If you’ve ever felt guilty about taking money out of your business—or unsure of how to do it the right way—you’re not alone. Many entrepreneurs struggle with finding the balance between reinvesting in their business and rewarding themselves for their hard work. In fact, studies show that at least 26% of business owners don’t pay themselves at all.

In today’s post, we’ll explore the why and the how. First, let’s talk about the psychology behind why paying yourself is so important. Then we will dive into simple steps for how to pay yourself as a business owner without putting your business at risk. 

Why Paying Yourself Matters

Understanding how to pay yourself as a business owner is crucial for both your personal well-being and the long-term success of your business. You are building a company and life! 

1. It Validates Your Efforts

A paycheck is more than money! It’s an acknowledgment of the time, energy, and sacrifices you’ve invested in your business. For the 81.7% of small business owners* who operate without employees, this is especially significant. 

The motivation of a paycheck can be a powerful way to validate that the hard work of managing every detail is starting to pay off (literally!). It fosters a culture of sustainability.

Without a paycheck, it can be hard to tie the risks to a tangible outcome and a sustainable business is one that can support the employees (including you!). According to SCORE*, 61% of small business owners say maintaining their personal financial health is one of their top challenges, emphasizing the need for steady income. Of course, the business needs to generate enough income to afford paying you—more on how to achieve that below! 

2. It Establishes Clear Boundaries and Healthy Habits

Separating your personal and business finances helps you manage both effectively and avoid financial confusion between what can be counted as a business or personal expense. When you pay yourself, it can be as simple as writing a check from your business bank account to your personal account. Keeping your business money separated will also make it much easier to file and pay your taxes!

Celebrate every paycheck! When we can create a positive connection with a habit like writing a check to pay ourselves, our brains begin to have a positive association with that activity and I certainly appreciate a mini celebration.

Start with a Short-Term Financial Goal

Understanding how to pay yourself as a business owner begins with setting a personal income goal for the next 12 months. It will vary depending on how long you’ve been in business. For example, if you are an established business owner, your target might be to replace the income you earned from a previous job. So, if you made $50,000 annually, that may be your starting point.

If you are a new business owner and don’t have to replace an income immediately, start smaller with an amount that feels rewarding but manageable. Perhaps your business pays for a monthly bill, such as utilities or internet, or treats you to a weekly dinner out. 

Crunch the Numbers

Once you’ve set your income goal, it’s time to calculate your business expenses. Knowing exactly how much you need to earn, and sell, to pay yourself removes the guesswork. Here’s how to do that: 

1. Calculate Your business expenses. You’ll need to know your overhead (monthly expenses regardless of how much you sell), and your cost to sell a product or service.
   
2. Calculate Your Cost of Goods Sold. This is how much you spend to sell a product or service. I know that number crunching can feel tedious. Ask for help from a bookkeeper if this is overwhelming you.
3. Give yourself a cushion for the unexpected. We don’t like surprise expenses but they do happen in business. Planning ahead for them makes it a bit less painful when they do happen.
4. Taxes. Plan to save and pay around 30% of your business net income on your income tax bill.  More on how taxes affect personal income here.
5. Add the following to get your total revenue goal. 
   Income Goal + 
   Business Expenses +
   Cost of Goods Sold +
   Unplanned/Surprise Expenses + 
   (this is a guess but give yourself a bit of cushion)
   Taxes =
   Total Revenue Goal
   
6. Set Sales Targets: Once you have a total sales revenue goal. Use that to set your sales goal. For example: If your revenue goal is $7,500 per month and your average sale is $75. You’ll need 100 sales to reach your goal, pay yourself, and pay your business expenses.

This simple formula removes the guesswork, making it clear how much you need to sell to hit your goals. Breaking it down like this helps you see exactly what’s needed to pay yourself consistently!

I get into the nitty-gritty of the process of how to pay yourself as a business owner in the Money Chapter of The Guided Small Business Planner.

The Key to Profitability

The key to learning how to pay yourself as a business owner lies in understanding profitability. Simply put, a business can only afford to pay its owner if revenue consistently exceeds expenses. Achieving this balance requires diligent tracking of both income and costs. It also includes a need to maintain a healthy profit margin. Without this information, it’s nearly impossible to pay yourself without risking the stability of your business. 

This is where tools like my money spreadsheet become invaluable. The money spreadsheet included with every purchase of The Guided Small Business Planner is a game changer for entrepreneurs. It allows you to calculate exactly how much you need to sell to meet your income goals while considering costs and profit margins. By using this tool, you gain a clear understanding of your business’s financial health and create a sustainable system to pay yourself without putting the opportunity of growth at risk. 

Your Business, Your Reward

Paying yourself as a business owner is more than just taking a paycheck, it’s a way to honor your hard work and build a business that supports your life. Setting achievable goals, understanding your finances, and using the right tools can help you create a system that works for you and your business.

Remember, your business should help you live the life you want, not the other way around. With the right strategies in place, you can grow a business that thrives while giving you the rewards you deserve. Taking care of yourself is one of the best ways to ensure your business succeeds.

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About Flourish In Growth 

We help business owners navigate the ups and downs of building the business they want. Our rules are: Clear, simple, no-fluff, and actionable! Stop doubting yourself. Meet your small business map — The Guided Small Business Planner™. This is a workbook guide with step-by-step instructions for building a strong business foundation. It's your go-to instruction manual with clear instructions for creating a sustainable business. It's not a calendar. It's a guided workbook.

Source Information 

*U.S. Small Business Administration

*Score.org

While forming an LLC or Corporation might seem like the end of your legal journey, it’s just the beginning. Many founders think filing with the Secretary of State is enough, but without the additional legal protections a lawyer can provide—such as operating agreements or trademark clearances—they could be exposing themselves to costly legal risks. Don’t make the mistake of relying on templates or advice from social media groups. Consult a professional to ensure your business is fully protected from day one.

My Top 10 Tips & Favorite Sources for small business grants and funding.

1. Look local first
Unless you are building a very niche business, your best bet for grant funding may be from a local source.

Get to know your area: 

• Economic development group
• Small business support group
• Small Business Center/SBDC or SBTDC
• Chamber of Commerce
• Business co-working space or local coffee shop
• Local business launch or accelerator groups.

Make sure they know who you are, what you do, and how you need help.

Note: There are large organizations who provide small business grants  – just remember that there is likely a lot of competition and not an opportunity to build a personal relationship with these potential funders. You may be competing with hundreds or thousands of other applicants. 

2. Build relationships.
People support and give money to the people that they like, know, and trust. Get to know the small business supporters in your area. Make sure your business banker knows you. Tell them about your business and celebrate your successes with them. Build a small business advisor support team. Have coffee with them and get to know them. Don't forget that relationships provide value to both people. Ask yourself, "How do I bring value to this relationship?". 

3. Grantors want to know you can sell
Everyone has a million dollar idea. Grantors have to believe that you can use funding to build your business. They want to see proof that you can get customers, make money, and lead a business. This means that they expect you to show sales and show that you know your market. Lenders and investors call this 'proof of concept' or that you have an MVP - minimum viable product. 

4. Get to know the industry leaders in your community. 
Some communities have niche opportunities for businesses. Our local towns have grants for businesses who are opening a retail space in areas where they are trying to promote growth or strengthen communities. Some communities have specific investment opportunities for things that they are historically strong at doing - think agriculture, manufacturing, or life sciences. These opportunities aren’t always easy to find with an internet search and often run in cycles once or twice a year. 

• Who is the business & who are you as owner
• What do you do? What problem do you solve?
• When are you solving this problem and for whom do you solve it?
• Where do you solve the problem?
• Why do you solve that problem? Why does your work matter?
• How do you do what you do?

9. Join email lists.
Building a network in person is worth the time and effort if you are cultivating relationships that benefit your business. If you can’t make the coffee networking hour, you can also look for local small business support email lists and social media pages for another way to stay connected with your local small business support organizations.

10. Build and tell the story around your company and brand.
Be your own biggest advocate. Share the story of why you are in business and build community. Stretch yourself to ask for help when you are stuck or aren’t sure how to move forward in your business. Building your business and getting funding is a long game. It can take awhile to build the trust that lenders or grantors need before providing funding. Patience can pay off if you stick with it.

TL;DR
Grants aren’t for every business. They can be a great opportunity but require planning and preparation. Don’t rely on them to start or grow your business. Instead, keep an eye out for opportunities. Build relationships with your local banker and CDFI. They can help you get a small business loan once you have shown that you know how to sell your product or service. Grantors don’t usually fund ideas - they fund results and the people who make the results happen.