How Should a Small Business Owner Be Paid?

One of the biggest challenges start up company and small business owners face is how much should they pay themselves? How much should they take? And how often should it be done? There aren’t any fixed rules for this but we have put together a list of pointers that can help you make these important decisions in your company.

Pay From Profits

The first thing to note here is that any payment you receive should always be done from the profits of a company – that may not be very much initially as the business is starting out, but with a solid strategy in place this will soon grow. By only taking payments from profits you will help yourself avoid one of the large pitfalls for new businesses – running out of cash.

How Much Should You Take?

You need to be smart here – pay yourself enough to live on, but not so much that you are preventing your business from reinvesting in itself and growing. According to Aspire Money, average household expenditure is just over £500 a week

Depending on how you structured your business will depend on how often and the type of way you can withdraw from it. If, for example, you are operating as a sole trader then you can pay yourself however much you like at what ever intervals you see fit. If your business is structured in a different way and you have stakeholders or shareholders that you are accountable to then this may not be possible – in any situation it’s always best to check with your accountant first.

What To Avoid

It is important to avoid withdrawing money from the business when it is going through financial hardship – paying yourself above employees is unlikely to have a positive impact on the business and could damage relationships with creditors if you are taking money over them.

Don’t Forget

If you are a sole trader then there are many costs that you can claim back as expenses when owning your own business, a full list can be found on gov.uk.  As long as they are legitimate costs connected to the business then this can invariably help with managing both your personal and professional finances.