Pay Yourself First as a Business Owner

Business owner smiling.

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Most business owners put themselves last. They pay vendors, employees, software, ads, and taxes — and whatever’s left (if anything) goes to them. It doesn't have to be that way.

The result? A business that even if it looks successful on the outside, leaves the owner stressed, broke, and burned out.

As Jim Rohn said:

“Poor people spend their money and save what’s left, while rich people save their money then spend what’s left.”

The fix? Flip the formula.

As Mike Michalowicz teaches in Profit First:

“Sales – Profit = Expenses. Not the other way around. Profit isn’t an event. Profit is a habit. And the habit starts now.”

Why Most Owners Don’t Pay Themselves First

• Fear of starving the business: “If I take money out, there won’t be enough for growth.”

• Survival mindset: In the early years, every dollar feels essential just to keep the lights on.

• Identity tied to reinvestment: Owners often feel guilty for “taking money” instead of pouring it back into the company.

• Cash-flow chaos: Without clear allocations, “I’ll pay myself next month” often becomes never. You are always last!

But here’s the truth: if your business can’t survive after you pay yourself first, it’s not truly healthy.

The Reality: Most Owners Don’t Do It

The numbers show how rare it is:

• "26% of small business owners don’t pay themselves a salary" (Munk, 2022).

• 57% of owners expected to pay themselves under six figures in 2024 (Mondry, 2024), even while working longer hours and taking on more risk.

• Many admit they aren’t meeting their personal financial goals or compensating themselves appropriately.

Michalowicz calls this “entrepreneurial poverty” — the trap of working harder than anyone else, but never seeing the reward.

How to Pay Yourself First as an Owner

The process is similar to how employees set aside savings, but with extra structure:

1. Revenue hits the business account (sales, invoices, contracts).

2. Before touching expenses, allocate fixed percentages into separate “buckets”:

   • Profit account → a quarterly bonus or equity reserve.

   • Owner’s Pay → salary transferred monthly to cover household living.

   • Taxes → set aside so tax season never hurts.

   • Operating Expenses → what’s left to run payroll, marketing, and overhead.

This is the Profit First system in practice: you carve out your slice up front instead of waiting to see what’s left.

Example: $20,000 Monthly Revenue (Profit First Allocation for <$250K per year Businesses)

When $20,000 comes into the Income Account, it doesn’t stay there. The revenue allocations are based on the business doing less than $250k in annual revenue (Davidson, 2023).

You allocate it into the other four accounts with fixed percentages:

• Profit (5% = $1,000)

  • Your reward for taking the risk of running the business.

  • This account is sacred — you don’t spend from it day to day. It is saved and paid out quarterly.

• Owner’s Compensation (50% = $10,000)

  • Your regular paycheck is transferred to your personal account.

  • Ensures you’re building personal stability as the business grows.

• Taxes (15% = $3,000)

  • Set aside so you’re never surprised by IRS or state bills.

  • Covers both income tax and payroll/self-employment tax.

• Operating Expenses (30% = $6,000)

  • What’s left to run the business: software, marketing, payroll, and overhead.

  • This forces discipline — the business must survive on what remains.

That’s $11,000 directly (for a month including the quarterly payout) to you, plus a stronger business, all while still running lean on $6K of operating expenses. Note, in the U.S., pass through entities have a Self-Employment tax of 15.3% (IRS, updated Aug. 2025), so you may need to put aside more for taxes. This is an illustration; check with your CPA on how much to retain for business and personal taxes.

Why This Works

• You (the owner) are compensated regularly.

• You’re building personal wealth (salary + profit draws).

• The business itself is also getting stronger and growing sustainably

• Taxes are never a surprise.

• Expenses run lean, forcing discipline.

As Michalowicz says:

“When you take your profit first and run the business on what remains, you’re forced to find a way to make the remainder work. And you will.” - Mike Michalowicz , "Profit First", 2023.

The Bottom Line

Most entrepreneurs believe growth comes from reinvesting every dollar. But the ones who last — and who build personal wealth — know the opposite:

You must pay yourself first. Both in the business and personally.

If your business can’t survive after you do, it isn’t a business. It’s just a stressful job with extra paperwork. Less fun too.

To your success.