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How To Pay Yourself as a STARTUP or New Business in 2025

#Make money
2025-10-24 17:1210 min read

Content Introduction
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This video provides a detailed guide on how to pay yourself as a startup founder, structured into a five-step process. It covers essential questions such as when and how much to pay yourself, along with setting up a straightforward payment system. The presenter emphasizes the importance of covering business expenses before paying oneself, ensuring a stable cash flow, and maintaining a buffer to protect against unpredictable income fluctuations. The video discusses the different methods of compensation such as owner's draw, distributions, and salary, detailing the tax implications associated with each. Furthermore, it illustrates the significance of establishing a disciplined payment schedule and the pitfalls to avoid, such as underestimating tax liabilities or treating the business as a personal ATM. The presenter also touches on the importance of reinvesting in the business versus paying oneself, suggesting a balance through steady revenue growth.

Key Information

  • The video discusses how to pay yourself as a startup, including when to pay, how much to pay, and setting up a simple process.
  • It is emphasized that the business's expenses should be covered before any salary is taken for oneself.
  • There is a five-step process to determine how to pay yourself, which includes assessing if the business can afford to pay you, understanding payment options, determining a safe amount to withdraw, setting up the payment, and avoiding common mistakes.
  • The one month buffer rule is suggested, which means keeping at least one month of operating expenses in the business before paying yourself.
  • Three primary ways to pay yourself are outlined: owner's draw, distributions, and salary. The method will depend on your business structure.
  • Mistakes to avoid include not setting aside taxes and over-complicating payment structures too early in business development.
  • It's advised to keep a modest and predictable pay schedule to avoid cash flow issues in the business.

Timeline Analysis

Content Keywords

Startup Payment Process

This video covers a five-step process to effectively pay yourself as a startup founder, including when to pay, how much to pay, and the importance of a simple setup.

Business Affordability

The first step emphasizes verifying whether the business can afford to pay the founder. It involves listing monthly operating expenses and ensuring there are enough funds available before any salary is taken.

Payment Options

Entrepreneurs need to consider their payment options, which can include owner's draw, distributions, and salaries. The implications of each method for taxes and legal structure are discussed.

One Month Buffer Rule

The importance of maintaining a one-month buffer for operating expenses in the bank is emphasized. This buffer protects against fluctuations in revenue and ensures business continuity.

Tax Considerations

Founders are advised to set aside 25-35% of profits for taxes and ensure proper payroll procedures to avoid IRS complications, highlighting the need for ongoing compliance.

Health and Retirement Planning

Early-stage entrepreneurs are encouraged to think about health and retirement plans only after establishing a steady profit, emphasizing the importance of a solo 401k or simple IRA.

Common Mistakes

The video identifies common pitfalls such as not allocating enough for taxes and starving the business for personal gain. Founders are encouraged to maintain a balance between personal pay and reinvestment.

Payment Structure Setup

Guidelines for setting up draw and salary structures are provided, stressing the need for separate banking accounts and formal payroll arrangements.

Related questions&answers

What are the steps to paying yourself as a startup?

There are five steps to paying yourself as a startup: 1) Determine if the business can afford to pay you, 2) Assess your payment options, 3) Decide how much to pay yourself, 4) Set up a payment system, and 5) Avoid common mistakes.

How do I know if my startup can afford to pay me?

You need to list your monthly operating expenses and ensure you have enough funds in your bank account to cover those expenses before paying yourself.

What are the methods of paying myself from my business?

There are three primary methods: owner's draw, distributions, and salary.

What is an owner's draw?

An owner's draw is a simple transfer of money from your business account to your personal account. It’s common for sole proprietorships and LLCs.

What should I consider when setting my salary?

If you are an LLC taxed as a corporation, you should establish a reasonable salary based on your work in the business. This salary will be subject to taxes.

When should I raise my pay?

You should raise your pay after three stable months of revenue consistency or after growing your one-month buffer.

What mistakes should I avoid while paying myself?

Avoid treating your business like a personal ATM, ensure you are not starving your business of necessary funds for growth, and ensure you set aside taxes properly.

How much should I set aside for taxes?

A good rule of thumb is to set aside 25% to 35% of your profit for taxes.

When should I start thinking about health and retirement benefits?

Consider setting up health benefits or retirement plans once your profits become steady.

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