How Much Should You Pay Yourself as a Sole Proprietor?
1 min read
How Much Should You Pay Yourself as a Sole Proprietor?
If you are a sole proprietor, figuring out your salary can feel like a guessing game. Here is a simple, four-step rule of thumb to determine exactly how much to pay yourself:
1. Calculate your net profit: Find the final number at the very bottom of your Profit and Loss (P&L) statement.
2. Set aside small business taxes: Ask your accountant for your exact rate. It usually falls between 20% and 35% of your net income. Always oversave rather than underprepare.
3. Reserve business reinvestment funds: Decide what percentage of net income your business needs to grow.
4. Take an owner's draw: Use the remaining percentage to pay yourself.
The 50/30/20 Rule for Sole Proprietorship Pay
If you need a starting point for your business budget, try allocating 50% for your salary, 30% for taxes, and 20% for business reinvestment. You can always adjust these numbers as your revenue and business needs evolve.
Take the Guesswork Out of Your Business Finances
Managing cash flow while running a busy practice can be overwhelming. At Fauna Accounting, we specialize in accounting for veterinary and equine industry entrepreneurs.
Schedule your free consultation today!
