Various ways to pay yourself as a business owner abound. However, not all methods work for all businesses.
From art to entertainment, education to information technology, paying yourself as a business owner requires tact.
So are you wondering how to navigate the world of self-employment and paying yourself as a an entrepreneur or business owner? The following section details the things you need to know to achieve that.
How to Pay Yourself as an Entrepreneur or Small Business Owner
You’ve checked out your supplies, handled logistical expenses, and boosted your marketing when suddenly you realize you are yet to be compensated for your effort.
Paying yourself as an entrepreneur should not be overlooked as it impacts the overall stability of your business. It provides a concrete framework for ensuring your business is treated as a business. You wouldn’t want to keep dipping your hands in the company’s earnings randomly, will you?
To pay yourself as an entrepreneur, consider the factors below:
- Taxes charged on your business
- Age of Business
- Cost of production
- Personal expenses
Depending on the nature of your business registration. Tax filing for a self-employedis charged on total earnings.
This means your tax is deducted from the sales of any product or services you render before other expenses.
If your business struggles to break even and this method is employed, this will affect how you pay yourself.
On the contrary, businesses registered as a co-operation are taxed only after direct cost is subtracted from sales. Making it possible to pay yourself handsomely.
You can pay yourself as per your personal expenses, profit distribution, or on a need basis.
Paying yourself with personal expenses involves budgeting, as with other expenses, how much you will receive at the end of the month to cover your personal needs.
The profit distribution method simply involves taking a certain percentage of your profit and using them to foot your expenses.
For the last method listed above, this means that every time you have a need, you just draw from your income to sort your expenses without worrying about the next paycheck.
Although it is advised to pay yourself first before deciding to spend what is left. Here is a detail of what the pay-as-yourself first method means
What is the Pay As You Earn First method for Business?
The pay-as-you-earn-first method for business is a model that allows you to take a certain percentage of your earnings and deposits it in your saving account.
One advantage of this method is in how it protects you from overspending had you have your remuneration paid upfront.
To prevent this scenario, entrepreneurs authorize their bank to take out the stipulated sum and deposit it in their savings account before taxes or charges are deducted.
Say your monthly compensation is $10000. You could place a standing for your bank to transfer, say, 5 percent to your savings.
The pay-as-you-earn first method helps entrepreneurs hedge against contingencies while allowing them to earn interest.
The contributory rate differs from person to person, but basic pay as you earn the first method is 50/30/20.
This means that entrepreneurs set aside 50 percent of their pay to savings, 30 to recurring expenses, and the rest miscellaneous.
Above all, the pay-as-you-earn method helps entrepreneurs stay disciplined, review their budget and determine their saving goals.
How Much Does a Small Business Owner Make in Australia?
According to payscale, the average Australian business owner earns an average monthly salary of $80000-$100000.
Due to its economic condition and free market economy, most entrepreneurs enjoy government incentives and economies of scale.
Thanks to significant cooperation and their sourcing of raw materials from small-scale businesses, startups in the country enjoy favorable business conditions.
On the contrary, in other countries, these incentives are absent, making the ease of doing business stiff.
A look at what an average South African businessman earns is given below:
How Much Does a Small Business Owner Make in South Africa?
A typical south african business owner earns hourly anything between R15 and up to R300000 on average
The robust economy of South Africa is majorly credited to the small and medium-scale sectors, which generated more than R1 Million Year on Year.
Further efforts by their government to intensify production and improve science and technology have seen an increase in its GDP.
Elsewhere, efforts like this are nonexistent as most entrepreneurs are left to source cheap labor.
Nonetheless, the profit potential of any business is based on many factors, including age and percentage.
The following section discusses how much profit to make from owning a business.
How Much Profit Do You Make From Owning a Business?
The good side to owning a business is you don’t have to wait till payday before buying anything.
While this may sound juicy, remember that several factors play out regarding profiteering.
To determine how much profit you will make from owning a business, these key points are necessary:
- Age of your business
- Overhead cost
- Type of business
- Revenue generated.
- Government policies.
Age your Business
The age of your business determines the chances of making a viable profit from your business.
Statistically, it takes about 1-3 years for most startups to make ample profit that covers their overhead.
Before you know how much profit you will make from your business, bear in mind that you will have to put in the work in the formative years of the business.
Overhead Cost
Even if your business has been running for decades, your overhead cost goes a long way to determining your profit.
If the cost of producing a good or service surpasses your total sales, the chances of profiting may be slim.
By reducing your operational expenses and applying solid financial discipline, profit for your business is likely.
Business Type
The nature of your business also goes a long way in determining how much profit you could make.
Most businesses selling household items and consumer goods are likely to have more sales than luxury goods and goods of ostentation.
This applies to other businesses that meet basic human needs as they cash in sales more than the rest.
Revenue Generated
What is the total turnover of your business? Is it strong enough to say you can live off its profit?
This factor is also overlooked as business owners assume a significant turnover equals high profit.
It isn’t always true, considering just how much sales you’ve made; factoring other differentials mars your profit prospect.
Government Policies
A single government policy can make or mar your earnings as a business person, never ignore them.
If the policies of a government prohibit the sales of imported meat, these policies will affect one selling such goods.
Hence, it is advised that before owning a business and even making plans for profit, you understand the local laws.
Considering the factors listed above put you in a better position to decide what you will want to be done or undone to maximize profit.
Finally, every business owner must have at least 10%-15% above the total cost to register profit significantly.
What Business Ideas Make The Most Money?
No business idea holds the Holy Grail when it comes to making the most money; a combination of business management and marketing does the magic.
With digital marketing and another marketing model to promote businesses online, almost any business idea can make the most money.
Below is the list of 10 business ideas that can make the most money if done correctly:
- Pet sitting
- Online tutoring
- Printing T-shirts
- Laundry and other cleaning services.
- Drop-shipping
- Bookkeeping
- Counseling
- Transportation
- Transcriptions
- Freelance copywriting/Content writing.
How to Pay Yourself as a Business Owner: Conclusion
Data reveals that 5 in every ten startups business pack up in their first three years of being established, with low profit being the main reason for the winding up.
This gory fact should not deter you as an entrepreneur, at least not when you have the correct information.
From how to pay yourself as an entrepreneur and utilize the pay-yourself method to knowing how much you can make in profit, the sky is your starting point for what you can achieve.
How to Pay Yourself as a Business Owner: Related Articles
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How to Pay Yourself as a Business Owner: References
