The Short Answer

What Is an Owner’s Draw?

An owner’s draw is money a sole proprietor, partner, or single-member LLC owner takes out of the business for personal use. It reduces owner’s equity and is not a business expense. How you get paid depends on how the business is taxed. An S corporation or C corporation owner who works in the business is generally paid wages through payroll instead. See the IRS guidance on paying yourself.

Not Sure What You Can Afford to Pay Yourself?

Featured Business Consulting A draw amount and schedule set from your real profit, cash, and taxes. See consulting → Plans Business Plan Writing An owner pay line in your plan that lenders can believe. See plans and prices → Do It Yourself Business Plan Templates Industry templates with a Word plan and an Excel financial model. Browse templates → Free Small Business Education Free guides on management, money, operations, marketing, sales, and strategy. Start learning →

In Plain English

Your Pay as the Owner

An owner’s draw is your paycheck when you own the business. Set the amount. Set the day. Take only that.

The problem is not taking a draw. The problem is taking one whenever the account looks full. A full account in March can be the money for April’s bills.

Watch: Owner Pay

Watch Dr. Paul on Owner Pay

How Much of a Salary Can Your Food Truck Pay?

Dr. Paul works out how much a small food business can afford to pay its owner, using real numbers. (2:40)

A Real-World Example

The Detailer Who Kept Missing Supply Orders

Illustrative example

A mobile detailing owner in Sanford, Florida runs a single-member LLC taxed as a sole proprietorship. Every time the business account looks healthy, he moves money to his personal account. Twice a year he cannot cover a supply order.

He switches to a fixed draw twice a month, set from what the business actually earns and what cash is actually left after bills and a reserve. The supply orders go through, and he knows what he will be paid. If you run a car detailing business, this one change steadies both bank accounts.

From Dr. Paul’s Fabled Forest

Commander Colt and the Empty Till

Doctor Owl was at the tailor’s, arms out, being measured for a new vest, when Commander Colt galloped in.

“Doc, I need to borrow a few coins for the tour wagons,” Colt said, stamping a hoof. “Just a bit more horsepower and we’re fine.”

Doctor Owl lowered his wings. “How many coins do you pay yourself each month?”

Colt opened his mouth and closed it again. He scooped coins out of the Forest Trails & Tours till whenever his own pantry ran low. He had never counted.

Doctor Owl took the tailor’s chalk and wrote on a scrap of cloth: the same number of coins, on the first and the fifteenth of every month, set only after the bills and the rainy-day jar were paid.

That evening, Mrs. Owl-Willow read the scrap and smiled. “A horse who knows his pay can stop worrying about the till.”

Find the rest of the forest’s lessons in Dr. Paul’s Fabled Forest Business School Series. This one is from Book 2.

Dr. Paul’s Insight

Dr. Paul often finds the owner’s pay is the most unplanned number in a small business.

Put It to Work

How to Set Your Owner’s Draw

  1. Check your tax setup first. Draws apply to sole proprietors, partners, and most LLCs. Corporation owners who work in the business usually take wages through payroll.
  2. Find your average monthly profit. Use the last six months, not your best month.
  3. Check available cash. Profit is not the same as cash in the bank. Use the lower of the two.
  4. Subtract what the business must keep. Tax set-aside, reserve savings, and planned purchases come out first.
  5. Start a little below what is left. What remains is the most you can draw. Leave yourself room.
  6. Pick set days and a set amount. The 1st and the 15th work for most owners. Review the amount every quarter.
Worked example (illustrative)

Average profit is $6,000 a month, and the cash in the account supports it. Subtract a $1,500 tax set-aside, a $500 reserve, and a $500 equipment fund. That leaves $3,500. The owner draws $1,600 twice a month: 24 draws a year, $3,200 a month, $38,400 a year.

Watch Out

Pitfalls When Taking an Owner’s Draw

Watch OutDrawing whenever the balance looks high

A high balance often includes money that already belongs to next week’s bills.

Watch OutTaking a draw before setting aside taxes

The tax bill still comes. It just comes when the money is gone.

Watch OutDrawing from profit the bank does not have

Profit on paper can be tied up in unpaid invoices and inventory.

Watch OutUsing a draw when your setup calls for wages

S corporation and C corporation owners who work in the business generally need payroll. Ask your CPA.

Why It Matters

Benefits of a Set Owner’s Draw

  • Steadier cash in the business
  • Predictable personal income
  • Cleaner books at tax time
  • A realistic owner pay line in your plan

In Your Business Plan

How Owner’s Draw Shows Up in a Business Plan

Lenders look for an owner pay number that is planned, not guessed. A set draw shows the business can pay you and still pay its bills.

Sample plan excerpt: Financial Plan, Owner Compensation

“The owner will take a fixed draw of $3,200 per month in Year 1, reviewed quarterly. Draws are paid only after the tax reserve and operating reserve are funded.”

Keep Learning

Related Lessons

Chapter 1How to Separate Business and Personal Finances GlossarySmall Business Accounting and Finance Glossary GuideSmall Business Accounting and Finance: 20 Foundations TermWhat Is a General Ledger? TermHow Quarterly Estimated Taxes Work GuideThe 13-Week Cash Flow Forecast

FAQ

Questions Owners Ask About the Owner’s Draw

What is the difference between an owner’s draw and a salary?
A draw is money you take out of a business you own, and it reduces your equity. A salary is wages paid through payroll, with taxes withheld. Which one applies depends mostly on how your business is taxed.
Can an S corporation owner take an owner’s draw?
An S corporation owner who works in the business is generally expected to take reasonable wages through payroll. Money taken beyond that is usually treated as a distribution. Confirm your setup with a CPA.
How much should a small business owner pay themselves?
Start from average profit and available cash, subtract taxes, reserves, and planned purchases, and take a little less than what is left. Pay yourself on set days and review the amount every quarter.

More From the Series

Keep Building Your Business

Every book in Dr. Paul’s Fabled Forest Business School Series teaches one subject through short stories, real terms, and one-page worksheets.

Management and Leadership for Small Businesses book coverBook 1Management and Leadership for Small BusinessesGet it on Amazon → Operations for Small Businesses book coverBook 3Operations for Small BusinessesGet it on Amazon → Strategy for Small Businesses book coverBook 6Strategy for Small BusinessesGet it on Amazon →

Dr. Paul Borosky, DBA, MBA

Dr. Paul is a business consultant and author with 14+ years of experience and 1,000+ written business plans. He works with owner-run small businesses on plans, financial projections, and the systems that let a business run without the owner doing everything. This page is part of the glossary for Accounting and Finance for Small Businesses, Book 2 of Dr. Paul’s Fabled Forest Business School Series.

This page is for general educational purposes only. It is not tax, legal, or accounting advice. Tax rules change and vary by entity and state. Confirm your own amounts and dates with a CPA or other tax professional.