So, you have your niche side practice up and running and are now making some side money, great! But now what? Figuring out how and when to pay yourself can be an intimidating task for the first time or even seasoned nurse practitioner entrepreneur.
This is what typically happens for many entrepreneurs:
You start a niche side practice such as a Men’s Health or Weight Loss clinic.
You begin making money.
The money builds up in your business checking account.
Expenses come and go.
You check back on your business account and “guesstimate” how much money of that is actually yours and not the businesses.
The end of the year happens, your accountant finally gives you the “salary” number you made for the year that they determine from your businesses profits, and you pay your taxes.
Rinse and repeat…
This cycle is prevalent among entrepreneurs from all disciplines. It is part of the initial learning curve of operating a profitable business. I am guilty of it and I suspect many of you reading this are as well.
Listen, there will come a time that you really should start paying yourself a “salary” from your business. Depending on the structure of your business, such as an S -Corp or an LLC electing as an S-Corp, you are technically required to pay yourself a salary. By the way, read the article HERE about how to pay yourself from your LLC if you have not done so in the past.
Why should you pay yourself a salary vs. just taking what is left over after taxes anyways? Many reasons:
It will provide you a personal income that separates yourself from your business.
It will provide you a personal income that you can live off if you ever separate yourself from employment.
It will provide you a steady income that will be necessary to show the bank if you ever want to obtain a loan or mortgage. (Speaking of which, most banks want to see 2 years of income as a business owner before they loan you money!).
It will help you prioritize expenses in your practice because now you will see the salary leaving your business bank account.
It will really help you stand back and obtain a more realistic perspective on your business. What do I mean by this? It will allow you to see just how profitable your business is once you begin paying yourself a salary AND employment/income taxes. You cannot escape taxes… you can legally reduce them, but you cannot totally escape them.
These are the top reasons why you should be paying yourself a salary. So, when should you begin paying yourself a salary as a business owner?
When you hit the point that you are generating a somewhat consistent amount of money month to month through your practice. You will have NO IDEA how consistently profitable your practice will be for at least a year just FYI. Additionally, you need to be REINVESTING your business profits back into your practice so you can grow it to where it works FOR YOU, not you working for it! This usually takes a year or 2 from my experience.
I personally did not pay myself a dime from my businesses for almost 2 years… Yes, 2 years… I grinded and hustled for 2 years before I actually paid myself. Why? Because I reinvested the money back into the businesses so they began to generate passive income streams and I could get to a point where I was working ON my business vs working IN my business. This is how you become financially independent…
When you begin paying yourself a salary will differ from nurse practitioner to nurse practitioner… Some will find IMMENSE success within months of starting their practice whereas others will find it after a year or so. But overall, when your business begins to generate a consistent stream of revenue, then it is time to call your accountant and set up payroll.
How much should you pay yourself? Well, that depends on how much revenue you are making. Your accountant should be able to look at your books and give you a reasonable idea of how much a safe amount would be. If you are bringing in $10,000-$15,000 a month in revenue, then you could realistically afford to pay yourself $2,000 every 2 weeks when you factor in income and employment taxes.
So, you should meet these 2 criteria before you begin to pay yourself a salary:
- Your practice has developed a steady and predicable revenue stream month to month.
- You have grown your business by reinvesting its profits back into it to a point where it is on autopilot and is working FOR YOU.
Once you meet both of these criteria, then you should start paying yourself a reasonable salary! Its quite nice to see the deposits go into your personal account as well! Remember, this money is YOURS because you paid taxes on it. Its a refreshing feeling!