Owner’s Drawings: What Small Business Owners Need to Know
Owner’s drawings are cash (or asset) withdrawn from your business for personal use. If you’re a sole trader or in a partnership, these are not wages or salary – these are just a mechanism for you to extract the profits of the business.
Not a Business Expense: Owner’s drawings don’t reduce your taxable income, as wages paid to employees do.
Affecting Cash Flow: If you withdraw too much from your business, it may end up unable to pay for its ongoing operational expenses, such as rent, wages, or payments to suppliers.
Tax Implications: While drawings are not directly taxed, the profits you make in your business should be declared in your personal tax return.
There’s no hard-and-fast cap, but finding a healthy balance between your personal needs and the fiscal welfare of your business is essential. A basic rule of thumb is to make sure that you retain enough cash in the business to meet ongoing expenses and growth opportunities
When it comes to extracting money from their business, many small business owners make costly tax and cash flow mistakes without even realizing it. If you’re not quite sure how to navigate this, let’s talk! Book a free consultation here for your business.
While it’s easy to extract money from your business, doing it correctly will save you headaches (and tax problems) later on. Let’s get you started off on the right foot!
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