How do you pay yourself ??

[Dave Tinley]

For you guys that are full time, or part time and in serious buisiness.
How do you pay your self??
Do you just take cash that is left over at the end of the job?
Do you write your self a check each month? IE like a salary.
or some other way ??


Thanks
Dave

[Steve Rozmiarek]

Dave, the answer to that is going to vary incredibly from business to business. Revenue levels, financing, cash flow, personal needs and goals, and even taxes all weigh into the answer. Short answer though, you do what it takes to walk the very fine line between your businesses well being and your own. Personally, I think seperating the two is difficult, but to objectively analyze your business you really need to be able to do that.

Are you talking about no employees? That makes it easier. If you have them, they always get paid before the boss, which adds another huge layer of complexity. The question will answer itself by doing a short, medium and long range strategic plan, and the required projections to carefully examine the business earning potential.

Some people get lucky, and actually make it by just randomly assuming some arbitrary take home draw. The rest of us really have to work to calculate the correct amount. Good luck, and as you probably know, working for yourself, no matter the business, can be incredibly rewarding and well worth the trouble.

[Rick Fisher]

The right way to do it is to pay yourself a wage. If the company has some great months, you leave the money in the company.

The number one cause of failure in profitable companies is cash flow.

If your company develops a good lump of cash, guard it. Lease major machinery to guard the cash.

This economy of today is a great example of why. You could have some really lean months and still make your own payroll and lease payments with ease..

[Larry Edgerton]

Pay myself? That was in the old economy. Now we live on my wifes income and I work to support my shop. Lost $5k last year. Business is down 92% from 8 years ago. Its not just me, I am the last one left in town......

[Tony Bilello]

The right way to do it is to pay yourself a wage. If the company has some great months, you leave the money in the company.

The number one cause of failure in profitable companies is cash flow.

If your company develops a good lump of cash, guard it. Lease major machinery to guard the cash.

This economy of today is a great example of why. You could have some really lean months and still make your own payroll and lease payments with ease..

A woodworking business should not be treated different than any other businesss.

[Mark Grotenhuis]

Pay myself? That was in the old economy. Now we live on my wifes income and I work to support my shop. Lost $5k last year. Business is down 92% from 8 years ago. Its not just me, I am the last one left in town......

I hear that ... I'm one of the last few in my town as well. I'm not in the red yet but it sure has been slow. I sense the winds of change this summer though.

[Mike Parzych]

Infrequently.

[Cliff Rohrabacher]

Don't forget to report earnings quarterly.

[Craig McCormick]

I try to transfer $3000 per month to the family bank account. I am barley able to do that these days.

I used $5000 from my personal savings to keep my business afloat last year.

AZCRAIG

[Phil Thien]

I started my own business when I was in college and it has been my families only source of income for over 20 years.

The answer is that is depends on how the business is capitalized, and you should have a business plan that covers this before even starting the business.

My cocktail napkin business plan called for very little capitalization and initially taking out just enough to cover my very minimal personal expenses. Everything else stayed in the business.

Hopefully the business will grow and you can eventually take a regular check. My employees (mostly young) have always thought it was kinda funny that I get a regular paycheck, just like they do.

Depending on the type of business, you don't want to take it all out (profits, thas is) even after you're secure. You want to keep building that business balance for unforeseen expenses (cap. equipment) and expansion.

But almost without exception, starting a business is about personal sacrifice. I've seen many people try, but they still want to travel, and they want their new 50k BMW, so they just finance everything with CC debt or borrowing from friends/family. Those businesses never make it.

[Eric DeSilva]

It isn't a woodworking business, but I'm in a partnership. We pay a minimal monthly draw against end of year earnings--when I say small, it is a fraction of budgeted earnings--maybe enough to cover taxes. Then, I get "paid" once a year, on January 10 for the prior year. Cash flow management is a pain.

[Dave Tinley]

Thanks to all for the replies.
My situation is that I am the sole employee, my overhead is very low.
My shop is paid for, my machinery is paid for, and I have a really good inventory of lumber and sheet goods that is paid for.
Last year was my first full year of full time woodworking and buisiness was decent. I basically paid myself 50% of the net profit each month, and the other 50% went back into the buisiness.

so my original question was to see if others were following the same lines,
or if there was a different method to this madness.

Thanks again,
Dave

[Rick Fisher]

Dave.. you should consult with an accountant. If all the machinery and stock belongs to you personally, it could be considered a shareholder investment into the operating company.

If you could draw that investment back out of the company, instead of a wage and at the corporate tax rate, it could boost your cash position in the company quickly, by reducing the overall tax burden.

In other words, and depending on the tax base in your area, rather than draw a wage, your company could buy your own inventory and machinery from you, rather than pay you a wage. The company could use the purchases as tax write offs and because you owned the machinery personally, there is no income tax on the proceeds. (so long as you dont make a profit).

You could have a couple of years of very low income tax..

[Mark Hulette]

Dave.. you should consult with an accountant. If all the machinery and stock belongs to you personally, it could be considered a shareholder investment into the operating company.

If you could draw that investment back out of the company, instead of a wage and at the corporate tax rate, it could boost your cash position in the company quickly, by reducing the overall tax burden.

In other words, and depending on the tax base in your area, rather than draw a wage, your company could buy your own inventory and machinery from you, rather than pay you a wage. The company could use the purchases as tax write offs and because you owned the machinery personally, there is no income tax on the proceeds. (so long as you dont make a profit).

You could have a couple of years of very low income tax..

X2- Rick is definitely right. You could be cheating yourself out of some nice deductions- talk to an accountant yesterday!

[Rick Fisher]

While your at the accountant, you should also look for other tax savings.. Is the shop at your house?
Hydro, vehicles, telephone, internet, insurance, property taxes etc..

Dont rely soley on an accountant to find you every deduction. Some are good, some are left leaning dingbats who think you should pay taxes ..

In some cases, you can write off car washes, parking meters, toll booths, taxis .. all without receipts..

The big mistake is to think that you only need write-offs when your making money. Losses are a write off against future income as well.
The "lyptus" (litmus) test for a company to accrue tax losses are if that company has a reasonable expectation of profit. You already made money...

There is a saying.. if you take 10 plumbers and 10 seasoned businessmen.. give them all big plumbing companies .. 3 of the plumbers will succeed, 9 of the businessmen will succeed. So attack the business side, become savvy at managing the financial aspects of your new business. You will find it much easier than it sounds because people love to help ..