How to pay yourself as a sole trader or company
Paying yourself as a sole trader
In many ways, paying yourself as a sole trader is a straightforward exercise: you simply withdraw cash from the business as and when you need it. However, it’s important to be aware that these funds will be classed as profit and are therefore taxable.
This being the case, it’s a sensible move to keep a percentage of your withdrawals (i.e. whatever your individual tax rate is) in a separate business savings account so you don’t get a nasty shock when the ATO comes calling.
Paying yourself as a company
Generally speaking, company owners pay themselves a salary as they would any other employee.
It’s common practice for owners of smaller businesses to pay themselves a modest salary which is then topped up by dividends from profits. We suggest discussing your options with your accountant or a tax professional.
How much should you pay yourself?
So now we’ve established how to pay yourself, the question of how much remains. The truth is, there’s no one-size-fits-all answer. It’s all about striking the balance between how much the business needs to thrive and what kind of life you want.
A good way to approach this is to list each side of the equation’s non-negotiable expenses.
So, for your business, the list is likely to include:
- Rent
- Utilities
- Insurance
- Supplier costs
- Tax obligations
- Employee salaries (if applicable)
- Equipment maintenance and repair
For you as an individual, the non-negotiable list will probably look something like:
- Groceries
- Mortgage/rent
- Home utilities
- Essential travel
- Insurances (e.g. health, car)
If your business isn’t generating enough to cover the total of both lists, it’s time to rethink things. But assuming that it is, the question now becomes what to do with what’s left.
Perhaps the first thing to add to the business list would be some kind of emergency fund. While periods of negative cashflow are almost inevitable for small businesses, it’s always better to get through them with your own money than someone else’s.
After that, you might want to think about how much to set aside for things like marketing, reinvestment, and other expenses likely to contribute to your business’s growth.
But this needs to be set against your personal wants. Do you have holiday plans? Got your eye on a new car? Like to treat your significant other to a nice meal out occasionally?
While it’s generally assumed that small-business owners are willing to forgo such luxuries, at least in the first few years, there’s nothing to say you have to follow this blueprint. Your business might not grow as quickly but, then again, you’ll probably enjoy life more.
It’s all a question of priorities, and of course, everyone’s different.
Don’t forget super
Paying yourself superannuation might not be on your non-negotiables list, but it probably should be. After all, if you’re legally obliged to pay it to your employees, don’t you deserve the same peace of mind? While we’re sure your business will become a multi-million-dollar success, it’s nice to know there’s a super fund ticking along in the background just in case.
Opening multiple Business+ Saver accounts is easy
You can open multiple Business+ Savers quickly and easily online or from within the Great Southern Bank Business+ app. You could, for example, have one dedicated to paying staff, another for tax, another for your emergency fund, and so on.
Keeping your various financial obligations separate in this way makes managing your business more, well, manageable. Here are some of the benefits:
- Competitive interest rate
- $0 monthly fees
- Open as many accounts as you need
- Instant access to your funds via your linked Business+ Account
Finally, remember to check out our Business Hub. You’ll find heaps of free resources and plenty of helpful information to keep your business humming.
