Only 49 percent of entrepreneurs pay themselves a salary, and those who do make an average of $44,000 a year in the United States. If you want to maximize your earnings by paying yourself first, follow this guide to learn how much entrepreneurs make in each city, and what the steps are to building an entrepreneurship salary.
Pick a Payment Method
Choose between the two main methods to pay yourself an entrepreneur salary: sole proprietorship and general partnership.
- Sole proprietorship: One person or a married couple is the sole business owner
- General partnership: An entity with two or more business owners, with at least one being a limited partner
- C corporation: An independent legal entity separate from the business owners; owners report revenue as personal income
- Limited liability company (LLC)
The Salary Method
Paying yourself through the salary method is essentially the same as getting paid in the workforce.
- You’ll be paid on a regular schedule and it will be a fixed amount or based on the hours worked.
- Keep in mind that, if your business is registered as a C corporation or an S corporation, you are legally required to receive a regular salary.
Step 5: Calculate Your Entrepreneur Salary
There’s no magic formula to calculate your entrepreneur salary.
Personal Finance
Consider what you can afford
- How much money you need to at least cover basic costs
- Some people might not need the extra capital to pay for personal expenses
- You could instead decide to take out the minimum amount and reinvest the rest back into your business
Step 1: Separate Your Personal and Business Finances
It can be easy to mix up your personal and business finances if there’s not a defined line between the two.
- Having a set plan to track your business income and expenses is the first step to building your entrepreneur salary.
Step 2: Find Out How to Pay Yourself First
Paying yourself an entrepreneurship salary can prove that your financial well-being depends on the success of your business, and shows to employees and investors that you are committed to it.
- In addition, it indicates to the IRS that your business is legitimate.
Taxes
When deciding how much to pay yourself, it’s important to take taxes into account. Consult with an accountant to make sure you are taking into account all taxes that you may be eligible for
What Is the Salary of an Entrepreneur?
The average entrepreneur salary in the United States is $44,000, though salary can vary between $16,500 to $184,500.
- As you gain more experience, your entrepreneur salary has a chance of increasing as well.
Average Entrepreneur Salary by City
The average salaries vary depending on the cost of living and the market’s acceptance of new and small businesses.
Why Should You Pay Yourself a Salary?
Many entrepreneurs see owning a business as a passion and might forgo paying themselves a salary.
- Establishing an entrepreneur salary can be seen as a way to reward your hard work and accomplishments
- Not paying yourself can distort your company’s true earnings
The Draw Method
Owner’s draw
- You will withdraw money from your business revenue to pay your entrepreneur salary as you see fit
- Allows for greater flexibility and possibility of adjusting how much money you earn depending on business performance
- Taxes aren’t deducted automatically, you’ll have to self-report the withdrawals and pay taxes on them
Employee Compensation
Calculate how much you will have to pay your employees, as well as if they were promised equity compensation, such as options, restricted stocks, and performance shares
Payday
Talk to your accountant to decide if it is better to pay yourself weekly, twice a month, or monthly
Reasonable Compensation
All employers must receive a reasonable compensation, which is essentially something comparable to wages of employees with a role similar to yours.
- Consider setting your entrepreneur salary as a percentage of your business’s profits, in case you’re concerned about covering fluctuating expenses.
Cash Flow
Gain insight into your company’s cash flow to better manage for future growth
- Make sure basic expenses are being covered to ensure long-term success
- Get a clear understanding of the company’s financial reports to make better financial decisions and prepare for growth
Growth Rate
Planning for growth is important for your business to keep flourishing
How Entrepreneur Salaries Compare to Similar Careers
There’s not a set salary for entrepreneurs since it varies by location and field of work.
- Paying yourself as an entrepreneur can show your investors and employees that you are fully dedicated to the company, plus it’s a great reward for your hard work.
