There is no fixed percentage that small business owners should pay themselves, as it depends on several factors, including the financial health of the business, the owner’s personal financial needs, and the goals of the business.

Here are some guidelines to consider when determining what percentage to pay yourself as a small business owner:

• Assess Your Personal Financial Needs:
  • Start by evaluating your personal financial requirements. Determine how much income you need to cover your living expenses, savings goals, and other financial commitments.
• Understand Your Business Finances:
  • Review your business’s financial statements, including income statements, cash flow statements, and balance sheets. Understand your business’s profitability and cash flow.
• Consider Industry Benchmarks:
  • Research industry benchmarks to get an idea of what other small business owners in your sector typically pay themselves. This can provide a starting point.
• Balance Business Growth and Personal Needs:
  • Weigh your desire for business growth and reinvestment against your personal financial needs. Allocating more profits to your salary may limit funds available for business expansion.
• Consult with Financial Professionals:
  • Seek guidance from accountants and financial advisors with expertise in small business finance. They can provide insights on the tax implications of different payment methods and help you create a financial plan that aligns with your business and personal goals.
• Determine Salary or Distributions:
  • Decide whether you’ll pay yourself a regular salary as an employee of the business or take distributions (profits) from the business. The method you choose can have tax implications.
• Comply with Tax Regulations:
  • Ensure that you comply with tax regulations, such as payroll taxes, self-employment taxes, and other applicable taxes, based on your chosen payment method and business structure.
• Reevaluate Regularly:
  • Periodically review your business’s financial performance and your personal financial goals. Adjust your salary or distributions as needed based on changes in your business’s revenue and your personal financial situation.

There is no one-size-fits-all answer to what percentage of profits or revenue a small business owner should pay themselves. The appropriate amount will vary from one business to another, depending on the abovementioned factors. It’s essential to balance taking a reasonable salary that meets your personal financial needs with leaving enough capital in the business for growth, reinvestment, and managing operational expenses.

Working with financial and tax professionals can be invaluable in helping you navigate the complexities of determining an appropriate salary or distribution as a small business owner.