It’s your business, so you SHOULD be able to pay yourself whatever you want… right?
WRONG.
Many contractors confuse the relationship between what they do and what they own, mixing the profits of their business with the salary of their role.
Typically either not paying themselves a salary and just living off profit distributions, OR keeping their salary really low and taking distributions out on an ‘as-needs’ basis…
However, you aren’t just an owner or shareholder of the business, you’re also a working director employed within the business.
So, you have a dual role.
You are both an employee AND a working director.
You get compensated as a working director through a WAGE for the work that you do IN the business.
And you get compensated as a shareholder through RETURNS, that come from both profit distributions taken out of the business AND capital gains that grows with the value OF the business.
There’s a big difference between the two.
You get a wage for WHAT YOU DO, and a return on WHAT YOU OWN.
KEY TAKEAWAY:
So, how much you should pay yourself… The short answer?
A fair market-based wage!
That is, what you would have to pay someone else to replace your role within the company.
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