Starting or transitioning to a cash-based practice and not sure how to pay yourself? In the video below, Jarod gives some great tips on when NOT to use a payroll service, a great method for paying yourself as a single-member LLC, and what financial tools you might need to track finances as you develop your cash-based practice.
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Transcription (please excuse the conversational nature of the transcription and any resultant grammatical errors):
You can keep this really simple when it comes to paying yourself. If you wanted to use a payroll service, it doesn’t really make a lot of sense as a solo practitioner because you’re going to pay $50 or $60 per pay period to have somebody do that for you. So, that doesn’t really make sense until you actually have employees.
What you can do, if you wanna pay yourself a set amount each month, is set up an automatic draft from your business banking account to your personal one. That’s what I have going on right now. If, in the beginning, you’re having busy weeks and not-so-busy weeks, you can just pull what you want or need over to your personal account at the end of the month to avoid overdrafting.
If you’re a single-member LLC, then it doesn’t really matter if the money is in your personal account or in your business account. If you’re a single-member LLC, whatever is made in revenue that’s not spent in overhead, i.e., your profit, will be taxed, whether it’s in one account versus the other. Early on, it’s quite simple to just track your expenses.
You can certainly use something like QuickBooks. I had a bookkeeper pretty early on that I gave access to the PayPal account where money was coming in. I gave her access to my bank account, where she can see expenses. I also saved all my receipts. When you’re out talking business or doing anything that could be business-related or business-generating in any way, save your receipts from those activities. I wrote down the type of expense and who I was with, maybe even what we talked about. Save your receipts and either you or a bookkeeper can track your expenses versus revenue to look at what your profit is and what you’re going to need to pay taxes on.
But, again, it doesn’t really matter whether it’s in one account or the other if you’re a single-member LLC. Just set up an automatic draft or take out what you need at the end of each month. Those would be considered what’s called a member’s draw. You’re just paying yourself as a member’s draw. That’s what I had been doing for years before I brought Ben on. Now, down the road, if you start to expand and want to bring on employees, you might wanna set up set payroll systems for them and for yourself. I hope that helps. So, let me know if you have any other questions.
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