Bookkeeping for Owner Payments

Let’s talk about the only reason you started a business, to make money and get paid! Unfortunately, you will have to put off paying yourself until you have enough cash flow and extra money that you don’t need for your business. You need to keep enough money in your business checking account so that you can cover the necessary expenses for some time. You do not want to dig in your own pocket and make a deposit in your business checking account every time you need to pay for a business expense. Let your money build up in there as you earn it. It can take a very long time before you feel like you have enough money in your checking account to be able to pay yourself.

I have worked for owners that never paid themselves out of their business funds. They waited until they sold the company to take any money that was left over after expenses. That might be years before it is sold. Some owners put themselves on the regular payroll when they start that for their employees, so they get a regular paycheck. Some take draws from the equity as funds allow and it is not a regular occurrence. It is a business decision on how you handle it and you should discuss it with your CPA. They will also help you determine how much you should pay yourself.

Much depends on how your business performs and whether your customers pay you in a timely fashion. Once you know about how much your monthly expenses are in the business, and how much your customers owe you, it will be easier to determine when you can pay yourself. Keep a comfortable amount in the checking account so you never have to worry about bouncing a check and can feel confident that you can pay all your expenses. If you keep up with your bookkeeping, your checking account balance in the books will be accurate. DO NOT, I REPEAT DO NOT GO BY WHAT YOUR ONLINE BANKING BALANCE IS. It is never accurate and changes minute by minute as new items come into the bank to be posted to your account. If you are posting everything in your books, then that balance will be the one that is correct.

So when you do decide to pay yourself, first I want you to pay yourself back for any money you have loaned to the company. Remember the Due To ‘You’ account you set up? It will show how much you owe yourself. You do that by writing a check to yourself and use that Due To ‘You’ account for your entry. Then print the check and put it in your personal bank account. Once you have that account at zero, then you can pay yourself a draw. You do that by writing a check to yourself and use an Owner Draw account. It may be called by another name in your bookkeeping software, but it will be in the Equity section that begins with 3 in the numbering system. Print the check and put it in your personal bank account. Equity builds up by itself based on your profits. Think of it as the value of your company. You do want your Equity to build up so do not take too much out in draws, because that is subtracted from your Equity. That is what you can do until the day you decide to start running real payroll and put yourself on it. You do not have to put yourself on payroll, it is a choice. Again, check with your CPA.