One of the most challenging aspects of running a business is figuring out how to pay yourself. It’s not always clear what the rules are, and many entrepreneurs struggle to strike a balance between reinvesting profits into their company and taking home a fair salary.

Entrepreneurs typically have a couple options available when it comes to paying themselves, which are dependent on the structure of a business. One option is to take a draw, which is a withdrawal of funds from the business’s profits. This is used by sole proprietorships and partnerships. The other option is to receive a paycheck, which must be used by incorporated businesses. Paychecks are compensation based on a predetermined salary and are subject to taxes and other deductions.

It’s important for entrepreneurs to understand the differences between these two methods and choose the one that is required for their specific business structure and meets their financial goals. If you have any questions about the best option for you, discuss the matter with your accountant. In this article, however, we’ll focus on some key considerations to keep in mind as you determine how much to compensate yourself for your hard work.

1. Reasonable Compensation

What would your pay be if you were doing the same work for a company that hired you? Are you making at least market equivalent or better? Many times, entrepreneurs remain focused on ONLY this aspect of their compensation, when doing so is actually a big mistake. There are tax implications of paying yourself too little (to avoid payroll taxes if you take a paycheck, for example) or too much. 

2. Retirement plan

When you work for yourself, no one is going to fund your retirement for you. Although the Social Security program helps, it’s up to you to set aside additional money for a livable future when you can’t or don’t want to work anymore. Talk to your accountant and retirement advisor about how much you should be setting aside for your retirement and how you can factor that into your own pay. 

3. Benefits

Employees get paid time off, health insurance, and bonuses–and you should too! These benefits should be part of your compensation package as an entrepreneur, and there are many tax advantages as well

4. Taxes

You need to cover taxes that will be incurred on your pay and your business profits, including:

• Normal withholding for federal income taxes, state and local income taxes, Medicare, and social security. If you receive a paycheck, these will be deducted; however, those deductions may not be sufficient to cover your entire tax obligation since they don’t account for taxes on your profits. If you take a draw, you may not have withholding, but you will need to factor in self-employment taxes at 15.3%
• Taxes on your profits. For sole proprietors, partnerships, LLCs, and S Corps, your taxes will be figured on your business’s profits when you complete your federal income taxes. They will “pass-through” from your business to your personal return. Don’t let this part surprise you!
• State business taxes. If your business does business in multiple states, you must file a tax return for each state. Many states collect taxes based on flat corporate fees, the revenue you earned in that state, state payrolls, and/or the value of property owned in that state.

Check with your tax advisor so that there are no surprises in your tax bill for your business or your personal returns.   

5. Profit

As an entrepreneur, you take on additional risk in owning your own company and should be compensated accordingly. Your capital is tied up in your business and should be earning a good return in addition to your regular salary or draw.

Complete Compensation

It’s normal to take a smaller paycheck in the first few years as your business grows, and you might even feel like you can’t afford to pay yourself an amount that reflects all the above components. In that case, it might be a good idea to evaluate your pricing, your volume of work, or your business model.

Remember to review your salary regularly and adjust as necessary to ensure that you’re meeting your financial goals and building a sustainable business. Determining the right amount to pay yourself as a business owner can be a complex process, but it is a key component of achieving long-term personal and professional success. By following the steps outlined in this article and seeking guidance from trusted financial experts, you can ensure you’re compensating yourself fairly and sustainably. 

We’re just a few days away from the first day of summer and a few weeks from the year’s midpoint. So now is a great time to evaluate the effectiveness of your business strategy for the first half of 2023, plan something enjoyable, and think about what you want to accomplish in the remainder of the year.

Here are five business strategies to help you regroup, reassess, and rejuvenate your business for the second half of 2023.

1. Celebrate Your Accomplishments

Take a moment to acknowledge your accomplishments and congratulate your team on the goals you’ve reached together. The extent of your progress may surprise you! Maybe a recent hire has made your team the largest it’s ever been, you’ve reached record revenue goals, or you solved a complex supply chain problem. Celebrating your wins is one of the best parts of running a business, and it also affords you the opportunity to hop off the hamster wheel and enjoy life.

2. Take a Vacation

Any rest is beneficial, and stepping away from your business, whether for a day or an entire month, gives your mind space to unwind and recalibrate. So plan to take time off when your business is the least busy–or when your customers are the quietest.

Anxious about being away from your business? You’re not alone. Take the time that seems feasible for you. It could be half a day every Friday for the month of August; it could be a remote-work vacation in a location with a better climate. Remember: there is life beyond your business, and you will be a better business owner when you take regular breaks away.

3. Schedule a Mid-Year Review

How has your business fared for the first half of 2023 compared to your goals at the beginning of the year? Are you on track to reach them? Or should you design a course correction? Where do you need to go next?

Set aside time to dive into these questions and think deeply about your answers. You can make this process as formal or informal as you want. For example, some businesses hold retreats, or you may decide you simply need some quiet time on a weekend.

4. Be Selective About the Projects You Start

Are you busy with the things that will take your business to the next level? Or the same old stuff? What are you afraid to say “yes” to? If you’re putting off a project that you know will pay back handsomely, consider how to shelve some other projects and focus your energy on the efforts that will reap the most rewards.

Taking the time to regroup and refresh your business greatly enhances your chances of success in the second part of the year. Use these five tips to create a summer worth dreaming about and use its momentum to reach your business goals.

We’re six days away from the first day of summer, and a few weeks away from the midpoint of the year. It’s the perfect time for taking a strategy check in your business to see how you’re doing for the first half of 2023 as well as to plan something fun and productive for summertime.  

Here are five business strategies to help you regroup, reassess, and rejuvenate your business halfway through 2023.  

• Celebrate Your Accomplishments

Take time to pat yourself on the back and congratulate the people around you for the goals you’ve reached and the efforts your team has made on your behalf. You might be shocked when you think about how far you’ve come. Maybe you’ve hired another team member and your team is the largest it’s ever been; perhaps you’ve reached record revenue goals; possibly you’ve solved a complex supply chain problem.

We all could use more praise and more celebrations in our lives.  Perhaps you can organize a party, or if you are not the partying type, a quiet word individually with your team can go a long way, maybe more than you know.

• Take a Vacation

If you’re feeling quite burned out, the best thing you can do is stop and take a breather. There’s nothing better to rekindle your creative juices than to get away from the business for a while.  Summertime is when most people take a vacation, so if your business is not having its busy season, this might be a good time to go away, even if for a little while.

If you’re anxious about being away from your business, you’re not alone.  In your annual planning process, plan for and block out your vacation way ahead of time.  Book the reservations with no refunds several months in advance so that you won’t chicken out at the last minute.  There is life beyond your business, and you will be a better business owner when you take regular breaks away.  

• Schedule a Mid-Year Review

How has your business fared for the first half of 2023 compared to the goals you set at the beginning of the year? Are you on track to reach your goals? Should you design a course correction or are you on track? Maybe you’re even ahead of plan!

You can make this process as informal or formal as you want. Some businesses hold retreats; you may simply need some quiet time on a weekend when all your family is busy doing something else.   

• Be Selective About the Projects You Start    

Is your plate too full?  Entrepreneurs that wear many hats would probably say “yes” to that question, so the next question is do you have to do it all at once? Ask yourself what you can afford to stop doing that doesn’t make sense. Is there a project or two that can wait? If so, decide to stop stressing about not getting it done and give yourself permission to put it on the back burner for now.

• Play Big

Maybe you’re not playing big enough. You might be busy, but are you busy with the things that will take your business to the next level? Do the thing you’re afraid to say “yes” to; the thing that you know will transform your business and get you closer to your dreams.

If you’re putting off a project that you know will pay back handsomely, then shelve everything you’re working on and start on the one that will reap the most rewards. It could be a new product or service line, a new ad campaign, a new hire, a new joint venture, new financing, or even a new partner, which is very big indeed. You likely know what it is you need to do; your gut has been telling you for a while now. Just get it started, and it will then become easier.  

Summertime is a great time to regroup, re-energize, and refresh your business. Try one of these five tips to spice up your summer as well as your business success.    

Since ChatGPT burst onto the scene at the end of 2022, the topic of artificial intelligence (AI) has permeated everything from business conferences to news articles to conversations with friends and colleagues. GPT stands for Generative Pre-trained Transformer. It’s a program that can write like a human and interact conversationally. In just a few short months, it’s already transformed how people plan vacations, draft contracts, and write social media content. Essentially, you can type in a nuanced, complicated question, and ChatGPT will give you an amazingly lifelike, frequently correct answer.

ChatGPT was launched in November 2022 and developed by OpenAI, an AI research lab tasked with developing a friendly AI. OpenAI has both a non-profit and for-profit component in its organizational structure. ChatGPT is free as of this writing, but you must open an account and verify your email address and phone number to access it. Once you do, the prompt is simple; just ask it a question. You can get access here: https://chat.openai.com/chat

While it’s a powerful advancement that will continue to change how the world does business, the tech comes with its limitations. There is a disclaimer in place, as ChatGPT will occasionally generate wrong answers. It did generate a misleading response when asked a complex tax question about the Employee Retention Credit and greater than 50 percent owner wage eligibility; Samsung suffered a breach of sensitive data after discovering staff uploaded sensitive code; users have noticed a bias against women; and legal professionals have noted that it will reference completely bogus cases in great detail when crafting an argument. 

With that in mind, how can you use ChatGPT in business safely and to your benefit? Here are a few suggestions to get you started:

• Read OpenAI’s FAQ page about ChatGPT here.
• Verify any answers it offers you.
• Remember that it has limited knowledge of the world and events after 2021.
• Don’t share sensitive information in your queries.
• Be as specific as possible with your instructions, and give ChatGPT any relevant parameters and context (Whose POV should it be written from? What will the copy be used for? How long should the text be? What specific points should it address?)
• Ask it for bites of copy instead of lengthy text. For example, you’ll get better results asking for a closing paragraph than asking for an entire blog post.
• Instruct it to write something 3-5 different ways.
• Ask it to rewrite something for clarity.

ChatGPT can be a valuable tool for many workplaces. Its ability to assist in automating copywriting and provide quick answers to common questions can save time and improve your team’s productivity. However, exercising caution and staying abreast of developments and news around this emerging technology is essential. And as with any tech, proper training and implementation are vital to maximizing its benefits while mitigating potential risks.