How to Calculate what to Pay Yourself

by Greg DePersio

0 min read

When running a small business, it is often a difficult decision to choose the amount to pay yourself. While there is no magic formula to determine how much to pay yourself, there are a few key points to keep in mind:

  • Focus more on reinvesting into your own business than taking a larger salary, especially in the business’s early years.

  • The notion of hourly wages evaporates. As a small business owner, you work all the time.

A good rule of thumb is to take a percentage of revenue or net profit, and increase that percentage as revenues grow. For example, perhaps you decide to take 10% of revenue as salary up to $500,000, then 15% after. If your business earned $700,000 this year, you would pay yourself:

*($500,000 x 10%) + (($700,000 – $500,000) x 15%) = $50,000 + $30,000 = $80,000

References & Resources

Related Articles

Track Financial Trends with Ratio Analysis

The success of your small business hinges on you staying on top…

Read more

Things to Consider Before Switching Employees from Hourly Pay to a Salary

There can be advantages to switching an employee from hourly to salaried…

Read more

Net Revenue vs. Net Profit vs. Net Income

Net revenue is the total amount of income earned from business operations.…

Read more