Small bakery, about £14k through the till in a normal month, two part-timers. Some months I take £900, some months £2,600, and twice I've taken nothing because a mixer died. My accountant keeps saying set a fixed figure and stick to it, but I don't know how anyone picks that figure without either starving or draining the account. What did you base yours on, and how often do you revisit it?
Mine is a fixed monthly amount that covers my household floor, plus a distribution in April and October if the year is behaving. The structure matters here and it's genuinely different depending where you are — in the US, if you're taxed as an S corporation, you're required to pay yourself reasonable compensation as actual payroll rather than taking it all as distributions, and that's a real rule with real consequences, not a preference. I'm not your accountant and the thresholds move, so make yours put the split in writing for your specific setup.
UK version of the same warning: the small-salary-plus-dividends arrangement people repeat in forums is only sensible if the company actually has distributable profit, and the numbers that make it worthwhile have shifted more than once in the last few years. Dividends drawn out of a company that turns out to have made a loss get reclassified and it's an unpleasant conversation. Ask your accountant to run your actual figures rather than copying what a bloke on a forum did in 2019.
Going to disagree with the fixed-salary crowd slightly. I set one before the garage could support it, and what happened was I paid myself on the 1st and then funded stock on a credit card on the 20th, which is a much more expensive way to be paid. What worked was a low floor I could always cover plus a fixed percentage of anything over a monthly threshold. It's less tidy but the incentive is honest, and my floor has doubled in four years because the threshold kept getting beaten.
The floor-plus-percentage version is what I use and the percentage is the part that matters psychologically. A good month feels like a good month rather than money that vanishes into the account, which makes it much easier not to raid it later.
The mistake I made was paying myself nothing meaningful for four years and calling it commitment. On paper the shop was profitable. When I finally priced my own hours in at what I'd have to pay someone to do them, three of our five services were losing money on every single job, and I'd been subsidising them with my own unpaid labour and calling it a business. Put a wage in the accounts even if you can't fully draw it — otherwise your P&L is a story about a person who works for free.
Fixed date, boring number, separate account for tax. Review it every quarter with the accountant, not every time you feel poor.
@invoice_ivy · last mo. · 2 replies
I do the books for about a dozen shops your size and the ones who sleep at night all do the same thing: pay yourself on a fixed date like any other member of staff, at a number the worst month of last year could have covered. Not the average month — the worst one. Then any surplus gets swept quarterly into a separate account and you decide consciously whether that's a drawing, a tax reserve or a new mixer. The random-amounts approach isn't really a pay problem, it's that your business account and your personal life are sharing one bucket, and while they do you'll never know whether the shop is profitable.
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@listcomp_leo · last mo.
The worst-month rule is the bit people skip. I set mine off a good spring and then spent all of January moving money back in, which defeats the entire point of a fixed wage.
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