One man shops, how do you pay yourself?

How do you pay yourself? How did you set your wage? I have been running my shop part time on the side for 3yrs so paying myself really hasnt been an issue but things may change here soon and I may be taking it full time. I will need to have some kind of wage to live but it seems like its a fine line between making a living and growing the business/maintaining working capital etc.
Advice, suggestions?

pgmrmike said:

How do you pay yourself? How did you set your wage? I have been running my shop part time on the side for 3yrs so paying myself really hasnt been an issue but things may change here soon and I may be taking it full time. I will need to have some kind of wage to live but it seems like its a fine line between making a living and growing the business/maintaining working capital etc.
Advice, suggestions?

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Paying yourself? In a one man shop? What an amusing idea!

gorrilla said:

Paying yourself? In a one man shop? What an amusing idea!

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Ain't that the fuckin' truth!!

Pay yourself first. A machining business will eat every spare penny with a quickness. I used 15% of gross sales as a target pay for my wage when I started up. Big pay cut for a while.

We only pay ourselves as funds allow, rent comes first and it isn't cheap. Since we are the renters it works out ok, and it's good to know we won't get evicted if things slow down. Before the end of the year we sit down with the accountant to make sure we take enough wages. Are you a corporation yet? As a sole proprietor you get hosed on payroll taxes. My wife really drug her feet on incorporating until we found out our tax bill after the first year going full time with our business.

As little as you can get by with. Sometimes nothing. The company bills get paid first, then you get the ramen $'s.

Not sure how your company is set up, but mine is a Sub-S corp. I pay mayself a w-2 wage equal to what I would pay a good machinist to run the parts. About $25.00 an hour. Call that $50,000 a year.

Then as the year goes on, IF I am showing profit above that, I will distribute some of those earnings to myself. The trick is to make sure your W-2 income is higher than your distributions which avoid SS and Med tax. If you pay zero w-2 wages and distribute say $35,000 in cash to yourself, the IRS may have a bone to pick with you because you are intentionally avoiding SS & Med tax.

A bottle of whiskey every Fri and I get to sleep with the owners wife.

Houndogforever said:

...If you pay zero w-2 wages and distribute say $35,000 in cash to yourself, the IRS may have a bone to pick with you because you are intentionally avoiding SS & Med tax.

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Actually the red flag would be raised long before that point. Your W-2 income is supposed be "representative" for your occupation. If you take home no wages for a few years, that is not at all unusual for a new business owner (sad to say) and they will accept that. BUT in such a case any Sub S distribution would be viewed as evading payroll taxes.

Here's your disbursement priority:
1. Employees payroll and payroll taxes (Fed, State and employer's FICA contribution, deposited weekly)
2. Rent and suppliers
10. You

Pay yourself what you can.

Take whatever you can and hold it on the side for emergencies...
-Like when that customer puts the check in the mail but you never see it.
-For those times when your guy makes the entire job into scrap after a weeks worth of work.
-For when a machine goes down.

Make sure you pay employees, taxs, vendors, rent...



Have money in business for backup, money at home for a backup. If tight...forget that weekly check for a bit. Or right out and don't cash.

My chip barrels are almost full. Payday is just around the corner

gorrilla said:

Paying yourself? In a one man shop? What an amusing idea!

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Ha, it wont be much, I assure you. In fact, that is one reason I am asking the question. I will need some money to live on but at the same time I realize I very well may not have the money to pay myself. With the work I have been doing I make decent money, but whether I can get enough work to fill week after week is a whole other question.

What is this "pay" you speak of. Heard of it I have not.

Houndogforever said:

Not sure how your company is set up, but mine is a Sub-S corp. I pay mayself a w-2 wage equal to what I would pay a good machinist to run the parts. About $25.00 an hour. Call that $50,000 a year.

Then as the year goes on, IF I am showing profit above that, I will distribute some of those earnings to myself. The trick is to make sure your W-2 income is higher than your distributions which avoid SS and Med tax. If you pay zero w-2 wages and distribute say $35,000 in cash to yourself, the IRS may have a bone to pick with you because you are intentionally avoiding SS & Med tax.

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Yep, That is how I do it also. Have been doing it for years now.

pgmrmike said:

How do you pay yourself? How did you set your wage? I have been running my shop part time on the side for 3yrs so paying myself really hasnt been an issue but things may change here soon and I may be taking it full time. I will need to have some kind of wage to live but it seems like its a fine line between making a living and growing the business/maintaining working capital etc.
Advice, suggestions?

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Wait... I'm supposed to get PAID... ???

I think my boss is robbing me then.

I always used to laugh at business owners that bitch and moan about not taking a paycheck in X amount of time. Shut the flock up. Are you living? Are you eating? Do you have a roof over your head? Are your bills paid? Is anyone shooting at you? No? Then shut up and be happy.

That said, it's not like you don't make money. Your accountant will instruct you on how it is to be done. You may or may not actually "pull a paycheck" every X days. But your bills will be paid.

In the mean time, I choose to put it back into the business, get better machinery, better tooling, and grow the thing until it is where I want it to be. Then, maybe I will take a paycheck.

Houndogforever said:

Not sure how your company is set up, but mine is a Sub-S corp. I pay mayself a w-2 wage equal to what I would pay a good machinist to run the parts. About $25.00 an hour. Call that $50,000 a year.
.

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This is how we do it. Then spend the profits on more new machines for the Section 179. >.<
Maybe this year since I'm out of space we wont buy anything new...

I'm a one man shop, sole proprietor, now getting fussy in my old age and only taking work that intrigues me. (Lucrative work intrigues me, too. )

Pay myself? Not formally. I write a check to my personal account when it gets low. The occasional, and rare, help is paid as a sub.

Neil

Basically im with the above posters, a lot of how you pay your self is all down to your areas taxation measures once you start turning a profit.

Over here personal pay - tax is pretty simple for the self employed, first 11k or so tax free, after that its 20% till 30 something k then goes up after that. Weather you take it a bit every week or as a one off a year makes no difference here. Generally i kinda pay my self either what i need, or simple sweep excess profit out as my pay. the notion of x amount a hour is a lovely one, but that is not reality. Never been hungry or thirsty and have a roof over my head so its worked well for me so far.

Here if your a limited company your both a employee and director, thats were it gets complex, as a employee you have to have a wage and that has to conform to legal minimums + collect - pay tax and national insurance as per the differing levels. Though the company will in-effect collect and pay those from your pay before you get it. As a director of said company you can then pull dividends and other funds out far more tax efficiently than taking it all as pay, this is were you need the accountant and you need to follow a pretty complex bunch of rules but done right you come out ahead over self employed once you turn over enough.

Get either of the above wrong though and its you not the accountants that have to pay up!!! Hence it pays to ensure the advice you get is accurate.

Real key thing to understand though and keep a good eye on is the companies books, you need to understand your real costs and you need every job to turn a profit. Yeah some you win more than others on, but it takes very few bad ones to nullify a whole bunch of good paying jobs. Its a bit like bailing out a boat with a hole in it, key thing is keeping up and doing all you can too keep that hole as small as possible.

Hours are the meaningless bit, the bit the customer wants reduced, hell the bit you want reduced but can never figure out how.

Other thing is even when times are good, you need to leave some slush fund for a rainier day, few things are worse than turning down opportunities because you don't have the funds to make em happen!

pgmrmike said:

How do you pay yourself? How did you set your wage? I have been running my shop part time on the side for 3yrs so paying myself really hasnt been an issue but things may change here soon and I may be taking it full time. I will need to have some kind of wage to live but it seems like its a fine line between making a living and growing the business/maintaining working capital etc.
Advice, suggestions?

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Weakly.....................

Most one-man shops probably minimize their wages for tax reasons. Easy to do with a machine shop.

They also can have a much higher quality of life than their wage might indicate, since many "deductible" items like cars, trucks, computers, toys (er . . . tools), comfy office environs, books, trips, half the cost of business meals, etc. don't get counted as income. While small businesses don't get nearly the breaks that large businesses get, there are still many.

The trap in this is that they may also not save enough for retirement (deluding themselves by thinking they're building equity in a one man machine shop) and have very low Social Security savings (since they low-balled income all those years).

Bottom line: either save enough for retirement or at least pay enough to have significant Social Security wages (and then hope it's there for you in years to come).