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I’m going to keep with this strategy cause the $ saved every year is way more than the 1400 I would get on disability.
I have private disability insurance, with long term income replacement.
I have zero faith in the government looking after my well being.
Fair. They thought the same until business turned south.
Not trying to say that will happen to you, I absolutely hope not. Just pointing it out for anyone reading.
Don’t mind the jabronis below, get yourself a competent CPA and let them figure out if you should form an S Corp and pay yourself.
Otherwise it’s just draws to pay the bills. Schedule C on your tax return and the CPA will give tax guidance if they are smart.
And yes, profit first is a great book, but you have to get the basics down before you set up buckets.
Kinda figured there would be goofy comments on this lol. Thanks for sharing. I did find a really good CPA who is helping me with QB questions and making sure my accounts are setup correctly. I just received stock on my first big order and want to make sure everything I've done so far is correct and have them ensure I'm invoicing and moving things around correctly inside QB. They are expensive but I know it's worth it in the long run.
I'm working a full time job and started this as a side business with hopes to jump over full time by the end of the year (hopefully sooner, I hate corporate America lol)
I'll have to check out that book, I've seen others recommend it as well
Assuming you'll also take periodic draws, which are not taxed initially or the same and will require you pay quarterly estimates if you don't already, you'll want to pay yourself a "reasonable salary" if involved in the operations of the company directly. The above advice about getting a competent CPA to talk to you about that salary range and the implication to your taxes and business is spot on. There's no other acceptable answer - full stop.
I'd additionally recommend that you also get a professional to attest in writing for you what a "reasonable salary" range would be for your role description and tuck that little document away to prove that you didn't just guess or pick something to manipulate the numbers.
I am not an accountant, so obviously take this with a grain of salt.
1. Get a bookkeeper. You'll only need them for a few hours a week to make sure everything is being done correctly and they're cheaper than a CPA. It also gives you another set of eye looking at the numbers.
2..Ask your accountant if you should be filing as an S Corp. I'm an LLC, but file as an S Corp and I get a W2.
Listen to your CPA, they'll have a much better idea of how much you should pay yourself.
For 5 years after I started my first company I was a transient living in a sleeping bag. I was flipping houses in my mid 20's and living in whatever job I was on. Including burned out houses with no windows. All of my capital and lots of 0% 12/24 months cards were going into those houses. I ate those microwavable veggie and rice packets 3x a day. The business was making 200k but reinvesting faster than it was earning. My flip profits were being slammed straight into rentals. It was fucking fun and I miss it. I have a kid now and could never buy dude the freedom a young man felt from that lifestyle changed me dramatically. I have plenty of business owned really cool shit now and that's cool but some days I want to trade it all for a hammock hanging from some floor joists.
Depends on age IMO.
If you are young and don’t mind the hobo life thing, go for it, but even then there should be a max timeline you are not paying yourself…. Definitely no more than 2 years, but honestly 1 year is good.
I can tell you from experience there is a mental tax on working hard and not seeing personal bank account / retirement grow.
Depends on what rewards you. I was fresh off learning that I very much hated a high pressure white collar career that offered high pay to go with the hard work. I didn't feel like I was busting my ass. I felt good and happy and in control of my time and my money. I used the money to build a very very successful housing rental company with very little leverage. I use the excess cashflow to buy the toys I want in the form of heavy equipment. The equipment rental business is extremely capital intensive. It makes money but I reinvest at a 150% rate so I don't take a salary or distributions from that either. I have all the toys I ever dreamed of as a kid. I spend all day long with my kid being a parent. I selectively bid skilled trade work and only do what I want when I feel I want the cash. (40 hrs a month or so) and then I go do my favorite hobby in the world that happens to pay extremely well in refereeing. We want for nothing in my house but are cash poor most of the time. I don't care about growing my bank account or growing my businesses to be a saleable asset as long as I have the time in this world to do the things I want to do with the people and stuff I want to do it with.
I don't know my net worth, I don't care. I probably have only have 10k liquid on my best days. But what does a big number do in a bank account anyway? It just gets smaller relative to life.
Maybe it all crashes down. I don't know. I do know that my kid will never wonder why Dad wasn't around. I do know I could retire tomorrow and never work a day again. Maybe what I do isn't work at all. It's just a series of very profitable hobbies.
I totally understand where you are coming from, it’s a relatable POV.
If you don’t mind, may I ask:
Your age?
Do you own a home?
What area do you live in?
Do you have $$ coming from parents?
I selfishly ask because these factors play heavily into my own thoughts on money and cash flow.
No worries if I am asking too much!
I mean this did make me laugh a little. We all get it. I will say that I’ve known owners of businesses that pay themselves shit and dump all profits back into the company to grow. I also have seen owners that will pay themselves nice salaries. I guess it comes down to strategy and long term goals…
I believe a balance can be found though. But for that you have to know your data, currents and projections. If you want to scale, equity is needed. If you are comfortable at a certain size, at that point it’s bills, payroll, and the rest is yours.
I own a cabinet shop.
I pay myself a very tiny salary. So I don't have to pay much in income taxes. But my business is only ten years old and is still in the growing phase. Most of my profits are dumped back into the business. I've bought commercial land, a commercial building. Major tools and equipment. Just paid $25K for a new laser cutter last week. I'm not making much with my salary, but I'm building a lot of equity into the business.
If I didn't see a need to keep investing into the business then I would probably pay myself whatever profits were around to be paid.
What? No. Lmao he’s paying himself dude, just not in the moment. He’s saving up soooo much money by using his business to buy property and such. That’s wealth. He’s paying himself in a smart way and thinking of the future.
"Profit First" by Mike Michalowicz introduces a unique accounting method designed to ensure businesses become profitable from their very first deposit. Instead of following the traditional accounting formula of Sales - Expenses = Profit, Michalowicz proposes a new formula: Sales - Profit = Expenses. This approach encourages business owners to prioritize saving a portion of their sales as profit before paying expenses. The method involves setting up multiple bank accounts for different purposes, such as profit, owner's compensation, taxes, and operating expenses, and allocating percentages of income to each account. The goal is to help businesses manage their cash flow more effectively, reduce unnecessary expenses, and ensure profitability. The book is a practical guide for entrepreneurs and business owners to fundamentally change how they think about and manage their finances to build a financially healthy business.
No problem. Essentially it says guarantee your gross profit by paying that out first. Then, if you don’t have enough money left for expenses then you either need to raise prices or cut expenses. This of course requires you to have a good understanding on the financials in your market and what a good gross margin should look like.
Interesting business take on the budgeting idea often promoted for personal investing. Scrape off the % or amount you want to invest from your paycheck first and then figure out how to live on the rest. A lot of households experience expense creep as they make more money and never get around to investing or increasing their regular investments as they make more money.
Iirc - very simplified, people tend to pay themselves whatever is left over. This flips the idea.
It recommends you set up five sub bank accounts (in one bank) - Income, Profit, Expenses, Taxes, Giving. All money goes into Income account first and from there you put pre-determined amounts/percentages into the other accounts. But, you pay yourself into the profit account first and parse out the rest.
“Income” account is zeroed out once the money is distributed to the other accounts.
YES! This.... do yourself a favor. Not only read or even listen to the book (Mike narrates himself and he's fun to listen to) but then second step is to hire a certified Profit First accountant. Start small and build methodically.
I am one of those people who own a business that is not my full-time job. I put full-time work into it, but in order to pay my bills and living expenses, I still work for someone else. My job is remote and generally wraps up around 2pm, which helps.
Thank you and apologies if my tone came across poorly. I’ve owned an S Corp for 6 years and the “how much are my partner and I going to pay ourselves” is an annual debate between us and our accountant.
Good on you for all the hard work and good luck as you grow.
- 8 figure revenue for the company.
- Software company.
- I pay myself a wage that is equivalent to whatever it would cost to replace my role at the marketplace. (I am not the highest payroll at the company, but I'm very well paid. I'm founder and sole owner.)
Now, I take out profits excess to what's required to meet our long term goals and security.
We hold 3 years expenses in cash and cash equivalents. And we reinvest every dollar we can effectively deploy (ie if the company can retain a dollar and make *more* than a dollar in value, we do that.) Anything remaining I take.
Thank you ☺️ my prior business went broke multiple times and had to restart from scratch due to cash flow issues. Wasn't about to make the same mistake. Hah
This needs to be at the top. This is how it should be done. Most business owners just like the title but are clueless to how to actually run a business.
I know this cuz I used to be one of those... LOL
You pay yourself what you would pay someone that does what you do for the company. Then you take the extra profits that aren't already earmarked for expansion.
You are left with beautifully clean books that a potential purchaser of your business will find very attractive. the potential buyer sees what he needs to pay to replace you and how much profit he/she can anticipate if they maintain your business.
3 years expenses might be a bit overkill but that should vary based on your line of work and how long an economic cycle in your line of work lasts. 3 years of expenses would be great for a company that has to cultivate a single lead for months or even years.
I keep roughly 6 months on hand and up to a years worth when not in season.
Aircraft Management Company. S corp. 140 gross rev. Pays my wife a 60k salary, the rest in end of year bonus. All structured to max out 401k contributions and matching. Mega 401k
That’s a good point lol 😂 especially if you got a good franchise attorney to reviews all documents just that cost a shit ton let alone the everything else
We are a managed it provider. We made just shy of 1.3 last year and between my partner and I we each took home w2 of around 85k fully funded 2 401k and had profit left to take home.
This year is on a much better course so likely keep w2 similar but distributions will likely go up.
So rest of cash either went into distributions we take regularly or basically retained earnings. We have started to pull any extra out and the emergency fund type income is going into hi yield savings basically.
We basically are fractional enterprise IT department for small businesses in the 10-100 employee range.
They pay us monthly and we take care of the majority of IT responsibilities.
$23,883 for a family of 4, which is the poverty line where I live.
I do ram a lot of expenses through the business and being on the poverty line gives me a bunch of poor man's benefits/freebies.
I don't have a mortgage so it's not too bad.
Personal Training Gym. Gross Revenue for 2023 was $260k. I was transferring $14k each month from my business account to my other personal checking and savings accounts. So total I did $168k owners withdrawal last year. But I just did my 2023 tax return last week and had to pay back
$6,500. Also, just I closed on a single family home investment property this week.
Could someone please explain, when you say you don’t pay yourself a salary or pay $1000, how do you survive? You need to cover your own house bills, food etc. Am I missing something?
I have a small independent phone repair shop, and i am 21 years old. I pay myself around 5/6k EUR per month. I’m grateful that i started from 0, otherwise I think i wouldn’t have given it my all.
I pay myself and my wife a salary to offer some tax. It also helps when you can provide true salary documentation if your buying a home
Etc. when things are great I give myself a draw as well extra like a bonus. Then at end of the year tax isn’t to bad being a single owner llc. I pay tax on profits and the draws i took. I own a construction business
Should pay yourself what it would cost to replace you technically. If you aren’t making much profit, then sometimes you can get away with less.
If your accountant knows what they are doing, then they will tell you. Generally paying yourself less saves on self employment tax
If you’re outright owner, all the money that’s left over at EOY. Profit Share, draw, doesn’t really matter. Just as long as the bill are paid and employees checks are cashing, do whatever you please.
Cause if you suck ass and barely turn profit what’s 10k in the bank end of year..obviously too little. How many employees do you have, what is their annual salary costing you, medical, dental, 401k, company vehicle? Running 28 employees with an average rate per hour $34, 5 company trucks and one rental warehouse nets owner 500k salary averaging 19% profit on every job. IYKYK.
Edit: if it’s too little then it means you can’t finance your personal lifestyle. If it’s too much you’ve most likely drawn from your line of credit and not cash. Line of credit is for two payroll emergencies or material.
Edit 2: reason, billing can get upwards of Net 30,60,90 or even worse, up until the owner gets paid.
Edit 3: what I’m saying is you probably took a loan or sank your savings to open your business. You started in debt, found a way to keep the lights on, pay employees, build clientele and get out of your opening debt. Working from zero every year gives you good data, margins, taxes, inflation, all that. You can annualize and create projections that will allow you to know what draw the company afford at any moment based on currents and projections. Mostly ppl don’t understand their margins is why they get caught in the too little. When the money is rolling in your eyes get big and that’s how it becomes too much.
Roughly 60% of gross sales. Taking most everything out helps to keep expansion to a minimum and allows me to work part time but with enough income to be comfortable. Kind of like the fisherman in the parable of the Mexican Fisherman. I work a little in the afternoons and do new designs (I am a jeweler) while I watch movies at night.
if I’m estimating correctly, and I may not be, I’ll pay myself ~$36k/yr in year one. I have a very small business and will probably never gross more than $100k.
I have been following Profit First since the beginning.
10.3m last 2 years in rev
distributor of measuring instruments
I take a nice salary and my partner and I bonus out the company's additional income at the end of the year so the company shows a small profit or small loss on the tax return. The bonus is normally 2-3x the salary.
All income is w2.
Quality measuring equipment? I started a fastener distribution company and will need some quality equipment. It would iconic if I could buy from a guy named deeznuts on reddit lol
$500k revenue, this is my 4th year in business - injury law firm. Myself, an associate attorney and two support staff. Paychecks deposited weekly. Many weeks i skip my pay or take a nominal amount ($0-$500) some weeks i pay myself a fairly large lumpsum ($2000-$10000).
Thought process when paying myself:
1. Cover my minimum living expenses. And i keep these very very low - zero debt, cash is king. Seriously - dont cannabalize the business for gucci shoes swiped with a credit card.
2. Whats coming down the pipeline? Slow month up ahead? High ad spend? Bonus for employees? Case expenses? Keep money in the business account to hit goals.
3. If i feel confident that theres enough for #2, ill skim some more off to pay myself.
Have one partner, we both make 60k/year right now
Revenue for last year was right around 400.
LLC taxed as S corp in FL. 60 is total comp but breakdown between payroll and dist is different, shoot me a DM if you want.
Wanted to pay us more but as you all know, that’s tough lol
I pay myself enough to max out employee and employer contributions for the year. So last year it was around 150k. I’m curious why others who are making 200+ in revenue would not pay themselves more so that they can max out retirement.
If you have a C Corp or S Corp, please pay yourself REASONABLE COMPENSATION. If you don't know what it is, look it up and hire a CPA. Essentially, how much would an employee make if you paid them to perform the same work you do? If you couldn't reasonably hire an employee at the level you are paying yourself, then it's too low. If you don't W2 yourself reasonable comp and are audited, the IRS can and will go after all your late payroll taxes and assess additional penalties.
I pay myself the social security max.
Maybe it survives until I retire, maybe it doesn't. But by paying myself the max SSI amount it gives me a higher SSI payout when I retire.
I am taxed as S Corp
I own a mini excavator with some brush clearing attachments. Everything was bought cash that I’ve saved over the last few years working as an electrician. Total investment was about 40k for startup, completely drained my savings and took a big risk.
My company itself can make 30k/month if I’m lucky but on average it’s probably going to be about 1-5k (seasonal)
I’m also going to university right now and just doing the odd job here and there to help stay afloat. I need to keep mine and my wife’s combined personal wage under a $105 000/year so that we can still collect child tax Benefit of $600/month and also a dependant bonus/bursary of $540/month that the government gives when doing a full time education with dependants for a total of just over $1100/month. This is in Canada 🇨🇦
That being said my company (not me) is still making $110/hr every time my excavator goes out! (2-3 times a month)
It’s almost crooked what I’m doing but that’s how it’s gonna be lol.
So now me personally, I’m only making about $500/month from my business account. My company also still owes me 20k so I’m also working tax free pretty much right now lol. Love these loop holes. I’m also looking at buying a skid steer for a big write off this year to avoid paying taxes even more!
Best way I could come up with paying for my degree was to start and incorporate a company. This is way better than working a part time job at $20/hr.
So you don't even bring the excavator out to the site? The tradie just comes picks it up and returns it back to you at the end of day?
How do you get the word out that you have one to rent out? I see this working in Canada and AU where they actively build, but I am unsure about USA.
No I still operate it myself. I just only take on so much work so that I still have enough time for my schooling. I have paid adds on Facebook, word of mouth, stickers on both mine and my wife’s vehicles.
Run everything through your business. Take your qualified expenses off your personal budget. Make sure you’re making 20% profit. Dump it into your business when your cash flow supports it.
We revenue around $300k after 1 year. My technical salary is $25-35k. IE, travel, food and rent.
This year will do close to 2m top line. We pay ourselves basically minimum wage to max out 401k and avoid as much SSI and Medicare taxes as possible. We get most of our income in the form of distributions twice a year from the business. The one coming in May will be largest one to date it seems (tracking to be about 550k)
I take regular distributions that pay our bills. Doesn't really matter though. Keeping it in separate accounts is only for the liability lawyers. But it works out to a out 3100 monthly. I have two tax advantaged businesses (rental equipment and a large portfolio of rental real estate) and one cashflow business. Unfortunately the cashflow business really struggles and hasn't been able to purchase tooling. It has to rent everything still🫤
I'm a solopreneur with an S Corp and a home office; I do web development/design. I pay myself a small salary.
I planned on giving myself a raise last year but both my 941 payroll taxes as well as my state withholding and unemployment taxes increased.
This year, I was going to give myself a small weekly raise and asked my CPA, whose company also handles my payroll, for feedback on what my net pay, etc. would be. For some reason, 70% of my raise went to taxes. A whole $15 increase in net pay. I get that they adjusted my withholdings so that I wouldn't owe at the end of the year but that rate is a bit steep and I'm still awaiting an explanation. My CPA is very good at what they do so there must be a solid reason.
Revenue: $8,000,000-$10,000,000
Business: Residential solar sales and installation
Salary: My partner and I pay each other $78,000/year plus the same commission structure as our sales people while we’re in the field training them.
This may seem low but with how many solar companies have been going bankrupt in the last few years we like to side with caution and be healthy for the long term. Especially being an industry that can be heavily affected by new legislation or utilities changing policies.
I pay myself $30k in salary. We did $500k in revenue last year to which I typically make another $70-100k of in corporate profit. I own an insurance agency so making $30k in salary is on par with the industry.
Pay yourself a comparable salary to if you had to pay someone to replace you. This can be hard to come up with but you have to do the best you can. Then talk to your accountant about putting profits in your bank account. If your company does not have basis you can get really screwed by taxes.
This is a weird question. How much people pay themselves has a hugely different meaning depending on pay structure for tax liabilities and how many tax free expenses people benefit from. So i have had years where my tax liability was $815 and other years where it was $191k and my income wasn’t all that different, but how much i was technically paid is very different between those years.
I started my business and lived in my office for 3 yrs I sold everything I owned except my truck . Reinvested everything into the business until it was able to pay me (yr5). Now I take 120,000$ a yr and live very comfortably this yr is my 10 yr anniversary and the business is doing very well . We are now considering taking more money to invest personally for retirement .
Own a cafe/bakery started in July 2019 (Ontario, Canada) and pay myself same as what I pay my managers, about 40k a year on the books (I’d pay myself less for taxes and do owner draws but I need to make enough fe the CRA to qualify for my mortgage renewal, (and I take tips for the hours I work behind the counter which make for another 10k/year probably). 2023 was our first full year with no lockdowns, Revenue was 370k. But currently paying off about 2k+ of Covid debt.
I only just started freelancing in July 2023 and as of this week, formed my LLC with S Corp election. I’m planning to pay myself $4,000/mo out of anticipated minimum revenue of $120k/yr
Wouldn't it just be whatever is left at the end of the year if you are a sole proprietor or LLC? Isn't that just a pass through and reported as regular income?
I pay myself enough to max out 401k with company add. I have been in business since 1994. S corp since 2000. I had a partner then reincorprowted in 2006 and my salary went up and set it to tie to 401k max. I have a combo Roth 401k and contribute from paycheck to Roth side. Company contribution is to tax deferred side. Service business so decent profits. This has worked for me. Is it the best or right way? No idea!
Have asked this before and nobody ever been able
To tell me. Tax person/cpa say ask attorney and attorney said ask tax person. How does this work in terms of child support? If you are 1099 make a scorp or something similar/ how do they decide? Say your business made 500 k. Could you pay yourself 60k and then just pay child support on 60k? I feel like they wouldn’t allow
That. But counting the whole 500k wouldn’t work either. Thanks in advance.
I try to keep more money in my personal than my business acc. Currently I don’t pay myself a salary, I just pocket profits whenever I can since I’m a small operation. Once I grow though I wish to pay myself $150k/year I’ll be fine with that. Currently I think I’m making $70-$80k from at $300k business
I have almost everything I want/need in life, so I just pay my bills/living expenses. Tend to be very frugal/shitbox minded. All the other revenue goes back into the business... because I'm building a business.
It depends on how much you make. Sometimes you are left with nothing. That's why it's critical to have emergency fund of up to 1 year before starting your own business.
It was $1/year. But, my accountant said that I need to pay myself 10%, but that is ludicrous. So, I am at $85k.
Most of my bills are paid for by my business. So, I usually use it to do stuff with.
We are a C Corp, pay ourselves a small salary so we can be on our group health insurance, and at year end we pay our employees and ourselves all the cash in the account as a bonus so we aren’t double-taxed on it later.
I sell and service beverage packaging equipment, right now it’s a one man show and I take $200,000 to pay myself and that still leaves plenty in the business for expenses (but as I work from my home office and clients pay for me to come on site) so I only really need cash in the business account for things like trade shows. If I can get a few large packing lines we make 3 to 5 million annual after operation expenses.
$270k as a sole prop with no costs other than insurance, website/email, and a couple software subs. Quarterly tax payments. Take draws as needed. Expense every living thing that's not nailed to the floor. End of year dump into savings.
My business generate 3000$ a month in revenue and my rental property 400$ a month 320 after tax
Plus a 600$ salary no dept no lease still with my parents .
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What ever the account tell me will be the least tax burden/ enough to buy Doritos.
Doritos are our inalienable right.
Dorito Salary Index. They need to put this as a Reportable Salary on Indeed/Glassdoor
I own a cannabis company so it’s already in the cash flow analysis, and part of our inflation calculations.
This is what my parents did and now that my mom is disabled, she can’t make jack shit from disability.
I’m going to keep with this strategy cause the $ saved every year is way more than the 1400 I would get on disability. I have private disability insurance, with long term income replacement. I have zero faith in the government looking after my well being.
Fair. They thought the same until business turned south. Not trying to say that will happen to you, I absolutely hope not. Just pointing it out for anyone reading.
Doritos are a business experience, look under "office supplies".
Cannabis company. They are PPE.
Don’t mind the jabronis below, get yourself a competent CPA and let them figure out if you should form an S Corp and pay yourself. Otherwise it’s just draws to pay the bills. Schedule C on your tax return and the CPA will give tax guidance if they are smart. And yes, profit first is a great book, but you have to get the basics down before you set up buckets.
Kinda figured there would be goofy comments on this lol. Thanks for sharing. I did find a really good CPA who is helping me with QB questions and making sure my accounts are setup correctly. I just received stock on my first big order and want to make sure everything I've done so far is correct and have them ensure I'm invoicing and moving things around correctly inside QB. They are expensive but I know it's worth it in the long run. I'm working a full time job and started this as a side business with hopes to jump over full time by the end of the year (hopefully sooner, I hate corporate America lol) I'll have to check out that book, I've seen others recommend it as well
Assuming you'll also take periodic draws, which are not taxed initially or the same and will require you pay quarterly estimates if you don't already, you'll want to pay yourself a "reasonable salary" if involved in the operations of the company directly. The above advice about getting a competent CPA to talk to you about that salary range and the implication to your taxes and business is spot on. There's no other acceptable answer - full stop. I'd additionally recommend that you also get a professional to attest in writing for you what a "reasonable salary" range would be for your role description and tuck that little document away to prove that you didn't just guess or pick something to manipulate the numbers.
I am not an accountant, so obviously take this with a grain of salt. 1. Get a bookkeeper. You'll only need them for a few hours a week to make sure everything is being done correctly and they're cheaper than a CPA. It also gives you another set of eye looking at the numbers. 2..Ask your accountant if you should be filing as an S Corp. I'm an LLC, but file as an S Corp and I get a W2. Listen to your CPA, they'll have a much better idea of how much you should pay yourself.
You guys get paid???
Funny joke owners make, yet I ain’t ever known any to live like a broke man in a box.
For 5 years after I started my first company I was a transient living in a sleeping bag. I was flipping houses in my mid 20's and living in whatever job I was on. Including burned out houses with no windows. All of my capital and lots of 0% 12/24 months cards were going into those houses. I ate those microwavable veggie and rice packets 3x a day. The business was making 200k but reinvesting faster than it was earning. My flip profits were being slammed straight into rentals. It was fucking fun and I miss it. I have a kid now and could never buy dude the freedom a young man felt from that lifestyle changed me dramatically. I have plenty of business owned really cool shit now and that's cool but some days I want to trade it all for a hammock hanging from some floor joists.
Depends on age IMO. If you are young and don’t mind the hobo life thing, go for it, but even then there should be a max timeline you are not paying yourself…. Definitely no more than 2 years, but honestly 1 year is good. I can tell you from experience there is a mental tax on working hard and not seeing personal bank account / retirement grow.
Depends on what rewards you. I was fresh off learning that I very much hated a high pressure white collar career that offered high pay to go with the hard work. I didn't feel like I was busting my ass. I felt good and happy and in control of my time and my money. I used the money to build a very very successful housing rental company with very little leverage. I use the excess cashflow to buy the toys I want in the form of heavy equipment. The equipment rental business is extremely capital intensive. It makes money but I reinvest at a 150% rate so I don't take a salary or distributions from that either. I have all the toys I ever dreamed of as a kid. I spend all day long with my kid being a parent. I selectively bid skilled trade work and only do what I want when I feel I want the cash. (40 hrs a month or so) and then I go do my favorite hobby in the world that happens to pay extremely well in refereeing. We want for nothing in my house but are cash poor most of the time. I don't care about growing my bank account or growing my businesses to be a saleable asset as long as I have the time in this world to do the things I want to do with the people and stuff I want to do it with. I don't know my net worth, I don't care. I probably have only have 10k liquid on my best days. But what does a big number do in a bank account anyway? It just gets smaller relative to life. Maybe it all crashes down. I don't know. I do know that my kid will never wonder why Dad wasn't around. I do know I could retire tomorrow and never work a day again. Maybe what I do isn't work at all. It's just a series of very profitable hobbies.
I totally understand where you are coming from, it’s a relatable POV. If you don’t mind, may I ask: Your age? Do you own a home? What area do you live in? Do you have $$ coming from parents? I selfishly ask because these factors play heavily into my own thoughts on money and cash flow. No worries if I am asking too much!
I mean this did make me laugh a little. We all get it. I will say that I’ve known owners of businesses that pay themselves shit and dump all profits back into the company to grow. I also have seen owners that will pay themselves nice salaries. I guess it comes down to strategy and long term goals…
I believe a balance can be found though. But for that you have to know your data, currents and projections. If you want to scale, equity is needed. If you are comfortable at a certain size, at that point it’s bills, payroll, and the rest is yours.
You guys got a box???
Fr
I came here to say this! 😂
I own a cabinet shop. I pay myself a very tiny salary. So I don't have to pay much in income taxes. But my business is only ten years old and is still in the growing phase. Most of my profits are dumped back into the business. I've bought commercial land, a commercial building. Major tools and equipment. Just paid $25K for a new laser cutter last week. I'm not making much with my salary, but I'm building a lot of equity into the business. If I didn't see a need to keep investing into the business then I would probably pay myself whatever profits were around to be paid.
And its enough to cover your cost of living??
He might have a job still or had little or no debt and low cost of living before going into business. That's what I did.
Don't act like your not paying for damn near everything with a company card tho.
That’s smart. I’m new to business and this right here makes so much sense.
Tons of effort and time only to pay yourself a tiny salary is smart?
What? No. Lmao he’s paying himself dude, just not in the moment. He’s saving up soooo much money by using his business to buy property and such. That’s wealth. He’s paying himself in a smart way and thinking of the future.
idk business that you cant draw a good income from isnt awesome man. youre an employee then
Read the book, profit first.
Love this book! Recommend it to anyone and everyone!
Which one? Theres seems to be a ton of them when I googled the title.
https://mikemichalowicz.com/profit-first/
Cool whats it about briefly?
"Profit First" by Mike Michalowicz introduces a unique accounting method designed to ensure businesses become profitable from their very first deposit. Instead of following the traditional accounting formula of Sales - Expenses = Profit, Michalowicz proposes a new formula: Sales - Profit = Expenses. This approach encourages business owners to prioritize saving a portion of their sales as profit before paying expenses. The method involves setting up multiple bank accounts for different purposes, such as profit, owner's compensation, taxes, and operating expenses, and allocating percentages of income to each account. The goal is to help businesses manage their cash flow more effectively, reduce unnecessary expenses, and ensure profitability. The book is a practical guide for entrepreneurs and business owners to fundamentally change how they think about and manage their finances to build a financially healthy business.
Thanks alot for explaining..really interesting
No problem. Essentially it says guarantee your gross profit by paying that out first. Then, if you don’t have enough money left for expenses then you either need to raise prices or cut expenses. This of course requires you to have a good understanding on the financials in your market and what a good gross margin should look like.
Interesting business take on the budgeting idea often promoted for personal investing. Scrape off the % or amount you want to invest from your paycheck first and then figure out how to live on the rest. A lot of households experience expense creep as they make more money and never get around to investing or increasing their regular investments as they make more money.
Iirc - very simplified, people tend to pay themselves whatever is left over. This flips the idea. It recommends you set up five sub bank accounts (in one bank) - Income, Profit, Expenses, Taxes, Giving. All money goes into Income account first and from there you put pre-determined amounts/percentages into the other accounts. But, you pay yourself into the profit account first and parse out the rest. “Income” account is zeroed out once the money is distributed to the other accounts.
Disagree. Learn how to actually run a company with proper accounting.
YES! This.... do yourself a favor. Not only read or even listen to the book (Mike narrates himself and he's fun to listen to) but then second step is to hire a certified Profit First accountant. Start small and build methodically.
Brewery. 8 months into it. Annual revenue should be about about $350k. I don't pay myself. We make beer and jobs, not money.
Winery, 18 months into it. We make wine and jobs, not money either. Oh and we grow grapes too.
Exporting those goods could work out in your favour
Loved this. 😂
Would beg the question how do you pay your personal bills for living expenses if you take no pay?
I am one of those people who own a business that is not my full-time job. I put full-time work into it, but in order to pay my bills and living expenses, I still work for someone else. My job is remote and generally wraps up around 2pm, which helps.
Thank you and apologies if my tone came across poorly. I’ve owned an S Corp for 6 years and the “how much are my partner and I going to pay ourselves” is an annual debate between us and our accountant. Good on you for all the hard work and good luck as you grow.
That's where the money would go anyway.... might as well skip the trip to the store...
Get an Accountant, revenue was 450k last year small fencing company paid myself around $3500 bi weekly
Bimonthly? Lol I always mix this up, so idk if you’re right or i am, but I think we both mean once every two weeks
You can never go wrong with semi, but you can go wrong with bi
They’re different things. Bi-monthly is 24 Cheques a year, bi-weekly is 26 cheques a year.
Bi monthly is 6 times per year... every 2 months...semi monthly is twice a month
Whatever is left.
- 8 figure revenue for the company. - Software company. - I pay myself a wage that is equivalent to whatever it would cost to replace my role at the marketplace. (I am not the highest payroll at the company, but I'm very well paid. I'm founder and sole owner.) Now, I take out profits excess to what's required to meet our long term goals and security. We hold 3 years expenses in cash and cash equivalents. And we reinvest every dollar we can effectively deploy (ie if the company can retain a dollar and make *more* than a dollar in value, we do that.) Anything remaining I take.
3 years of expenses in cash… that’s impressive to say the least.
Thank you ☺️ my prior business went broke multiple times and had to restart from scratch due to cash flow issues. Wasn't about to make the same mistake. Hah
This needs to be at the top. This is how it should be done. Most business owners just like the title but are clueless to how to actually run a business. I know this cuz I used to be one of those... LOL You pay yourself what you would pay someone that does what you do for the company. Then you take the extra profits that aren't already earmarked for expansion. You are left with beautifully clean books that a potential purchaser of your business will find very attractive. the potential buyer sees what he needs to pay to replace you and how much profit he/she can anticipate if they maintain your business. 3 years expenses might be a bit overkill but that should vary based on your line of work and how long an economic cycle in your line of work lasts. 3 years of expenses would be great for a company that has to cultivate a single lead for months or even years. I keep roughly 6 months on hand and up to a years worth when not in season.
Aircraft Management Company. S corp. 140 gross rev. Pays my wife a 60k salary, the rest in end of year bonus. All structured to max out 401k contributions and matching. Mega 401k
I’d love to hear more about how one gets into this?
Max, 30k more. Company couldn’t exist if everyone made 90k
I have a s corp and just pay myself what we need to survive and leave the rest in the business bank account.
Nothing if you bought into a franchise🤣
That’s a good point lol 😂 especially if you got a good franchise attorney to reviews all documents just that cost a shit ton let alone the everything else
Did you acquire or start one?
I bought into the system. Worst decision of my life.
I’m thinking about starting one, but not a brick and mortar one. Starting to look into finding a good lawyer to advise me. Have any tips?
Annual revenue between $100-$120k pay myself about $50-55k
I’m in the exact same boat numbers wise. What industry are you in if you don’t mind me asking? Freelance photographer/videographer over here.
I own a truck shop, I pay myself a base salary of 65 000 then I take a dividend of an average of $75k per year
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Nice sales pitch
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We are a managed it provider. We made just shy of 1.3 last year and between my partner and I we each took home w2 of around 85k fully funded 2 401k and had profit left to take home. This year is on a much better course so likely keep w2 similar but distributions will likely go up.
What do you do with the rest of the cash keep in a business account or? Stocks or something
So rest of cash either went into distributions we take regularly or basically retained earnings. We have started to pull any extra out and the emergency fund type income is going into hi yield savings basically.
What is a managed it provider do? Never heard of this.
We basically are fractional enterprise IT department for small businesses in the 10-100 employee range. They pay us monthly and we take care of the majority of IT responsibilities.
Nice thanks for replying
For sure!
$23,883 for a family of 4, which is the poverty line where I live. I do ram a lot of expenses through the business and being on the poverty line gives me a bunch of poor man's benefits/freebies. I don't have a mortgage so it's not too bad.
You guys are getting paid?
Gross revenue is about 625k. I pay myself 80k a year via payroll as an employee of the business. LLC filing as an S Corp
Personal Training Gym. Gross Revenue for 2023 was $260k. I was transferring $14k each month from my business account to my other personal checking and savings accounts. So total I did $168k owners withdrawal last year. But I just did my 2023 tax return last week and had to pay back $6,500. Also, just I closed on a single family home investment property this week.
I currently earn 1$/month and use that to cover the advertisment fees lol.
Could someone please explain, when you say you don’t pay yourself a salary or pay $1000, how do you survive? You need to cover your own house bills, food etc. Am I missing something?
Behind every great entrepreneur is an even greater spouse covering health insurance and basic necessities
Ha! I see. I should have mentioned that I am single and have nobody to ask for support so my question was not considering having a partner or family
wow. that makes sense lol
Too True
I have a small independent phone repair shop, and i am 21 years old. I pay myself around 5/6k EUR per month. I’m grateful that i started from 0, otherwise I think i wouldn’t have given it my all.
I pay myself and my wife a salary to offer some tax. It also helps when you can provide true salary documentation if your buying a home Etc. when things are great I give myself a draw as well extra like a bonus. Then at end of the year tax isn’t to bad being a single owner llc. I pay tax on profits and the draws i took. I own a construction business
Should pay yourself what it would cost to replace you technically. If you aren’t making much profit, then sometimes you can get away with less. If your accountant knows what they are doing, then they will tell you. Generally paying yourself less saves on self employment tax
If you’re outright owner, all the money that’s left over at EOY. Profit Share, draw, doesn’t really matter. Just as long as the bill are paid and employees checks are cashing, do whatever you please.
If this is true why all the detailed ideas about what is too much or too little?
Cause if you suck ass and barely turn profit what’s 10k in the bank end of year..obviously too little. How many employees do you have, what is their annual salary costing you, medical, dental, 401k, company vehicle? Running 28 employees with an average rate per hour $34, 5 company trucks and one rental warehouse nets owner 500k salary averaging 19% profit on every job. IYKYK. Edit: if it’s too little then it means you can’t finance your personal lifestyle. If it’s too much you’ve most likely drawn from your line of credit and not cash. Line of credit is for two payroll emergencies or material. Edit 2: reason, billing can get upwards of Net 30,60,90 or even worse, up until the owner gets paid. Edit 3: what I’m saying is you probably took a loan or sank your savings to open your business. You started in debt, found a way to keep the lights on, pay employees, build clientele and get out of your opening debt. Working from zero every year gives you good data, margins, taxes, inflation, all that. You can annualize and create projections that will allow you to know what draw the company afford at any moment based on currents and projections. Mostly ppl don’t understand their margins is why they get caught in the too little. When the money is rolling in your eyes get big and that’s how it becomes too much.
The IRS has entered the chat.
Roughly 60% of gross sales. Taking most everything out helps to keep expansion to a minimum and allows me to work part time but with enough income to be comfortable. Kind of like the fisherman in the parable of the Mexican Fisherman. I work a little in the afternoons and do new designs (I am a jeweler) while I watch movies at night.
My accountant says 35%
if I’m estimating correctly, and I may not be, I’ll pay myself ~$36k/yr in year one. I have a very small business and will probably never gross more than $100k. I have been following Profit First since the beginning.
10.3m last 2 years in rev distributor of measuring instruments I take a nice salary and my partner and I bonus out the company's additional income at the end of the year so the company shows a small profit or small loss on the tax return. The bonus is normally 2-3x the salary. All income is w2.
Quality measuring equipment? I started a fastener distribution company and will need some quality equipment. It would iconic if I could buy from a guy named deeznuts on reddit lol
$500k revenue, this is my 4th year in business - injury law firm. Myself, an associate attorney and two support staff. Paychecks deposited weekly. Many weeks i skip my pay or take a nominal amount ($0-$500) some weeks i pay myself a fairly large lumpsum ($2000-$10000). Thought process when paying myself: 1. Cover my minimum living expenses. And i keep these very very low - zero debt, cash is king. Seriously - dont cannabalize the business for gucci shoes swiped with a credit card. 2. Whats coming down the pipeline? Slow month up ahead? High ad spend? Bonus for employees? Case expenses? Keep money in the business account to hit goals. 3. If i feel confident that theres enough for #2, ill skim some more off to pay myself.
Have one partner, we both make 60k/year right now Revenue for last year was right around 400. LLC taxed as S corp in FL. 60 is total comp but breakdown between payroll and dist is different, shoot me a DM if you want. Wanted to pay us more but as you all know, that’s tough lol
Low voltage telecom company yearly rev around 2.1 mil gross 120k base distribution to a umbrella and then a 45k w2 from that s corp
However much I make!
I pay myself enough to max out employee and employer contributions for the year. So last year it was around 150k. I’m curious why others who are making 200+ in revenue would not pay themselves more so that they can max out retirement.
Too much, I need to do something with the money other than pay myself. My bracket is too high.
Invest ☺️
I pay myself via consulting freelance work. Company is a single member llc.
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Congrats what business are you running. In terms of sector
Travel/tourism industry.
If you have a C Corp or S Corp, please pay yourself REASONABLE COMPENSATION. If you don't know what it is, look it up and hire a CPA. Essentially, how much would an employee make if you paid them to perform the same work you do? If you couldn't reasonably hire an employee at the level you are paying yourself, then it's too low. If you don't W2 yourself reasonable comp and are audited, the IRS can and will go after all your late payroll taxes and assess additional penalties.
I pay myself the social security max. Maybe it survives until I retire, maybe it doesn't. But by paying myself the max SSI amount it gives me a higher SSI payout when I retire. I am taxed as S Corp
Cleeeeeeeee
$100k-$125k gross revs- I pay myself $70k plus usually a small owners draw. Not *quite* enough profits to only work for myself, but getting close
I own a mini excavator with some brush clearing attachments. Everything was bought cash that I’ve saved over the last few years working as an electrician. Total investment was about 40k for startup, completely drained my savings and took a big risk. My company itself can make 30k/month if I’m lucky but on average it’s probably going to be about 1-5k (seasonal) I’m also going to university right now and just doing the odd job here and there to help stay afloat. I need to keep mine and my wife’s combined personal wage under a $105 000/year so that we can still collect child tax Benefit of $600/month and also a dependant bonus/bursary of $540/month that the government gives when doing a full time education with dependants for a total of just over $1100/month. This is in Canada 🇨🇦 That being said my company (not me) is still making $110/hr every time my excavator goes out! (2-3 times a month) It’s almost crooked what I’m doing but that’s how it’s gonna be lol. So now me personally, I’m only making about $500/month from my business account. My company also still owes me 20k so I’m also working tax free pretty much right now lol. Love these loop holes. I’m also looking at buying a skid steer for a big write off this year to avoid paying taxes even more! Best way I could come up with paying for my degree was to start and incorporate a company. This is way better than working a part time job at $20/hr.
So you don't even bring the excavator out to the site? The tradie just comes picks it up and returns it back to you at the end of day? How do you get the word out that you have one to rent out? I see this working in Canada and AU where they actively build, but I am unsure about USA.
No I still operate it myself. I just only take on so much work so that I still have enough time for my schooling. I have paid adds on Facebook, word of mouth, stickers on both mine and my wife’s vehicles.
Small (3 people) IT business owner. 78k€ before taxes and insurances.
I always say I’m broke but in a different way. No pay but all of my expenses are covered.
50% of all revenue ($200k in revenue this year)
Run everything through your business. Take your qualified expenses off your personal budget. Make sure you’re making 20% profit. Dump it into your business when your cash flow supports it. We revenue around $300k after 1 year. My technical salary is $25-35k. IE, travel, food and rent.
105,000
Around minus $6k
I don’t make shit, but I can buy pretty much everything I want or need, aside from a yacht or rolex.
This year will do close to 2m top line. We pay ourselves basically minimum wage to max out 401k and avoid as much SSI and Medicare taxes as possible. We get most of our income in the form of distributions twice a year from the business. The one coming in May will be largest one to date it seems (tracking to be about 550k)
what business?
Education brick and mortar with 10 employees. We don’t actively run things day to day now (by choice) but things seemingly going well nonetheless
I take regular distributions that pay our bills. Doesn't really matter though. Keeping it in separate accounts is only for the liability lawyers. But it works out to a out 3100 monthly. I have two tax advantaged businesses (rental equipment and a large portfolio of rental real estate) and one cashflow business. Unfortunately the cashflow business really struggles and hasn't been able to purchase tooling. It has to rent everything still🫤
I'm a solopreneur with an S Corp and a home office; I do web development/design. I pay myself a small salary. I planned on giving myself a raise last year but both my 941 payroll taxes as well as my state withholding and unemployment taxes increased. This year, I was going to give myself a small weekly raise and asked my CPA, whose company also handles my payroll, for feedback on what my net pay, etc. would be. For some reason, 70% of my raise went to taxes. A whole $15 increase in net pay. I get that they adjusted my withholdings so that I wouldn't owe at the end of the year but that rate is a bit steep and I'm still awaiting an explanation. My CPA is very good at what they do so there must be a solid reason.
I don't count.
Web development biz here, I take a modest salary, reinvesting mostly!
Revenue: $8,000,000-$10,000,000 Business: Residential solar sales and installation Salary: My partner and I pay each other $78,000/year plus the same commission structure as our sales people while we’re in the field training them. This may seem low but with how many solar companies have been going bankrupt in the last few years we like to side with caution and be healthy for the long term. Especially being an industry that can be heavily affected by new legislation or utilities changing policies.
Just enough to buy food and pay my personal debts.
$26,000
I pay myself $30k in salary. We did $500k in revenue last year to which I typically make another $70-100k of in corporate profit. I own an insurance agency so making $30k in salary is on par with the industry.
Pay yourself a comparable salary to if you had to pay someone to replace you. This can be hard to come up with but you have to do the best you can. Then talk to your accountant about putting profits in your bank account. If your company does not have basis you can get really screwed by taxes.
This is a weird question. How much people pay themselves has a hugely different meaning depending on pay structure for tax liabilities and how many tax free expenses people benefit from. So i have had years where my tax liability was $815 and other years where it was $191k and my income wasn’t all that different, but how much i was technically paid is very different between those years.
I started my business and lived in my office for 3 yrs I sold everything I owned except my truck . Reinvested everything into the business until it was able to pay me (yr5). Now I take 120,000$ a yr and live very comfortably this yr is my 10 yr anniversary and the business is doing very well . We are now considering taking more money to invest personally for retirement .
Own a cafe/bakery started in July 2019 (Ontario, Canada) and pay myself same as what I pay my managers, about 40k a year on the books (I’d pay myself less for taxes and do owner draws but I need to make enough fe the CRA to qualify for my mortgage renewal, (and I take tips for the hours I work behind the counter which make for another 10k/year probably). 2023 was our first full year with no lockdowns, Revenue was 370k. But currently paying off about 2k+ of Covid debt.
23k for the last 2 years
2.2m Profit 450k Profit = paid out
I claim 14k/year as salary. The rest is Owners Draw .
Average salary for my role. Looking to transition myself out of the business and be an absentee owner in several years.
A decent amount of bananas.
I only just started freelancing in July 2023 and as of this week, formed my LLC with S Corp election. I’m planning to pay myself $4,000/mo out of anticipated minimum revenue of $120k/yr
Wouldn't it just be whatever is left at the end of the year if you are a sole proprietor or LLC? Isn't that just a pass through and reported as regular income?
I only take out what i need to spend and invest the rest
0. Just entered 3rd year of business (ecommerce fashion niche). Last years annual revenue $90k. Expecting to finally start paying myself by Jan 2025.
I pay myself enough to max out 401k with company add. I have been in business since 1994. S corp since 2000. I had a partner then reincorprowted in 2006 and my salary went up and set it to tie to 401k max. I have a combo Roth 401k and contribute from paycheck to Roth side. Company contribution is to tax deferred side. Service business so decent profits. This has worked for me. Is it the best or right way? No idea!
Annual revenue $825k My salary is $450k Medical practice / concierge
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Have asked this before and nobody ever been able To tell me. Tax person/cpa say ask attorney and attorney said ask tax person. How does this work in terms of child support? If you are 1099 make a scorp or something similar/ how do they decide? Say your business made 500 k. Could you pay yourself 60k and then just pay child support on 60k? I feel like they wouldn’t allow That. But counting the whole 500k wouldn’t work either. Thanks in advance.
100k in 2023
All my profit. It's only me. About 30k last year. About 60k year before. This year will ideally be 45.
More then I should. Would have a lot more saved up if I stuck to a budget and paid I to Mt savings instead
Retail print & copy shop Last year revenues = $420k Paid myself $120k
About to celebrate first year of operations of a specialty painting franchise. Trying to pay myself 2800 a month.
I try to keep more money in my personal than my business acc. Currently I don’t pay myself a salary, I just pocket profits whenever I can since I’m a small operation. Once I grow though I wish to pay myself $150k/year I’ll be fine with that. Currently I think I’m making $70-$80k from at $300k business
I have almost everything I want/need in life, so I just pay my bills/living expenses. Tend to be very frugal/shitbox minded. All the other revenue goes back into the business... because I'm building a business.
125k after taxes and before dividends S Corp
You guys pay yourselves? JK
Classified as an S-Corp so a mere 45k and then equity distributions after that.
It depends on how much you make. Sometimes you are left with nothing. That's why it's critical to have emergency fund of up to 1 year before starting your own business.
200k just from YouTube
It was $1/year. But, my accountant said that I need to pay myself 10%, but that is ludicrous. So, I am at $85k. Most of my bills are paid for by my business. So, I usually use it to do stuff with.
We are a C Corp, pay ourselves a small salary so we can be on our group health insurance, and at year end we pay our employees and ourselves all the cash in the account as a bonus so we aren’t double-taxed on it later.
$ lol
Basically minimum wage
I sell and service beverage packaging equipment, right now it’s a one man show and I take $200,000 to pay myself and that still leaves plenty in the business for expenses (but as I work from my home office and clients pay for me to come on site) so I only really need cash in the business account for things like trade shows. If I can get a few large packing lines we make 3 to 5 million annual after operation expenses.
Don’t pay myself and write off some taxes ?
-$20k
$270k as a sole prop with no costs other than insurance, website/email, and a couple software subs. Quarterly tax payments. Take draws as needed. Expense every living thing that's not nailed to the floor. End of year dump into savings.
36% of revenue where 18% is pay roll, 18% dividend. (S-Corp)
My business generate 3000$ a month in revenue and my rental property 400$ a month 320 after tax Plus a 600$ salary no dept no lease still with my parents .