Why business owners should pay themselves a salary

Most business owners are focused on one thing… business growth. Investing time and energy into creating a truly successful venture can be all-consuming and often they spend countless hours doing lots of work, but don’t receive a proper pay packet.

Understandably, they could be aiming to maximise reinvestment into the business or maybe they want it to be in a stronger financial position before they draw a formal wage. But we believe it’s important for business owners to pay themselves properly as soon as it is financially viable.

By paying yourself a salary, you set up good accounting practices within the business. Rather than just casually taking cash out of the business bank account, utilising a payroll system ensures you have appropriate visibility of where the dollars go and you make sure that you meet your compliance requirements.

When it comes to paying yourself, it’s important that you don’t just randomly dip into the company funds. You should set yourself up – and any employees – in a formal payroll system and commit to the regular pay cycle.

As to the amount you should pay, there are a number of different schools of thought and it really comes down to you and the business’s financials. Some people suggest you should pay yourself the same amount it would cost to have someone else take over your role… but this might not be feasible if your business is still within its initial growth phase.

So perhaps instead you can decide upon an hourly rate that you are happy to receive or even a flat amount per month that the business can afford and that you are comfortable with. Keep in mind that as the business grows and profitability increases you can review and adjust this figure as often as you like.

Even though you are the business owner… that doesn’t necessarily mean that the business’s money is all yours.

Depending on the business structure, the financial obligations can vary greatly and this is another reason why you should pay yourself a proper wage.

The last thing you want to do is to create business tax liabilities because you’ve withdrawn money that hasn’t been correctly accounted for… you need to make sure you are always complying with ATO regulations.