How to Pay Yourself as a Business Owner (Without Hurting Your Cash Flow)

Kim Bernstein
9 hours ago
2 min read

Paying yourself as a business owner sounds simple enough—but it’s one of the most misunderstood (and often neglected) parts of small business finance.

Too little, and you burn out. Too much, and you risk overdrawing the business. So how do you pay yourself in a way that’s smart, sustainable, and tax-efficient?

Let’s break it down.

1. Know Your Entity Type (It Matters!)

Your business structure affects how you pay yourself:

Sole Proprietor / Single-Member LLC: You take an "owner’s draw" directly from business profits. It’s not payroll, but it does affect your taxable income.
Partnership: Owners receive draws based on their ownership percentage. These must be recorded properly in the books.
S-Corp: You must pay yourself a "reasonable salary" through payroll (W-2), plus you may take distributions.
C-Corp: You’re treated as an employee and must be paid a salary. Distributions are taxed separately.

Your pay structure must match your entity type for both compliance and clarity.

2. Set a Pay Schedule (and Stick to It)

Don’t just take random draws when you need them. Instead:

Choose a set schedule (weekly, biweekly, or monthly)
Transfer a consistent amount each period
Treat it like a real paycheck—because it is!

Regular pay builds habits and keeps personal + business finances clearly separated.

3. Know What You Can Afford

Use real numbers, not guesswork:

Review your average monthly revenue
Subtract fixed expenses (rent, software, subscriptions)
Account for taxes and savings goals

What's left is your owner pay capacity. If it's too tight, revisit your pricing or expenses.

4. Don't Drain the Business Dry

Paying yourself is essential—but so is maintaining business stability.

Keep at least 1-2 months of operating expenses in the bank
Leave room for taxes, growth, and unexpected costs

Pay yourself what’s sustainable, not just what’s desirable.

5. Separate Personal & Business Accounts

Always.

No co-mingling funds
Pay yourself through a transfer or payroll service
Track every draw or distribution properly in your books

Clean books = clean taxes and easier planning.

6. Talk to a Tax Professional

Your owner pay structure affects how much you owe in taxes, and when.

Estimated payments?
Payroll tax obligations?
Reasonable salary for S-Corps?

A pro can help you structure it the right way from the start.

Final Thoughts

You deserve to get paid—without hurting your cash flow or stressing your systems.

At KB2 Bookkeeping & Tax, we help business owners create smart, sustainable pay plans that keep the business and the owner healthy. Ready to finally pay yourself like a pro? Let’s get it done.