Once you start your own business there are plenty of things to think about. One thing that is always difficult to account for is what you should pay yourself. There are many things to consider when it comes to paying yourself.
In some cases, the question of what you should pay yourself isn’t that hard. If you’re business does really well and there is plenty of money coming in, you can probably figure out what to pay yourself in a short amount of time. Or maybe you’re purchasing a franchise or established business where your salary is already worked into the cost of the business. In these cases, you don’t have to worry about figuring your own salary out.
So, what about those starting a business from scratch. Starting a business from scratch leaves very little room for error and nothing is for certain, including how much money will be coming in. There is no wright or wrong way to go about deciding what your salary should be. There are however some guidelines you can follow.
When you structure your business as a sole proprietorship, what you pay yourself pretty much depends on what money comes in since you are the only one there. The down side of being a sole proprietorship is that is leaves you open to law suits that can affect you personally.
If you structure your business as anything other than sole proprietorship, the one third rule is a good way of figuring out your salary. With the one third rule, the first third of your profits goes into a bank account as savings and for unexpected expenses, the second third goes for overhead or reinvestment in the business with the last third being used at the owner’s discretion.
There are other more complicated methods of calculating your own salary and you may want to investigate some of those too.