Numerous eCommerce business owners debate whether they should pay themselves a salary or just draw money as needed. Many overlook this crucial aspect of running their brand, but it has many significant implications in their finances.
While eCommerce store owners—especially sole proprietors—have complete control over their business’s money, paying themselves a salary will benefit them and their brands in the long run. Still, many feel lost as to when and how they will pay themselves. If you want to learn how the process of giving yourself a paycheck works, here is a handy guide:
Why Pay Yourself a Salary?
Business owners paying themselves a salary can benefit themselves and their businesses. Having a regular income like an employee allows them to reap what they sow, no matter the amount. It lets them value their hard work, which helps improve their morale and prevent burnout. Owning a business is no easy task, after all.
Having a steady salary also streamlines accounting—drawing random sums of money during various times will make accounting more challenging and prone to errors. Having set amounts and durations will be more predictable and provide more insights regarding the business’s profitability.
The owners will be complying with ATO regulations if they include themselves in the payroll. In some cases, they may be able to lower their tax obligations. It’s best to consult an eCommerce accountant in this regard.
Not drawing everything from the register will also leave some money for business expenses. This practice reduces the need for eCommerce business owners to shell out cash from their own pockets for every store expense.
When Should You Pay Yourself?
Starting an eCommerce business requires business owners to invest in their capital. As a result, they may not have enough funds to pay themselves a salary. However, once a business passes the initial stages from its launch, the owner can then assess whether or not to pay themselves. Here are some common signs that they should include themselves in the payroll:
The Business Can Sustain Itself: When the business is in its early stages, it’s normal for the first goal to be a “breakeven” point wherein the revenue barely covers all the expenses. However, when the store starts accumulating extra profits, it’s time for the owner to harvest the fruit of their labour and pay themselves a salary.
You’re Assessing the Business’s Overall Profitability: Whether you’re considering expanding your business or adjusting prices, it’s best to assess the store’s profitability. If you’ve paid yourself and the amount seems unsatisfactory, perhaps it’s time to raise the prices.
How Much Should You Pay Yourself?
eCommerce business owners have great flexibility regarding how much they pay themselves. When the brand is relatively new, it’s best to start at a modest price. As long as the business revenue can cover the operating expenses, the owner can make money for themselves while keeping the store running.
If the business is doing well and earning extra money, the owners can pay themselves more. They should be making an amount they’d expect to receive if they do the same job for another company. An eCommerce accountant may be able to offer financial advice regarding this matter.
Hire an Accountant for Your eCommerce Business
Many eCommerce store owners neglect to pay themselves a salary, which can harm them and their businesses. They might find themselves working for free or spending too much to sustain the company. The accounting works and tax obligations may also suffer if they don’t include themselves in the payroll.
Knowing why, when, and how to pay yourself is a vital part of business ownership—and so is controlling your finances. If you’re looking for an eCommerce accounting firm in Australia, the ECommerce Accountant can assist you. We provide bookkeeping and accounting services to help entrepreneurs maximise profits and lower taxes. Contact us and book a free strategy session today!