How to Pay Yourself as a Small Business Owner (Without Hurting Cash Flow)

KG Accounting
Sep 8
4 min read

small business owner doing payroll using KG accounting

If you're running a small business, chances are you’ve asked yourself:

“Can I afford to pay myself right now?”

Or worse:

“Should I even be paying myself at all?”

You’re not alone. Many business owners struggle to find the right balance between personal income and keeping their business financially healthy. Whether you're just starting out or you’ve hit six figures and beyond, learning how to compensate yourself in a sustainable way is one of the most important (and emotional) financial decisions you’ll make.

In this guide, KG Accounting & Consulting breaks down how to pay yourself responsibly, without wrecking your cash flow—and show you how the right financial systems can make that process easier, clearer, and less stressful.

Why This Feels So Hard

Unlike a traditional job with a predictable paycheck, small business ownership comes with uncertainty. Your income is tied directly to your revenue, expenses, and how well you manage your money. The problem is, many business owners:

Don’t have a consistent financial system in place
Reinvest all profits back into the business (and forget about themselves)
Wait until there’s “extra” cash before taking a paycheck
Feel guilty paying themselves when their team or expenses come first

But here’s the truth:

Paying yourself isn’t selfish—it’s smart.

You are your business’s most important asset. If you’re constantly stressed, underpaid, or barely scraping by, your business can’t grow. You deserve a system that supports both the business and your life.

Step 1: Know Your Numbers

Before you can decide how (and how much) to pay yourself, you need a clear view of your business’s financial health. That means:

Up-to-date bookkeeping
Accurate cash flow statements
Profit & loss reports
Understanding fixed and variable expenses

Without this clarity, any compensation plan is just a guess and that’s dangerous.

Need help getting your books in order first? Our Bookkeeping Services can get you there.

Step 2: Choose the Right Payment Structure

How you pay yourself depends in part on your business structure:

Sole Proprietor / Single-Member LLC:

You take what’s called an owner’s draw—transferring money from the business account to your personal account. Taxes are paid on the net profit of the business.

S-Corp or Corporation:

You must pay yourself a reasonable salary as an employee and withhold payroll taxes. You can also take dividends if the business is profitable.

Not sure what your structure allows or what’s “reasonable”? That’s where fractional CFO services become invaluable.

Step 3: Determine a Sustainable Amount

So how much should you pay yourself? Here’s how we recommend approaching it:

Start with a baseline salary: Look at what someone in your position (industry, location, role) would typically earn.
Check your margins: Can the business afford to pay you that amount while covering expenses and leaving a buffer?
Run the numbers monthly: Revisit this every month or quarter as your revenue and goals evolve.

If your revenue fluctuates, you might consider:

A modest base salary + periodic owner draws or bonuses
Percentage-based draw (e.g., 30% of net profit)
Reinvestment strategy for seasonal or high-growth periods

The most important part is consistency. A predictable payment system gives you clarity and helps you make informed decisions.

Step 4: Prioritize Cash Flow Clarity

Even profitable businesses can struggle with cash flow. You may “make money on paper” but still feel broke if the timing of your income and expenses isn’t aligned. To avoid overdrawing the business, you need:

A cash flow forecast (90-day minimum)
A tax savings account
A buffer or reserve (usually 1–2 months of expenses)
Strategic timing for large expenses and draws

This is where working with a Fractional CFO makes all the difference. They help you plan compensation into your cash flow, not after the fact.

Step 5: Separate Business and Personal Finances

If you’re still using one account for everything, stop now. You need:

A dedicated business checking account
A payroll system (or regular transfer schedule)
Clear records for each payment to yourself
A system for setting aside taxes

Separating your finances ensures clarity and compliance and protects you if you’re ever audited.

Step 6: Plan for Taxes and Retirement

Your personal pay shouldn’t just cover today, it should support your future.

Always set aside for taxes (typically 25–30% of your income) and consider a SEP IRA or Solo 401(k) as your income grows. Not only are these retirement plans tax-advantaged, but they also help you build long-term wealth without relying solely on your business’s success.

Real Talk: What Happens if You Don’t Pay Yourself?

Let’s be honest, this is personal. When you don’t pay yourself:

Your business becomes a burden, not a vehicle for freedom
You risk burnout and resentment
Your family finances suffer
Your ability to grow and hire is delayed

Paying yourself isn’t a luxury. It’s a sign of a mature, sustainable business. And if that’s not possible today, then your first financial goal should be creating the systems that make it possible.

You Deserve a Plan That Works

If you’re constantly asking:

“Can I afford to pay myself this month? Am I taking too much—or not enough? How do I balance growth with income?”

You’re not alone. And you don’t have to figure this out on your own.

At KG Accounting, we help small business owners get clear on the numbers, plan for growth, and create a compensation strategy that supports their life and business.