How to pay yourself as a sole trader or a business owner

If you’re a sole trader, you probably know what it’s like to put everything into your small business. From marketing to sales, you wear many hats and you deserve to take home your fair chunk of pay at the end of the day. But between your tax obligations, super contributions, and cost of living, knowing exactly how to pay yourself in business can be another skill to learn.

This sole trader employer guide will give you some tips and tools that will enable you to take home a salary while still growing your business. You should note that this is just a guide and that you should that you should seek the advice of a professional to make decisions based on your own circumstances.

Make a solid business plan

One of the first things you could consider is to ensure you have a solid business plan in place. This will be the blueprint that will dictate what your wages will like compared to your profits, business expenses and goals.

A lot of this will depend on what stage of your business journey you are at. For example, if you looking to make a splash in the market with your sole trader business, you could give yourself enough money to get by while putting more funds into establishing your business. This could help you grow more quickly and make it easier to connect with more customers.

Conversely, you could pay yourself at a competitive rate to ensure you have a higher standard of living. This might make your overall finances less stressful and ensure you have a steady structure moving forward.

From Microsoft Word and Excel to the government’s own business template, there are plenty of online resources that you can sift through until you land on the one that works for you. This will help you prioritise your financial goals and give you control over your sole trader business.

Sort out your tax and super

One of the key differences between a sole trader business structure and a company is the way tax is sorted out. Sole traders have their net profit linked to their individual tax rate rather than that of a business entity, meaning you will need to produce a profit/loss statement and a personal tax return every financial year.

There are some tax benefits you could look for as a sole trader regarding what you can deduct and write-off as part of your business, so consider keeping an eye out on any tax saving strategies.

Your superannuation is another financial tool to consider when sorting out your money.

While it’s not compulsory as a sole trader, paying yourself a steady superannuation contribution could help you set yourself up for when you plan to retire. If you are an employer, you also have super obligations to your workers that you must account for.

If this is sounding a bit overwhelming, consider consulting a financial professional to help you build a sustainable plan.

Plan for that rainy day

Now you’ve reached one of the most important points in this blog: plan for that rainy day. There are many highs and lows in business, and your success on bouncing back after a setback will largely depend on how well you prepare for the worst.

Having an emergency savings account will get you out of a bind but what’s best practice is to financially safeguard your business from the risks it faces before they occur.

This can be done sole trader insurance, which depending on your occupation, can protect you from a number of risks whether you’re unable to work, losing your tools or injuring a customer.

These tips are designed to answer that nagging, internal question, ‘how to pay myself in business’. Be sure to revisit these tips as your finances are rarely ever static. The freedom you feel when being a sole trader is a unique feeling. Be sure to control your finances and pay yourself properly so you can also feel financially free as well.

* This information is general only and does not take into account your objectives, financial situation or needs. It should not be relied upon as advice. As with any insurance, cover will be subject to the terms, conditions and exclusions contained in the policy wording. © 2022 BizCover Pty Limited, all rights reserved.
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