How Do You Pay Yourself as a Small Business Owner?

One of the more challenging parts of running a small business is making sure that you are paid for all the hard work and hours that you are pouring into your business. Unlike a traditional employee where you’re presented with a regular paycheck, determining how to pay yourself as a business owner can be a little more complex. 

How Do You Pay Yourself as a Small Business Owner?

In today’s post, we are going to take a deeper dive into the things to consider when you’re trying to decide how (and how much) to pay yourself as the one who started it all.

How you pay yourself as a sole proprietor or single member LLC business owner (aka a disregarded entity)

If your business is structured as a sole proprietorship or single member LLC, you can simply transfer money from your business bank account to your personal account in order to pay yourself. These are what’s known as Owner’s Draws, and there is no limit to how frequently or how much you can pay yourself in this way.

When doing your bookkeeping, these amounts will be categorized as an “Owner’s Draw”, and will be reflected in the Equity section of your balance sheet…NOT on the income statement. As a sole proprietor, you are not allowed to deduct the payments you make to yourself, and therefore they do not show up on your income statement.

You will be taxed on the business net income, or the “bottom line” – whether that money stays in the business bank accounts or it’s been transferred to your personal account – it makes no difference.

How you pay yourself as a member of a partnership

It’s important to understand that there are 2 different types of payments to partners in the case of a partnership:

  1. “Guaranteed Payments – [Partner Name]” – these are payments to the partners that are meant to pay them for services they are directly providing to the business. Typically, how these payments are calculated and paid out should be explicitly stated in your partnership agreement. If it’s not, you may want to consider putting something in writing that both partners agree on.

For example, if there are 2 partners that each have a 50% ownership in the business, but 1 partner does most of the work, it’s okay that one partner is paid more in these guaranteed payments, as it should be a direct reflection of work done in the business. These types of payments ARE deductible business expenses, and should be recorded as an expense in the businesses’ bookkeeping records.

  1. Partner Distributions/Draws – these are distributions of profits, and need to be taken out of the business in direct proportion to the partners ownership percentages. There may be instructions on when/how much to take in distributions in your partnership agreement as well, but there are no legal limitations. As long as both partners agree. 

For example, let’s say the business had a $10,000 profit in Q1 of 2024, and the partners want to give themselves a bonus distribution. If they have 50/50 ownership, they need to ensure that their distribution amounts match. If they want to take out all $10,000, they would each receive a $5,000 bonus. If they have a 75/25 ownership interest, then the 75% owner would take out $7,500 and the other $2,500. These payments would be recorded as “Partner Distributions – [Partner Name]” to track how much each specific partner has taken out of the business.

How you pay yourself as an S Corp or C Corp owner

If you have elected to be taxed as a corporation (S or C Corp), then it’s important that you put yourself on an official payroll. That means that you have all the applicable taxes withheld from your paycheck and paid to the specific government agencies, AND that your business is matching the appropriate employer taxes as well. 

The frequency at which you pay yourself isn’t set in stone, and you may need to follow certain state law requirements for that, but I recommend that if you have other employees besides yourself, just pay yourself at the same frequency.

To get these amounts in your bookkeeping records, you will need to record the gross wages/salary (i.e. total amount before taxes are deducted), the total EMPLOYER taxes (i.e. what your business has to pay in taxes ON TOP of the gross wages/salary). I typically record these amounts in a journal entry, because the amounts that are deducted from your bank account are typically the NET paycheck (gross wages minus any taxes that are withheld), and the TOTAL tax payments (employee withholdings PLUS the employer taxes). 

If you record the bank transaction amounts as the Salaries & Wages, and the tax amounts as the tax expenses, your bookkeeping records will not match your payroll reports at the end of the year, and may cause issues at tax time.

If the business is having a successful year, and you want to pay yourself over & above what your payroll salary is, you can certainly do so! These payments can simply be transferred from the business account to your personal account as well, and these are recorded as “Shareholder Distributions”. But remember, the salary IS REQUIRED of S and C Corp business owners, so make sure that that is in place before you consider withdrawing additional distributions.

How MUCH do you pay yourself?

I don’t know…how much can your business afford 🙂 Kidding…kind of. But in reality, that is one of the things you need to consider.

If you have elected to be taxed as a corporation (S or C Corp), then you need to put yourself on payroll and pay yourself a “reasonable salary”. That means that you need to pay yourself what you would have to pay someone else to come in and do all the things that you do. To get an idea of that what would be, you can google “Average salary of store owner in [CITY, STATE]”, and you should get some answers. 

If you are a partnership, make sure you are referring to your partnership agreement to determine what amounts each partners need to be paid for their guaranteed payments. If nothing is currently documented, make sure you and your partner sit down together to come to an agreement, and document it. 

If you’re considering how much to take own in Owner’s Draws/Distributions, then there’s a couple different ways you can go about it.

I’m a huge fan of the Profit First method. It’s based on a book by Mike Michalowicz in which he lays out a process of cash management using 5 different bank accounts. I’m not going to go into depth on that method here, but in short, you will transfer a pre-determined % of all your bank deposits on a regular schedule. 

Another method is to schedule a certain flat dollar amount be automatically transferred from your business account to your personal account. This method may be more beneficial if you your business is your only source of income, and you know what amount you need to personally live on each month. There is less variance when using this flat rate versus the % rate mentioned above, but both options have it’s pros and cons. 

The most important thing is to DO IT. There are far too many business owners out there that don’t pay themselves for their hard work. They make excuses and say, “they’ll do it when XYZ…”, but it keeps getting kicked down the road. So, make it a habit today. Heck, pay yourself $1 a month to start if that’s all you can afford, but pay yourself something. And each month or quarter, start to increase it just a little bit to push yourself and increase your profitability.


Remember, in order to know what your business can afford, you first need to make sure you have accurate and up to date bookkeeping.If you want help getting your bookkeeping cleaned up & up to date, and have the ability to consult with someone to see how and WHAT you can afford to pay yourself, then I would love to chat with you! You can schedule your free consultation here.


Hi, I’m Megan!

Bookkeeping for the retail industry has some unique complexities that take extra time to manage to ensure accuracy. At Finding Freedom Financial Services, I provide done-for-you bookkeeping services for boutique owners that accurately track these complexities for you so you can have more time and focused energy to dedicate to running your stores. If you’re ready to get your time back, apply to work with me today!

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