How much to pay yourself from a small business

There's $4,180 in the account. Some of it is stock money, some of it is tax money, some of it is a refund waiting to happen, and somewhere in there is the part that's actually yours. You've been taking what you need and hoping.

Pay yourself a fixed amount, on a fixed day, set low enough that the business can cover it in a bad month. Treat it as a cost the business has to earn, exactly like rent or postage. Whatever's left after that isn't your wages, it's the buffer, and the buffer is what stops you cancelling your own pay in November.

The instinct is to pay yourself what's left over. It sounds prudent and it's the single most reliable way to conclude, wrongly, that your business doesn't make money.

Three numbers people mash together

Turnover is what came in. It's the biggest number, it's the one you tell people at parties, and it's almost meaningless on its own. Ten thousand dollars of turnover on a product with a 22% margin is a very different business from ten thousand on a product with a 70% margin.

Profit is turnover minus every cost of running the thing. Materials, postage, packaging, fees, the shop plan, ads, the storage unit. This is the number that decides your tax, and it's the number most sellers have never actually calculated. If you haven't, stop here and go do it: working out if you are actually profitable walks it through, and the answer usually surprises people in both directions.

Your pay is the money that leaves the business and goes to you, to live on. It is not the same as profit, it is usually less than profit, and in a growing business it is much less, because profit is also funding next month's stock.

Confusing pay with profit is how sellers end up with a healthy-looking year and an empty account. The profit was real. It's sitting in the spare room in the form of 400 unsold jars.

Your pay is a cost, and it goes in the price

Here's the reframe that changes the arithmetic.

If you make the thing yourself, your time is the largest input cost in the business, and if you don't put it in the price, you have priced your product on the assumption that labour is free. Which it isn't, it's just unbilled. That's how people end up making 60 items a month, working 25 hours, and clearing enough to cover the materials and nothing else.

So work backwards. What would you have to pay someone to do what you do for the business? Not what you think you're worth, and not a market rate for a specialist. What would it cost, per hour, to hire someone to cut, sew, pack and answer messages in your town? That's the floor. If your prices can't cover it, the problem isn't your pay, it's the price, and how to price what you make is where that gets fixed.

If you can't pay yourself the hourly rate you'd pay an assistant, you don't have a business yet. You have a job that pays in inventory.

The order the money leaves in

This is the part nobody tells you, and it matters more than the amount.

When money arrives, it gets divided in this order, and the order is not negotiable:

1. Tax, on the day it lands. A fixed fraction into a separate account, automatically, before you've looked at the balance. Work out your fraction from your own last return rather than a rule off the internet, and if you've never filed, deliberately over-reserve.
2. Restock. Whatever it costs to replace what you just sold. Not what you'd like to buy. What you must buy to keep selling.
3. Fixed costs. The shop plan, the storage, the software, the domain. These arrive whether you sell or not.
4. Your pay. The fixed amount, on the fixed day.
5. The buffer. Everything left goes to a pot you don't touch until it holds a few months of fixed costs plus a few months of your pay.

Most people run that list in reverse, and pay themselves out of whatever survived the month. The trouble with reverse order is that the business will always find a use for money it can see. There's always more stock to buy, a better camera, a bulk deal that expires Friday. The owner's pay is the only line item that doesn't shout, so it's the one that gets skipped, and the month you skip your own pay to buy inventory is the month you quietly start funding the business out of your household.

That transfer is real money and it almost never comes back. Write it down when it happens, because if you ever want to know what this business actually cost you to build, that's where the number lives.

Running this at all needs two accounts minimum, three if you can. Separating business and personal money covers the setup, and it doesn't require you to register anything.

Setting the number, from the worst month

Take your last twelve months. If you don't have twelve, take what you have and be more conservative.

Find your worst month's profit. Not the average. The worst one, excluding anything genuinely one-off like the month your oven broke. That's your reference point, because a wage you can only pay in good months isn't a wage, it's a bonus with a misleading name.

Then take somewhere between half and two thirds of that worst month's profit as your monthly pay. The rest stays in for stock and buffer. If your worst month cleared $900 of profit, you're looking at $450 to $600 a month of owner's pay, paid on the same date every month, ideally by standing order so it happens without a decision.

Two adjustments.

If your business is seasonal, the worst month is a bad reference in the other direction, because you'll be underpaying yourself for eight months to survive two. Use the annual profit divided by twelve instead, and keep a bigger buffer, because you're now relying on a good quarter to fund a slow one. Seasonal sellers who pay themselves on a monthly average need roughly three months of fixed costs banked before the quiet stretch starts.

If you have a job as well and the business is a second income, you can set the pay lower and leave more in. That's a genuine advantage. Use it to build the buffer faster rather than to buy more stock, because a buffer is what lets you say no to a bad wholesale deal.

Dani, screen-printed tees, Portland

Dani prints tees in a garage in Southeast Portland. Shirts sell at $32, she does roughly 95 a month through a shop link she posts on Instagram, plus two markets a year.

A normal month:

	Amount
95 shirts at $32	$3,040
Blank shirts, ink, emulsion ($9.40 a shirt)	−$893
Mailers, tape, labels	−$142
Postage paid out, net of what buyers paid	−$118
Card and payment fees	−$61
Shop plan and domain	−$21
Studio electricity share	−$40
Profit before her own pay	$1,765

Her instinct was to call that $1,765 her wage. It isn't, for three reasons.

Tax comes out first. She reserves 25% of profit, which she got from dividing last year's bill by last year's profit rather than guessing: $441 gone. Restock is next, and because she sells and prints in the same month, restock is roughly the $893 of materials for the next batch, which she's already counted, but she also buys blanks in cartons of 72 and that lands lumpy, roughly $700 every third month. And her worst month last year, a wet February, cleared $610 of profit, not $1,765.

So her pay isn't set from $1,765. It's set from $610. She takes $400 a month, on the 5th, by standing order.

That felt insultingly small for about two months. Then the following January, when orders halved and she needed $840 for a new flash dryer, the $400 came out on the 5th anyway and she didn't have to think about it. That's the whole point of the number being low.

Nine months later she raised it to $650, using the same rule against a new worst month. Which is the only reason to raise it.

Ifeoma, Enugu, and the cash-timing problem

Same arithmetic, different timing.

Ifeoma sells ankara tote bags in Enugu at ₦9,500. Roughly 70 a month, so about ₦665,000 through the door. Half her orders are cash on delivery, which means the money reaches her when the rider settles up, usually a week later, and about 6% of COD orders come back undelivered with the goods and no payment.

Her profit per month is real. Her cash per month lags it by seven to ten days, permanently. So a monthly pay date that sits before her courier's settlement date will bounce, every single month, and she'll spend a year thinking the business is failing when the business is fine and the calendar is wrong.

She moved her own pay date to the 20th, after two settlements have landed. Nothing else changed. That's a five-minute fix that removes a year of low-level panic, and it's invisible if you only ever look at monthly totals.

If most of your money arrives on rails you confirm by hand, your pay date belongs after your slowest rail clears, not on the 1st because the 1st is tidy.

What if the honest answer is nothing yet

Sometimes it is, and that's a real answer rather than a failure.

If your business made $2,100 of profit last year and you need $1,800 of stock to trade at all next year, there isn't a wage in there. Take nothing, or take a token amount so the habit exists, and be clear with yourself that you're building an asset rather than earning an income. That's a legitimate choice for a year or two.

What isn't legitimate is not knowing. Sellers who take money out irregularly, from a single account, without recording it, are the ones who genuinely cannot tell whether they've built something or spent two years subsidising strangers' Christmas presents. Even a spreadsheet with a date and an amount every time you move money to yourself fixes that.

If you've been at it a while and the answer keeps coming back "nothing", the honest next question is whether the price is wrong rather than whether you're working hard enough. When to raise your prices is a more useful place to spend an evening than another restock.

Draw or salary changes everything, and it depends where you are

One warning before you set up a standing order.

How money leaving the business to reach you is treated depends on your legal structure and your country. In some structures, what you take out is simply a withdrawal of profit you're already taxed on, and it isn't a business cost at all. In others, particularly once you've incorporated, you're an employee of your own company and paying yourself has payroll obligations attached, with registrations, deductions and filing dates that exist whether you know about them or not.

Those two worlds have completely different consequences, and choosing the wrong one by accident is expensive to unwind. Find out which one you're in before you automate anything, and get the current rules from your own tax authority rather than from a blog. Do you need to register your business covers what actually triggers the change in structure, and what to do about tax on online sales covers why the number you're taxed on is profit rather than what landed in your account.

If the business is anything more complicated than one person selling one product line, an hour with an accountant to answer that single question is the cheapest hour in the whole enterprise.

What Sailo can tell you here, and what it can't

Sailo shows you what came in. Orders, totals, which rail they arrived on, over a window that depends on your plan. That's genuinely half of what you need.

It has no idea what anything cost you. Not your materials, not your postage, not your studio electricity. So the number on your dashboard is turnover, and turnover is the number in the first section of this article that you were warned not to pay yourself out of. Sailo will never tell you your profit, because it only sees one side of the ledger.

Two specific limits worth planning around. The free plan keeps 7 days of history, which is not enough to find your worst month, and the worst month is the entire basis of the method above. Pro at $19 a month keeps a year, which is the minimum useful window for this, and Business at $49 keeps three. And if you're on Business because you want card payments, that $49 is a fixed cost that comes out of the business before your pay does, every month, whether you sold anything or not.

That last one is worth a moment. On card orders Sailo takes 1–3% of the goods, which on a $32 shirt is 32 cents to 96 cents depending on your plan. The percentage is not what makes Business expensive at low volume. The subscription is, and the free plan takes cards without one. Twelve slow months of $49 is $588, and at 20 orders a month you'd rather have that as several weeks of your own pay.

Do this before the end of the week

Open your last twelve months of statements and find one number: the profit in your worst month. Not the average, not the best, and not turnover.

Take half of it. That's your pay. Set a standing order for the day after your slowest payment rail reliably clears, and don't change it for six months.

Then write today's date and that number in the front of whatever you keep your books in, along with the rule you used to get there, so that in six months you're adjusting a number with a reason attached instead of guessing again. If your records aren't in a state where you can find your worst month at all, what receipts to keep and for how long is the shorter job that has to happen first.