Running a business involves a variety of expenses, from equipment costs to vendor reimbursement to payroll. In addition to paying your employees, you also need to compensate yourself. As an entrepreneur, knowing how and when to reimburse yourself for your own time and work will help you to make the best use of your available cash flow. In most cases, the way that you pay yourself may be determined by the type of business you operate.
Drawing Funds
If you are a sole proprietor, you will likely only need to pay yourself via an owner draw on your business account. When you report such draws, the appropriate place to do so is generally on your balance sheets. You will typically pay yourself and report in the same way if your business is classified as a single-member LLC, as well.
Guaranteed Payment
This type of payment is used for businesses run by partners. If your business is run via a partnership, you would generally record payments to owners on profit and loss statements.
Salary and Distribution Payments
Certain business owners will pay themselves by way of a salary and distribution payments. The business classifications associated with these payments are S corps and C corps. Salary payments should be accounted for on profit and loss statements, and distribution payments should be reflected on balance sheets.
Making Payments: When and How Much?
It is very important that payments are made in proper amounts and with the right amount of frequency. In order to determine these details and remain IRS complaint, you should always consult your accountant.
Even if you are currently operating only a tiny startup, you should pay yourself what your time and effort are worth. Also, you should at least pay yourself enough to cover your basic expenses.
If your available cash flow is not enough to pay those who run your company, getting some financing can help your business to stay afloat. Contact Flex Capital today for more information.
