Paying myself as a business owner: A prudent approach?
Most small business owners do not see the importance of paying themselves at the end of the month because they have the perception that they own the monies in the business and also, they can pay themselves at any time. Yes, you can pay yourself at any time because you do not report to shareholders or stockholders. You are not indebted to anyone. If your business is just starting you can decide to depend on your life savings for some time till your business starts making profits, then you can think of paying yourself.
Payment of Income Tax
It is a must for every worker in Ghana to pay income tax to the government at the end of every month when you earn above the minimum daily wage rate of GHS11.52 or GHS319.00 each month. Due to this, business owners need to add their names to the payroll sheet and calculate the tax rate accordingly. What you should take seriously is not to pay yourself from your revenue but your profit unless you made a loss that particular period then you cannot pay yourself. Note that, this is when you do not have workers but if you do then your name should be part of the payroll sheet.
Benefits of remunerating yourself as a business owner
To begin, investors see you as committed and credible when they get to know that you pay yourself as a business owner. They tend to trust your financials too as well.
Secondly, you do not have to be making drawings at every period for your personal basic needs. The salary you pay to yourself can be used to cater for your needs. This makes you disciplined as a business owner even when you don’t have workers and you are the only staff for the company.
Again, you save for your future because of the Social Security and National Insurance Trust contributions that you make for yourself and also the Tier 2 contributions at the end of every month. It helps you have some funds to support your livelihood during your retirement period, even though it might be very small. Remember, little drops of water make a mighty ocean. The more contribution you make now the more your lump sum when you retire.
Finally, it shows a sign of commitment on your part as a business owner.
Guide on how to remunerate yourself as a business owner
Business owners should see paying themselves as an advantage and not a burden. If you want to pay yourself but you do not know how, this can guide you to do so:
- Know the profit you make every period/ month (This can be done with the help of accounting software and ‘Built Accounting App’ is there to help you with your financials. You can contact us or visit builtaccounting.com to sign up for free.)
- Know your worth as a business owner (this can be thought of when your business is making enough profit)
You can then choose to be consistent with the salary paid to yourself or it can change intermittently when you record losses. You can even start paying yourself annual bonuses once you start recording steady profits.
Built Accounting Services (BAS) provides an accounting application called Built that easily automates all your accounting, tax, payroll and financial activities. You can reach BAS on 0303974832 or via [email protected].