://d1bkf7psx818ah.cloudfront.net/wp-content/uploads/2017/03/08214854/Self-Employed-Designer-Determines-How-Much-To-Pay-Herself-Versus-How-Much-To-Reinvest-Into-Her-Business.jpg How to Calculate what to Pay Yourself

How to Calculate what to Pay Yourself

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When running a small business, it is often a difficult decision to choose the amount to pay yourself. While there is no magic formula to determine how much to pay yourself, there are a few key points to keep in mind:

  • Focus more on reinvesting into your own business than taking a larger salary, especially in the business’s early years.

  • The notion of hourly wages evaporates. As a small business owner, you work all the time.

A good rule of thumb is to take a percentage of revenue or net profit, and increase that percentage as revenues grow. For example, perhaps you decide to take 10% of revenue as salary up to $500,000, then 15% after. If your business earned $700,000 this year, you would pay yourself:

*($500,000 x 10%) + (($700,000 – $500,000) x 15%) = $50,000 + $30,000 = $80,000

References & Resources

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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