How to Pay Yourself with Variable Income

how to pay yourself with variable income as a small business owner

One of the hardest parts about starting a small business is figuring out how to pay yourself with variable income.

You probably started your business without even thinking about a paycheck, and that’s okay! It’s perfectly normal to focus on building and growing your business at the beginning, and maybe even digging into your savings to do so.

But now that things are up and running smoothly, it’s time to start thinking about paying yourself. Perhaps you already do, but maybe you’re struggling with having an income that fluctuates throughout the year depending on how much business you’re doing each month.

Here’s a way you can start paying yourself a consistent paycheck every month throughout the year, even if you have variable income.

Look at Last Year’s Numbers

Take a look at your income and expenses from last year. Figure out how much money you brought in, then subtract all your expenses. Don’t forget estimated taxes and insurance! This is your estimated profit from the previous year.

Figure Out Your Paycheck Amount

Take your estimated profit from last year and divide it by how often you want to get paid. If you want to get a monthly paycheck, divide the number by 12. For a paycheck every other week, divide it by 26. This is a good place to start to ensure you won’t overdraw your account just to pay yourself.

Start Paying Yourself

As long as your profit for this year is more than your profit from last year, you should be able to pay yourself this paycheck on whatever schedule you chose for the rest of the year. (This is the part where I tell you if you don’t have a separate checking account for your business – go do that first!)

What to do at the End of the Year

When the end of the year hits, you should look back at your income for the year, but this time subtract your expenses and paychecks. The amount you’re left with is extra income! Once I pay my taxes, I like to use the remainder of this money to max out my IRA. I then do the whole calculation again (income – expenses, divided monthly) to figure out my new paycheck for the new year.

When Business is Booming

When your business is experiencing a boom and you want to pay yourself more, there are a couple of ways you can do it. First, you can give yourself a bonus. That’s the best part of owning your own business! I might take 50% of a particularly special or large project and pay myself directly. The second option is to re-calculate your paycheck in the middle of the year. There’s no reason it needs to wait until the end of the year if you feel like your business is on the up-and-up!

I hope this helped you figure out how to pay yourself with variable income, no matter what. When I was a full-time wedding photographer, wedding season in Indiana only lasted from May through October. Despite that, I was paying myself the same amount every 2 weeks, even in February.

Don’t worry if your first paycheck is tiny! When I first started my own business in 2011, I was paying myself $100 every 2 weeks. It’s all my business could afford. Everyone starts somewhere! Before you know it, you’ll be killing it in the small business world and paying yourself a comfortable paycheck.

Now that you’re making enough to pay yourself, it may be time to outsource some of those tasks that are a time-waster.