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How and When You Should Pay Yourself
As a business owner, there are many things you have to worry about. Bills, supplies, meeting customer demand, hiring employees you can count on, choosing the right price for your product… the list goes on and on. One thing that may seem to be moved to the back burner in the midst of all of these concerns is yourself, more specifically, the personal funds you get out of the company.
So, how and when do you pay yourself for all of your hard work? Let’s first focus on the when.
To make things easier on your company’s budget, it’s best to pay yourself when you pay your employees. For example, if you pay your employees bi-monthly, then you should be paid on the 15th and 30th as well. This makes for easier accounting for the business, and leaves no doubt as to what you can expect.
However, as I said before, you become last priority sometimes when it comes to running your own business. So, there will be times when funds are a bit lower than anticipated and you may have to skip paying yourself out of the company profits so that you can be sure your employees are paid the salary they rely upon.
If it does come to that, consider your salary as a debt the company owes to you. Keeping in mind, however, that when the company does eventually make up for the skipped compensation, that you still take out the appropriate taxes.
The best way to determine how you should be paid out of the company profits, i.e. how much you should be paid, is by market rates. How much is someone in a similar field and position making out in the rest of the world, and at larger corporations? Granted, since you’re the boss, you have every right to more than the market rates, providing that everything else necessary for running the business is adequately taken care of first.
Another answer to the how is to consider hiring a CPA (accountant) to help you keep things on track. One of the most difficult tasks of paying out salaries is keeping up with all the employer taxes and the taxes you have to withhold for your employees (including you). A CPA will help you to stay on top of the regulations and be sure that you don’t get fined for inaccuracies later.
It’s a somewhat complicated process, no matter how you look at it. Take your time, do some consulting with others who are in the same boat, and put your business first. You’ll come out on top in the long run.
• Entrepreneur.com: Help & How To – Finance & Accounting
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