When Can You Pay Yourself More?

Running a business often means putting yourself last. You take the risks, manage the team, and work the longest hours, yet many business owners hold back when it comes to paying themselves a proper income.

So when is it appropriate to increase your personal income from the business? And how can you do it safely without jeopardising cash flow, creating tax issues, or stalling future growth?

This article outlines what to look for and how to approach it.

Why Business Owners Hold Back

In the early stages of business, it makes sense to be cautious. You may be reinvesting every dollar into stock, equipment, or marketing. You might be building cash reserves, managing uncertain income, or simply trying to keep your overheads low.

But over time, holding back can create problems. It distorts your view of the business’s profitability, limits your personal financial progress, and increases the risk that you're funding your lifestyle from personal debt.

Signs You Can Pay Yourself More

You do not need to wait until the business feels perfect. If you can see evidence in the numbers, it may be time to increase your income. Look for:

• Consistent net profit across several periods

• Reliable cash flow that meets business obligations on time

• A buffer for tax, super, and operational expenses

• Manageable debt levels with repayments up to date

• A margin between earnings and expenses that is not immediately reinvested

Also consider whether your personal drawings have kept up with the cost of living. It is common to see business owners still paying themselves what they did five or ten years ago, even while their business has grown.

How Business Owners Can Pay Themselves

The best way to pay yourself depends on your business structure.

Sole Traders and Partnerships

You cannot pay yourself a wage in the formal sense. You take drawings from the business, but your tax is based on total net profit, regardless of how much you actually withdraw.

You can increase your drawings as the business becomes more profitable, but it is important to budget for the tax bill that will follow.

Tip: Use consistent transfers into your personal account to avoid accidental overspending.

Companies

You can take money from a company in several ways:

• Salary or wages paid through payroll, with PAYG withholding and superannuation. Tax deductible to the company

• Director fees for occasional or irregular remuneration

• Dividends paid from after-tax profits, potentially with franking credits attached

• Director loans where you take drawings that are not classified as salary or dividends

Many owners draw funds during the year and treat them as director loans. Unless these are matched to a salary, dividend, or properly documented loan, they may fall under Division 7A, which creates additional tax obligations and reporting requirements.

Often, it is better to pay yourself correctly as a wage or dividend rather than leave balances sitting in the loan account. The right approach depends on your business's financial position, tax outcomes, and future plans. Make sure you speak with your advisor to avoid unintended tax consequences.

Trusts

Payments may come through:

• Salary paid via payroll if the owner is actively involved in the business

• Distributions allocated at year-end and taxed in the hands of the beneficiary

Cash drawn during the year is not income on its own. It must be matched to an actual distribution or wage. Failure to do this properly can result in compliance issues, especially where a corporate beneficiary is involved or unpaid present entitlements are created.

Trusts must also pass a distribution resolution by 30 June each year to ensure profits are allocated correctly and legally.

Make Sure You Pay Yourself Super

Super is often overlooked by business owners, especially if you are not technically an employee of your own business. But super remains one of the most tax-effective ways to build long-term wealth.

• Super contributions are tax deductible up to the concessional cap

• Even if you are not drawing a salary, voluntary contributions can still be made

• Starting early allows for long-term compounding that is difficult to replace later

Many business owners delay super and later find themselves relying on selling the business to fund retirement. Paying yourself super now, even in small amounts, is a smart move. Future you will thank you.

Warning Signs You Are Paying Too Much

Increasing your income should not come at the expense of your business’s health. Here are some warning signs to watch for:

• Drawings that exceed profit

• Late payments to staff, suppliers, or the ATO

• Outstanding or growing tax and super liabilities

• Overreliance on overdrafts or credit cards

• Inability to maintain a working capital buffer

If these are present, focus first on stabilising your cash flow and improving margins before increasing your own income.

Steps to Review and Increase Your Pay

1. Review your profit and loss for actual performance, not just money in the bank

2. Reconcile bank accounts and confirm all liabilities are up to date

3. Clarify your personal income needs and goals

4. Review the best way to draw funds based on your structure

5. Set up regular transfers or payroll to create consistency

6. Schedule super contributions as part of your plan

7. Revisit your remuneration every quarter or after significant changes

When to Get Advice

Your personal income strategy should align with the business’s financial strength, your tax position, and your longer-term goals. There is no one-size-fits-all answer.

If you are drawing funds through a director loan, it may be time to revisit that approach. In many cases, it is more effective to pay yourself through a salary or dividend. A short conversation with your advisor can help you avoid tax issues and clarify the best path forward.

We help business owners set up income strategies that are sustainable, tax-efficient, and aligned with their financial plans. If you are ready to pay yourself more, or unsure how to structure it, get in touch for a confidential review.

The information provided in this article is general in nature and does not take into account your specific financial situation, business structure, or tax position. It is not intended to be financial or legal advice. You should consult a qualified advisor before making any decisions regarding how you pay yourself or manage company funds.