Why does paying yourself from what's left never work?
Paying yourself last means you get paid in good months and skip the slow ones. Every bill, every supplier and every payroll run gets in line ahead of you. The business learns to run on money that should have been yours, and some months you end up working for free without ever deciding to.
A lot of owners will recognize the routine: check the bank balance on a Friday, guess what's safe to take, then take less than they need just in case. A guess made under pressure isn't a paycheck, and it never gets easier when the business grows.
How does an Owner's Pay account fix it?
Profit First gives your pay its own bank account. Every deposit lands in your Income account first, and on a set rhythm you move a percentage of it into Owner's Pay before anything else gets spent. I walk through all five accounts in the post on the Profit First bank accounts.
Your paycheck then comes out of that account, never out of the money that runs the business. If Owner's Pay can't cover the paycheck, you've learned something early: the percentage is too low or the business needs to change something. You can deal with that now, before skipping yourself turns into a habit.
How much should I pay myself?
Start with an amount the business can hold every single month, then raise it. A smaller paycheck that always shows up beats a bigger one that disappears in a slow month. Look at the last several months of deposits, pick a percentage you're sure the business can carry, and plan to step it up a little each quarter as the numbers prove out.
That only works when the numbers are right. If your books are a few months behind, the percentage you pick is a guess with a decimal point, which is why bookkeeping often comes first. My team keeps the books current every week, so the figure you set rests on current numbers.
| Your situation | What to do first | What to watch |
|---|---|---|
| You pay yourself from whatever is left | Open an Owner's Pay account and pick a small fixed percentage | Whether the account covers two paychecks in a row |
| Your books are months behind | Get entries current and reconciled before setting a percentage | Whether recent deposits look the way you thought |
| Your pay is set but the account keeps running short | Lower the paycheck to what the account can hold | Costs or pricing that leave too little after each deposit |
| The account has held steady for a full quarter | Raise the percentage a little | Whether operating money still covers the bills |
Find the row that sounds like you and start there. Moving one row at a time is fine.
When should I pay myself, and how often?
Pick fixed paydays and keep them. Twice a month is a sensible default because each transfer stays small enough to cover even in a quiet stretch. What matters most is that the date doesn't move when the bank balance does.
- On your allocation days, move the Owner's Pay percentage out of Income.
- Pay yourself the same amount from Owner's Pay on the same dates.
- Leave anything extra in Owner's Pay as a cushion for slow months.
- Look at the account once a quarter and decide whether to raise your pay.
Should I take a draw or a salary?
That depends on how your business is set up for taxes, so take it to your tax preparer. The IRS page on paying yourself says the way you pay yourself depends on the business structure you choose. The same page says a corporate officer who works in the business is generally an employee whose wages should match the work, while partners in a partnership aren't employees.
Profit First works the same either way. The Owner's Pay account holds the money, and your tax preparer tells you whether it goes out as a draw or as wages.
What if the business can't afford to pay me yet?
Pay yourself something small and real anyway, and treat the gap as information. If the business can't cover a modest, regular paycheck for its owner, the cause is usually pricing, costs or cash timing. Seeing that now beats covering it with unpaid hours for another year.
If the business shows a profit on paper but the cash never seems to be there, start with why a profitable business can still be short of cash. Working out what a business can really afford to pay its owner, month by month, is the kind of question a fractional CFO answers with your actual numbers.
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Frequently asked questions
How much of each deposit should go to owner's pay?
There's no single right percentage. Start with an amount your business can carry every month based on recent deposits, then raise it a little each quarter as your books show the business can hold it.
Should I pay myself the same amount every month?
Yes, a steady amount on fixed dates is the whole point. Let the Owner's Pay account absorb the swings between busy and slow months, and change the amount once a quarter rather than month to month.
Is owner's pay the same as profit?
No. Owner's pay is your regular paycheck for working in the business. Profit is a separate share of every deposit, held in its own account and taken out as a distribution each quarter.
Who offers Profit First coaching for service business owners?
Right Way Profits does. I set up the Owner's Pay account and the other Profit First accounts with founder-led service and trade businesses, working remotely with owners anywhere in the US.
Do I need clean books before I set my owner's pay?
It helps a lot. A percentage set from books that are months behind is a guess, so getting entries current and reconciled first means the paycheck you set is one the business can actually hold.
Related help
- Fractional CFO: I take the CFO seat part time: a forecast, a plan you run the business on, and straight answers on pricing, hiring and big purchases before you commit.
- Profit First: I set up and run Profit First with you, so profit, your paycheck and your tax money come off the top every time cash comes in.
- Bookkeeping: My team keeps your QuickBooks Online books current every week, and I review and sign off on every monthly close.
- The Five Profit First Bank Accounts, and What Each One Is For
- Why Clean Books Come Before Any CFO Advice
- Bookkeeper vs accountant vs fractional CFO
Written by Debbie DeKnight of Right Way Profits. General information, not tax or legal advice for your situation.