How much should you pay yourself as a business owner? It is a question many Australian business owners struggle with.
When you own a business, it can be tempting to either take as much money as possible from the business or keep putting everything back into the business and pay yourself as little as possible.
Neither approach is necessarily the right answer.
The right amount depends on your business cash flow, profitability, business structure, tax obligations, market salary rates and growth plans.
Your business needs to support your lifestyle today while also giving you enough financial strength to grow tomorrow.
So, how do you find the right balance?
What Is the Right Salary for a Business Owner?
There is no single salary that is right for every business owner.
Instead, you should consider three key questions:
- What can the business afford?
- What is the market rate for the work you do?
- Could reinvesting some of your profits create greater income in the future?
These questions can help you determine whether you are paying yourself too much, too little or about the right amount.
1. What Can Your Business Afford?
The first question should always be whether your business can sustainably afford your pay.
Revenue is not the same as profit, and profit is not the same as available cash.
Before deciding how much to pay yourself, consider your regular business expenses, upcoming tax liabilities, GST and BAS obligations, wages, supplier payments, loan repayments and an appropriate cash buffer.
You don’t want to reach the end of the month and discover that paying yourself has left the business unable to meet its commitments.
A useful starting point is to look at your cash flow forecast and determine how much money the business can consistently generate after allowing for its operating costs and tax obligations.
This is particularly important for businesses with seasonal income or irregular cash flow.
Your accountant can help you model different scenarios and identify a sustainable level of income.
For more information about managing your business finances, see our Accounting & Tax Services.
2. What Is the Market Rate for Your Role?
Business owners often underestimate the value of their own time.
You might be the director, salesperson, administrator, operations manager and bookkeeper all at once. But if you were hiring someone else to perform the work you do, what would you realistically have to pay them?
This is an important benchmark when considering your own remuneration.
Think about:
- Your industry and location
- Your qualifications and experience
- The responsibilities you perform
- The number of hours you work
- The level of management involved
- The value you contribute to the business
For example, if you are working full-time as an experienced business manager but paying yourself significantly less than what you would pay an employee to perform the same role, it may be worth asking why.
On the other hand, if your business is currently generating enough profit to pay you substantially more than the market rate for your role, that could be a sign that you have built a highly profitable business.
Don’t confuse your salary with your business profit
There is another important distinction here.
Your pay for the work you perform and the return you receive from owning the business are not necessarily the same thing.
A business owner may receive income for working in the business while also benefiting from the profits generated by the business.
Understanding this distinction can help you make better decisions about your pricing, staffing and growth strategy.
3. Could Reinvesting Profits Grow Your Income Faster?
Paying yourself more today isn’t always the best financial decision.
Sometimes, retaining money in the business and reinvesting profits into growth can create a much larger income opportunity in the future.
For example, you might invest in:
- Digital marketing and advertising
- A new website
- Additional employees
- Better technology and systems
- Professional training
- New products or services
- Sales and customer acquisition
- Outsourcing administrative work
The key question isn’t simply:
“Can I take this money out of the business?”
Instead, ask:
“What will give me the best return on this money?”
If investing $20,000 back into your business could generate significantly more profit over the next few years, taking the entire $20,000 personally may not be the best strategy.
This is where business planning and financial forecasting can make a significant difference.
How You Pay Yourself Depends on Your Business Structure
One of the biggest mistakes business owners can make is assuming that every business owner can simply transfer money from the business bank account to their personal account and call it a salary.
The correct treatment depends on your business structure.
Sole trader
If you operate as a sole trader, you generally don’t employ yourself.
The ATO states that money you take from your business for personal use is a personal drawing, rather than a wage. You are generally taxed on the business income rather than receiving a deductible salary from the business.
This means you need to think differently about how much you take from the business and how much you retain for business expenses and tax.
Company
If your business operates through a company, the situation is different.
You may be an employee, director and shareholder of the company. Payments such as salary, wages or directors’ fees can have PAYG withholding, Single Touch Payroll and superannuation obligations attached to them.
The company may also distribute profits to shareholders through dividends, depending on the circumstances.
This is why your business structure and remuneration strategy should be considered together rather than separately.
Partnership or trust
Partnerships and trusts have their own rules around how income and money can be distributed.
If you’re unsure whether you should be taking a salary, drawings, distributions or another form of payment, speak with your accountant before changing how you pay yourself.
Don’t Forget Tax and Superannuation
Your personal income isn’t the only consideration when deciding how much to pay yourself.
You also need to consider the tax consequences of the way you receive money from your business.
For companies, salary and wages can involve PAYG withholding and superannuation obligations, while other forms of payments may have different tax consequences.
If you employ other people in your business, you also need to ensure their pay meets Australian workplace requirements.
From 1 July 2026, the National Minimum Wage is $26.44 per hour or $1,004.90 per week for employees not covered by an award or registered agreement. Many employees are instead covered by an applicable award with its own minimum rates and conditions.
You can check applicable minimum pay rates using the Fair Work Ombudsman Pay and Conditions Tool.
What If You Are Underpaying Yourself?
Many business owners sacrifice their own income while trying to grow their business.
In the early stages, this may be necessary.
But if you have been operating for several years and are still relying on personal savings, working excessive hours or paying yourself substantially below market rates, it is worth investigating why.
Your business should ultimately be capable of supporting both you and the business itself.
If your business cannot afford to pay you a reasonable amount for the work you perform, the solution may not simply be to take more money out.
You may need to look at:
- Increasing your prices
- Improving profit margins
- Reducing unnecessary expenses
- Improving productivity
- Changing your service mix
- Hiring or outsourcing lower-value work
- Improving sales and marketing
- Reviewing your business structure
- Improving cash flow management
The goal is not simply to pay yourself more.
The goal is to build a business that can afford to pay you properly.
What If You Are Paying Yourself Too Much?
The opposite problem can also occur.
If you are regularly taking large amounts of money from the business without considering upcoming expenses, tax liabilities or working capital requirements, you could create unnecessary cash flow pressure.
A profitable business can still experience cash flow problems.
For example, you may have strong annual profits but need significant cash to pay suppliers, employees, GST, tax or other liabilities before your customers pay you.
That is why your cash flow position matters just as much as your profit.
A Simple Framework for Setting Your Business Owner Pay
If you’re trying to decide how much to pay yourself, start with this framework:
Step 1: Calculate your essential personal income
Work out what you actually need to cover your personal living costs.
Don’t automatically use your current spending as your target. Separate essential expenses from discretionary spending.
Step 2: Calculate what the business can sustainably afford
Review your revenue, expenses, tax obligations, debt repayments and cash reserves.
Look at the numbers over several months rather than relying on one particularly good month.
Step 3: Establish a market benchmark
Research what someone with your responsibilities, qualifications and experience would typically earn if you were employing them.
Step 4: Consider your growth opportunities
Ask whether retaining some profit in the business could generate a better return than taking all of it personally.
Step 5: Review the strategy regularly
Your business will change.
The amount you pay yourself when your business generates $300,000 in revenue may not be appropriate when it reaches $1 million.
Review your remuneration as your profitability, cash flow and business goals change.
The Goal Isn’t to Pay Yourself the Most
As a business owner, it can be tempting to think that success means taking as much money out of the business as possible.
But that’s not necessarily the goal.
The goal is to create a sustainable business that supports your lifestyle, meets its obligations and continues to grow.
Sometimes that means paying yourself less today so you can invest in the right opportunity.
Sometimes it means recognising that you have been underpaying yourself and increasing your income.
And sometimes it means restructuring the way you receive money from the business.
The right answer comes from looking at the complete financial picture.
Need Help Working Out How Much You Should Pay Yourself?
At Solution Accountants, we help Australian business owners understand their numbers and make informed decisions about cash flow, tax planning, profitability and business growth.
We can help you assess how much your business can sustainably afford to pay you, consider different scenarios and identify opportunities to improve your overall financial position.
Our tax planning services can also help you plan ahead rather than simply reacting when tax time arrives.
If you’re ready to take a closer look at your business finances, get in touch with Solution Accountants and let’s talk about your goals.
