Understanding Owner's Draw

Small business owners say goodbye to many of the familiar aspects of holding a traditional job. This includes your standard salary. As a business owner, you’ll instead receive compensation in the form of an owner’s draw.

Click start to learn more about owner's draw and which option could be best for your small business.

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Owner's Draw

An owner's draw is how business owners pay themselves. Typically, this takes the form of a check from the business owner’s equity account. Assuming the balance of their equity accounts is more than zero, owners can take draws whenever they wish.

Equity Account

Your owner’s draw can take one of three forms, depending on whether you classify yourself as a sole proprietor, partner, or LLC member. Explore your options to see which solution is best for you. Keep your eventual earnings in mind as you start your business so you can choose the best option from the very beginning.

Original Business Investment

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Owner's Share of Profits

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Deductions

Are you shopping for a low-cost way to get your business started quick?

Yes, I want to get started quickly and inexpensively!

No, I have the time and money to invest in more complex approaches.

Does your business carry a high degree of liability?

Yes, I produce consumable items, supplements, or other products which increase liability.

No, there's minimal liability involved with my products and services.

Do you want to keep your personal money and debt liability separate from your business finances?

Yes, this separation is important to me.

No, I'm comfortable taking personal liability for the business's finances.

Are you comfortable being solely responsible for business debts?

Yes, I'm comfortable taking responsibility for business debts.

No, I want to distance my personal assets from the business.

Are you working alone?

Yes, I'm the only person launching this business.

No, I have one or more partners who will be with me from the ground up.

Are you working alone?

Yes, I'm the only person launching this business.

No, I have one or more partners who will be with me from the ground up.

Sole Proprietor

A sole proprietorship is the fastest and easiest way to start a business. You are the company, and you have the option of running the entire thing under your own personal name. The downside is that there’s no protection for business liabilities, so you’re responsible for debts incurred by your company. As a sole proprietor, there are no tax or financial distinctions between yourself and your business. As an owner, you can take draws as often as you want, though it’s preferable to schedule these for set intervals.

For more information on how this type of owner gets paid and more, download our whitepaper Owner’s Draw: A Guide To Business Owner’s Compensation.

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Partner

If you’re part of a partnership, you’re considered a co-owner with others who are helping with the endeavor. You need to set forth a partnership agreement from the beginning to document each person’s investment and responsibilities.

Your owner’s draw is based on your initial investment in the company, so you may not receive the same amount as your partners. You may only withdraw funds up to the amount of your initial investment.

For more information on how this type of owner gets paid and more, download our whitepaper Owner’s Draw: A Guide To Business Owner’s Compensation.

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LLC Member

With an LLC, you enjoy some added protection from business debts, as you’re not typically liable if they go unpaid. Establishing an LLC is more complicated, time-consuming, and expensive. However, it gives you the most security as you go forward. Financially, an LLC is treated the same way as a sole proprietorship or partnership where the owner’s draw is concerned. Your method of payment will depend primarily on whether you have partners.

For more information on how this type of owner gets paid and more, download our whitepaper Owner’s Draw: A Guide To Business Owner’s Compensation.

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There’s no one-size-fits-all solution for business ownership. Consider your options carefully before committing to an approach. Make sure you have reliable service providers on your side to help you manage and navigate the complexities of becoming a business owner.