You didn’t start a business so you could work for free. So why do many profitable small-business owners treat their paycheck like an afterthought?
Fear of failure could be part of it. With roughly half of businesses closing within their first five years, some business owners might feel pressured to pour everything back into their business to keep it afloat.
But consistently underpaying yourself isn’t sustainable, and it can sabotage you in the end.
Investing in future you should be part of the plan from day one.
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First, make sure your business is financially ready
It’s not as simple as starting to pay yourself as soon as money starts rolling in. Instead, the best approach begins with a solid foundation.
Helen Dao, certified financial planner and senior vice president of investments at Stirlingshire Investments, calls out two business milestones that can help indicate you’re ready to put money back into your own pocket: bringing in consistent profits and having a cash cushion.
If sales are steady month over month and you can reliably cover operating expenses with money left over, that’s a good sign your business can support a regular payout, Dao says.
Have an emergency fund in place that gives you a buffer if your business hits a bump in the road. Dao recommends having six to 12 months’ worth of business expenses stashed away.
But not every business owner hits that comfort zone at the same time. It could be a year, it could be five years.
“Generally, it all depends on the person and how aggressive they are,” Dao says.
Pay yourself a reasonable amount
Ideally, you’ll want to pay yourself enough to cover living expenses and personal savings goals without shortchanging your business. That means leaving room for taxes, business growth and any seasonal dips or big expenses you anticipate.
Any leftover profits after that? Consider paying down outstanding small-business loans, boosting your personal savings, making a charitable donation or (responsibly) splurging on something that makes you or your family happy.
There’s no one-size-fits-all formula to paying yourself. How much you take out will depend on your business’s type, profitability and your personal needs.
Pay future you, too
Many small-business owners are apprehensive about putting profits toward their retirement or other personal investments, says Jordan Rodriguez, CFP and founder of Chagrin Valley Business Strategies.
“When there's excess cash flow or more money that can be spent somewhere, business owners are much more tempted to reinvest that in the growth of the business because it's something that they're familiar with, something they have control over,” he says.
But you have to think of it like diversification, he says. If a client were to say they have a million-dollar net worth and the entire million was invested in a single stock, Rodriguez would say they were over-concentrated in that asset.
Your business is the same, he says. If you have a million-dollar net worth, and it’s all tied up in your business, what happens to you if the business fails? What happens when you are ready to stop working?
Many assume they’ll sell the business one day and retire off the proceeds.
“The reality is, that usually doesn’t happen,” Rodriguez says. “Depending on the statistic you look at, roughly 70% of small businesses don't successfully sell or transition to the next generation.”
A better bet? Start saving for retirement early and often, so your future isn’t built on a maybe.
As your own boss, you have plenty of retirement plan options to choose from, like a 401(k) or SEP IRA, for tax-advantaged savings.
Put your retirement savings on autopilot, Dao recommends. Funnel a percentage of revenue into your account regularly, she says. That way, you don’t have to worry about trying to find extra cash lying around at the end of the quarter to fill your personal retirement savings bucket.
And don’t be afraid to seek expert advice.
“Starting a business is one of the most exciting and challenging journeys you'll ever go on, but it's also important to make sure that you invest money in the right professionals to ensure things are set up properly from the beginning,” Dao says.
Be flexible when it counts
Consistency is key when it comes to paying yourself. It helps you stay on top of personal bills and financial goals.
But running a business often means riding out financial highs and lows.
That’s why it pays to stay flexible. Padding your emergency fund from leftover profits or establishing a business line of credit can further help you weather slow seasons or surprise costs.
And when things are going well? Don’t be afraid to give yourself a raise. As your business grows, your paycheck should grow with it.
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- 1. U.S. Bureau of Labor Statistics. Survival of private sector establishments by opening year. Accessed Jun 27, 2025.
