Page 31 - Paulisms: Gold Nuggets for Small Business

you will need insurance; it may be in years to come for things you did today. Protect yourself.
1.11 Drawings
If you draw money out of the business, this comes out of the company and is applied to your shareholders account. You will pay tax on this or pay it back to the business. Know these things! It took me a long time to understand shareholders accounts, dividends, etc. It’s something a good business person needs to crack.
Pay yourself first. Not paying yourself and pulling drawings when you can or want is not good practice. I did it when I first started and had poor accounting. It is common when people start out for the first time in business. Many accountants advocate it, but I don’t like withdrawing money out (drawings), as you must pay tax at some time. This means discipline in setting money aside for tax. However, this pool of money is tempting to dip into. I have always promoted paying a regular salary or wage to yourself and paying PAYE (Pay As You Earn) regularly. This way the tax is paid as you earn and you are earning a regular wage. Pay yourself before anything else, because if you can’t, perhaps you don’t have a business. Ensure that you pay yourself a market salary/wage! If so, when someone comes along to buy your business, they would expect a market salary and if you haven’t been paying yourself, they will factor that in.
It frustrates me when I see businesses for sale and they have factored the owner’s salary into the EBIT (profitability) of the business. They will have to pay someone to run the business anyway.