Pay yourself now or later?!

[Clint_Smith]

for you folks in business how are you paying yourself. Last year I paid myself pretty much quarterly, after I paid my estimated taxes and all...

This year it seems that I am subsidizing my business with my day job, (new gear is taking a bite outta profits this year)

anyway just curious...

[PeteQ]

Pay yourself first. Just like any other payroll. At least that is what my CPA says....

[Russell]

Definately pay yourself first.

Thanks,

RG

[cmalana]

Depending on how you are set up (I presume you are not a sole proprietorship), I agree that you should pay yourself first. You are not subsidizing the business - but actually providing a loan to the business (the equipment ends up as an asset, but a liability entry - accounts payable or a loan will balance it out).

I don't think it matters if you are a sole proprietorship.

I'm no accountant so this is strictly an opinion.

[merock]

I'm gonna be like steve jobs and pay myself $1. Maybe $2.

[Alyson]

I tend to reinvest my profit now, but I have the benefit of a partner who is the primary breadwinner. If I did not, I would pay myself.

[René]

I also pay myself first.

[PictureCow]

I still don't really pay myself I just keep reinvesting... I figure you have to spend money to make money. At some point it will level out. I expect to turn a profit between the 3rd -5th year of business which from my research is pretty standard for a small business.

[Clint_Smith]

Originally Posted by PictureCow

I still don't really pay myself I just keep reinvesting... I figure you have to spend money to make money. At some point it will level out. I expect to turn a profit between the 3rd -5th year of business which from my research is pretty standard for a small business.

I am going into my 4th year, you and I seem to be in the same boat.....

[PeteQ]

Originally Posted by PictureCow

I still don't really pay myself I just keep reinvesting... I figure you have to spend money to make money. At some point it will level out. I expect to turn a profit between the 3rd -5th year of business which from my research is pretty standard for a small business.

What I was told to do with my first business and have doen so ever since is basically what you are doing albeit in a slightly different way perhaps. I really just reinvest my pay, but it goes back in as an owner investment from time to time. The business pays PeteQ for his work/salary whatever. And from time to time PeteQ will invest more owner equity into the business via cash. It's all the same money and will likley depend on your structure, but there are benefits to showing your pay as a business expense.


A CPA is the way to go and mine gets a check every month...just a cost of doing business!

[mabusincarnate]

Assets = Liability + Owner's Equity
or
Owner's Equity = Assets - Liability

If you invest cash into your business, and it's not a loan, this is how it works. You add the cash to assets and you add an equal amount to owner's equity. When you use that cash to buy equipment, you subtract from your cash account and add to your equipment value (both on the assets side), while retaining the same owner's equity and leaving liabilities untouched.

If you buy the equipment on a loan (from yourself, credit card, bank, etc...), you do basically the same thing. You add the cost of the equipment to the assets AND to your liabilities. As you pay off the equipment, you spend money from the cash account and reduce your liabilities accordingly.

Debits and credits can get confusing so I'm not even gonna bother.

This doesn't help you decided whether or not to pay yourself. That requires a detailed cashflow analysis. Basically, do you have more than enough money coming in to cover all your expenses? Do you have enough to save toward new equipment so that you don't have to take out a loan next time you require something?