Two Simple Ways to Pay yourself as a business owner

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As a business owner, you probably wonder why you must pay yourself. I mean, "All the money in this business belongs to me, so why do I need to learn how to pay myself especially?"?You need to learn to separate your business from yourself to become a separate and more sustainable entity. See a business as living this with its own life. Cash flow is the lifeline of a business.

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4 Reasons why you need to separate the business from yourself.

1.??????Separation of self:?You must separate yourself from the business. A registered business, whether a business name or a limited liability company, has a life of its own.

2.??????Tax implications-?Taxes for businesses are calculated differently from individuals.

3.??????Reinvesting-?As a business owner, you do not take all your business earnings as earnings to you. You have to leave a portion to reinvest.

4.???????Sustainability:?Quite frankly, paying yourself as a business owner is the right way to grow a business that will live while you are alive and even when you are gone. This is how people who have grown sustainable businesses have done it. Paying yourself forces you to look at the numbers and plan ahead. Of course, you can always increase your earnings as the business grows. You are the CEO; feel free to promote yourself from time to time as the business makes more money.

There are two very simple ways to pay yourself:

1.??????Monthly salary

2.??????Drawings.

·????????Monthly salary, as the name suggests, refers to taking out a fixed amount every month as your salary, as the CEO of the business. As employees get paid, you also get paid.

·????????Drawings?refer to taking out a bulk amount from the business at irregular intervals. Imagine that as a business owner, once every year you take a drawing of KES 1 million to invest in a personal capital project, that’s a drawing.

Many business owners prefer to compensate themselves with?drawings?rather than salaries because they can channel that bulk fund into huge family or capital projects.

Drawings may represent either profits generated by the business or funds the owner previously contributed to operate the company. Drawings may also be a combination of profits and capital contributed. Whichever option you choose, drawings or monthly salaries, both methods constitute monies that the business owner has paid to himself and are taxable in the eyes of the taxman. You may decide to use one or a combination of both methods. Our advice is that a business owner deploys a combination of both methods - salary and drawings. They each have their advantages and work well if both are combined.

Salary?allows the business owner to have some decent cash to run his daily life, while drawings allow the business owner to make huge personal investments. Everyone needs to have a balance of both kinds of earnings.