Working it out
- Take-home you took. What reached your own account last month: salary, dividends and drawings.
- Take-home you need. Your household target. Use the figure in your plan if you made one.
- Gap. What you need minus what you took.
- Net profit after your pay. From the net margin page.
Profit paid out as a dividend is taxed first. The salary vs dividends calculator shows the difference.
An illustration
The figures are invented to show the arithmetic. They are not what any business should expect.
| Take-home you took (R15 000 salary, R5 000 drawings) | R20 000 |
| Take-home you need | R30 000 |
| Gap | R10 000 |
| Net profit after your pay | R14 000 |
The profit is larger than the gap. The business may be able to close it, if the cash is there. Check available cash first.
Read it against your own situation
- Your plan. Is the pay you take the pay you planned?
- Last month. Is the gap growing or shrinking?
- Your profit. Could the business carry more?
What a change could be revealing
| The signal | It could be revealing | Check | You could |
|---|---|---|---|
| You take less than you need, and profit is good | The business may be able to afford more, and your pay may be held down by habit or caution | Available cash and runway | Raise your pay in steps and watch available cash |
| You take less than you need, and profit is thin | The business may not support you yet | How close sales are to break-even | Decide whether to raise prices, cut costs or grow sales, and set a date |
| You take more than the business earns | Savings or a loan may be funding your pay | Net profit after your pay, and whether cash is falling | Cut what you take, or find what is holding profit back |
| The amount changes every month | You may be taking whatever the account allows | The last six months of what you took | Set a fixed amount each month and add a top-up when cash allows |
| A dividend in a month with a loss | The money may be coming from savings inside the business | Whether the accounts show a profit | Ask your accountant whether a dividend is allowed before you pay one |
Try it
Write down what you took home in each of the last three months, and what you need. It takes about ten minutes.
Questions people ask
How much should I pay myself?
There is no set figure. Start from the take-home your household needs, then check whether the business can carry it.
Should I take a salary or dividends?
That depends on your tax position and how the business is set up. Your accountant can advise.