Ep #123: Owner’s Pay 101: What It Is, How It Works, and Why It Matters

Hey coach, do you have a set way that you pay yourself from your business, or do you just decide it month by month, event by event? Hi, I'm Kendall, and in this episode of The Money Coach School Podcast, we're going to talk about owner's pay. Owner's Pay 101, which means what is it? How does it work depending on your business structure and why so many capable women still leave owner's pay inconsistent, undefined, or confused in some way.

I'm going to walk you through how owner's pay works for LLCs, solo businesses, corporations, plus of course, because it's me, we're going to cover the emotional patterns that make paying yourself perhaps feel complicated when truly it doesn't have to be. It's all here for you in this episode of The Money Coach School Podcast. Let's dive in.

Welcome to The Money Coach School Podcast. To really excel at coaching women, you have to be skilled, confident, and even fearless at money coaching. If you're passionate about women holding genuine money power and love supporting women entrepreneurs, then this is the show for you. Now, here's your host, money feminist Kendall SummerHawk.

Hello, beautiful coach. If you are listening to this real time, welcome to the end of January. I love this month. I love it so much because January is so full of opportunity and possibility and everything new. It's a month where change is easier to put into place and then easier for you to let that change grow and compound over the rest of the year. Which is why I want to talk with you today about paying yourself.

Now, inside my Secret Energy of Money Mastermind, how to pay yourself, why to pay yourself, and coaching through the emotional landscape of paying yourself is one of the most impactful pieces of coaching that we do. It truly is business changing and life changing. So we're going to dive into that today because I see a lot of misunderstandings about what on the surface seems like just a money habit. But underneath the surface, paying yourself carries a lot of thoughts and a lot of emotions.

In this episode, I'm breaking down owner's pay 101, which is including how to pay yourself as an LLC or solo business or a corporation. And we're going to dive into a bit of the emotional landscape as to why so many capable, successful women still don't pay themselves consistently or pay themselves enough.

So we're going to dive in, but before we do, go ahead and click the follow button that's right next to this episode. I am your money coach and every episode here is designed to strengthen your leadership, your cash flow, and your authority with money. So click that follow button and you'll never miss an episode.

All right, paying yourself. Most likely, you have a revenue goal that you're actively working towards, and that's great. But what I want to talk to you about today is something different because you can be making good money, you can be making great money and still feel underpaid or anxious or even resentful of your business because you're the last one getting paid. Now this isn't about spreadsheets, it's not about profit first, which is a system that honestly confused the holy heck out of me. I just can't get behind it. I have several disagreements with it. We'll put it that way.

It's really made for businesses other than a kind of coaching consulting type of business that you and I have. All right, so we're not doing that at all. This is all my thought leadership about paying yourself. And truly paying yourself is about leadership and it's about self-trust and it's about ending the cycle where your business gets richer while you stay financially tight.

So number one, let's start with getting clear about what owner's pay is and is not. What owner's pay is not is whatever is left at the end of the month. It's not a reward for working hard. Okay? Do you get that? And it's not something that you figure out after expenses and launches and client demands. No. The key mindset here is if you don't define your owner's pay, your business will define it for you, and trust me, it will always default to paying itself first and you last.

So what owner's pay actually is, is a deliberate or intentional decision. It's a structural choice inside your business, and it's a leadership standard that turns your business revenue into your personal stability. And the key mindset here is that owner's pay is how money actually reaches you. Without this clarity, a business can earn well while you as the woman running it still feel financially tight or cautious or stretched.

And this is where the conversation often gets a little uncomfortable because women don't underpay themselves because they're irresponsible or lacking in some way. And underpaying yourself is rarely about math. Women underpay themselves because they don't want to take too much. They worry about destabilizing the business. You ought to keep all this money inside your business. We hear a lot of messaging in the online coaching space about how you have to keep reinvesting in your business, keep reinvesting in your business.

And what that often is interpreted as is, oh, that means I can't pay myself. And I do believe in reinvesting in your business, but not at the expense of not paying yourself. Women also underpay themselves because they believe safety comes from keeping money inside the business, really for the reason I was just saying. And also because women have learned how to make money, but not how to receive it, not how to have the experience of being a woman who has money.

So we all know and see how the focus in the online coaching space is on learning how to make money, but not how to receive it, not on how to be the woman who has money. Those are two very different things. I mean, I've coached thousands and thousands of women on money, their relationship with money, how to work with money inside of their business. And making money is very distinctly different than having money. Those are two different things, and you need to focus on both.

And so what happens when a woman doesn't know how to have money is money often gets parked. It stays in the business account or it gets assigned to future plans, or most commonly, what I see is money gets absorbed by expenses that are ever increasing expenses, I should say, that feel productive. They look reasonable or they seem necessary when they're not, and they're at the expense of you getting paid.

And over time, something really subtle happens. Women start becoming very loyal to their business in ways they may never tolerate in a different type of relationship, right? They overgive to the business usually in the form of inflating or ballooning expenses. And I see this all the time. I hear it all the time. I hear other colleagues, seven-figure, eight-figure business owners talking about this very same thing. And in years past, I experienced it as well. Ballooning expenses got the better of me for a few years because of my discomfort of being a woman who has money, who has more money, considerably more money than the people around her.

I've made $30 million in my career as a coach. That's a lot of money. It was not uncommon for me to have more money than the people around me. So what did I do? I deflected that emotional discomfort by ballooning expenses, overpaying people, buying things that I thought I was going to use six months from now and paying for today. It was ridiculous, right? But you live and learn.

Women also delay their own needs. Oh, by the way, I don't do that anymore. Just to be really clear, I don't do that anymore. All right, so women delay their own needs by not making paying themselves a consistent once a month, twice a month task. It's just a task that gets completed or they keep waiting for "later" because it weirdly feels risky to take money from the business and pay yourself. And I know because that's what it often feels like to me. Like once I take it from the business, oh my gosh, then I'm damaging the business in some way.

Or my money archetypes are ruler, maverick and accumulator. So for me, once I take money from the business, I don't want to have to give it back. That business needs to keep paying for itself. So I worry the business won't have enough. That's the accumulator talking. So I used to not pay myself enough or very much and consistently in the early days because I was afraid that then I would be like, I don't want to say bankrupting in the formal sense of the word, but I would be depleting the business. And that was just my accumulator getting a hold of me in an unproductive way.

So all of this is an unconscious reaction to emotional patterning. This is all emotions. None of this has to do with practicality. It doesn't have anything to do with structure. And this kind of emotional patterning, I'm here to tell you, girlfriend, it doesn't come from nowhere. It stems from the patriarchy's view that the work we do as women, that the service we deliver, the support we provide, the results we create, they're expected, they're appreciated, but they're not financially valued. It comes from a system that normalizes women overgiving and under earning and staying grateful instead of paid.

The patriarchy taught women to associate responsibility with self-denial. And then of course has rewarded us for just absorbing that cost. We're expected to give, but not receive. And beyond receiving, it's about not having, not possessing, not from a greedy materialistic standpoint, but from a self-sustaining, life-giving, life-expanding way of looking at things.

So all that conditioning, it doesn't disappear just because you own a business. That conditioning has to be consciously interrupted. So let's start doing that, shall we? Let's get your owner's pay flowing to you. So first, let's look at how owner's pay works structurally because this part absolutely matters. First of all, no matter what your business entity is, whether you're a sole proprietor, an LLC, or your corporation, like my business is an S Corp, what matters most is to pay yourself on a schedule. You can do it monthly or you can do it twice a month. You can do it more frequently if you want.

I love twice a month. I think it's easier to stick to, way easier than once a month. I think that once a month gives a lot more wiggle room to blow through it. It's like one single date that you need to make your own payroll, that you need to pay yourself. And I think that's more complicated and more difficult actually in my experience, than twice a month. Because twice a month means you just get into that habit. It's sooner, easier because it's twice a month. It's more frequent.

Now how you pay yourself can be through payroll or through owner's draw or distribution. And this depends on your business entity. So I'm going to briefly explain this for you right now. If you are an LLC or a solo business owner, owner's pay typically comes through what's called an owner's draw. Now what that means is you're transferring money from your business to yourself and you're doing it intentionally, not randomly, intentionally, meaning the once a month, the twice a month on set days. Okay? So like the 15th and the 30th of the month, that type of thing.

Now typically, an LLC means you do not need to go through payroll to take money. You take money as an owner's draw, but please definitely check with your accountant, with your certified professional accountant because there are some nuances here. If you're an LLC and you've elected to be taxed as an S Corp, then the rules can be a little different.

What's important to understand is that owner's draw, it's not a business expense. It's not tax deductible. It's not a business expense, and owner's draw is definitely subject to your personal income taxes. That's just the way it works.

Now if you're a corporation, like I'm an S Corp, owner's pay definitely looks different. You pay yourself as an employee through payroll and then you also receive additional owner compensation through what are called distributions. This method matters because it has to comply with tax law. So for example, my business is an S Corp. So I pay myself through payroll twice a month, 15th and the 30th, just like I pay my team.

And then in addition, I take distributions, which really just means I either write myself a check or I do all my banking online, it's all with the same bank. So I just transfer the distribution money from the business account into my personal account. Again, it's not a business expense. It's taxable income for me, but I don't pay payroll taxes on it.

Now you may be asking, "Well, then why not take all owner's pay as distribution and just skip payroll entirely?" That would be awesome, but it would not be legal, okay? So as an S Corp, that would not be allowed. I have to have some owner's pay through payroll to stay compliant with the Internal Revenue Service. But definitely check with your accountant because clearly, as much of your pay that you can take as owner distribution, the better compared to payroll. But you definitely still need to pay yourself some through payroll. So my CPA advises me that it's perfectly okay to take the greater share of the money I take from the business through distributions and a lower salary. So in other words, these things are not equal. I have a very small payroll salary, but I have much greater distributions, which is how I have my business structured. Check with your CPA about this.

So those are the mechanics, and I want to look next at the emotional piece, how you break the cycle of not paying yourself. You don't start by squeezing the business or cutting everything back. I mean, you start by setting a clear standard. And that standard is all about consistency. Consistency matters more than the amount. I have been preaching this for decades. Consistency matters more than the actual amount. Consistency is what turns owner's pay into a stabilizing foundation for you instead of a decision that you renegotiate every month.

So for me, my salary paid through payroll is a set it and forget it. I don't think about the amount. It's just part of my payroll. I do revisit it, usually a couple of times a year, like in the middle of the year and at the end of the year to see if I want or if I need to adjust it up or down. But other than that, I don't think about it. It just is.

Changing paying yourself, receiving owner's pay, it doesn't happen by magic. It happens through three key shifts in how you relate to money and really your sense of leadership because this is CEO work. This is you being a leader. So I want to go through these three shifts with you.

Shift number one, decide what supported actually means for you. Not someday, not later, but right now, what amount of personal income feels doable from the business for you right now? So write that amount down. What amount of personal income feels doable from the business for you right now? Don't worry about if it's payroll or distribution or draw, just an amount.

Then I want you to ask yourself, what level of personal income would allow you to feel resourced so that you are calm in your leadership, you're deciding, and you're planning without constant pressure? And I want you to write that amount down.

So the amount that you want to pay yourself from the business in total of owner's draw or distributions and payroll, whichever mechanism is the right one for you, it doesn't matter. We're just looking at the total amount here, is going to be either one of those two amounts or an amount that's in between. Okay? So it's going to be one of the two amounts of what amount of personal income feels doable for you right now from the business and the amount of what level of personal income allows you to feel resourced enough to lead, to decide, and to plan without constant pressure. So you wrote those two amounts down, one of those two or something in between is the amount that you want to be taking out of your business.

All right, shift number two, pay yourself before you defer to expenses. I've coached thousands of women on how to increase their income, how to run their business profitably, how to build up their money peace account, and how to pay off debt. And I'm here to tell you, expenses will always expand to fill what's available. Owner's pay has to be decided before the business starts spending freely. This is how you break the cycle of the business increasing expenses, buying software, services that, you know what? You actually don't really need.

And how instead you say, "Wait a minute. My business is here to provide a service absolutely to the outside world, to my clients. But my business is also here to support me and to do that, I don't minimize my owner's pay in deference to expenses." So when I first started paying myself and I did this early, early on in my business because I incorporated very early in my business, and I will tell you, it was really hard. It was really, really hard. And it felt weird and strange for all the reasons I've talked about here so far in this episode.

And sometimes in the early days, meeting that amount meant deferring something else. It's said, to meet my payroll amount, I need to wait on something else. I need to juggle a little bit. And I want you to hear what my priority was. My priority was paying myself. And yes, sometimes I actually had to lower the amount of my paycheck. Sometimes I had to lower it. I would tell my bookkeeper, "Okay, don't pay me X amount, pay me this amount instead." It was a lower amount. That has happened just a few times. Sometimes I had to do it one or two paychecks. Sometimes I had to say, "You know what, for the next six months, please lower the amount, this is where it needs to be." And that's okay because what are you hearing? You're hearing that I didn't skip payroll. I don't skip paying myself.

And even if I didn't have the cash flow to cover my full pay, I didn't skip a paycheck. And on my really high months, I mean, I've made a lot of money. There have been some months that have been really, really high. On my really high months, I didn't increase my paycheck. I didn't make it that fluid. This is not a fluid decision that gets renegotiated every month. What I did is I kept the paycheck the same, nice and steady, and simply took more of owner's distribution. That's back to consistency, right?

All right, so that was shift number two, pay yourself before you defer to expenses. And shift number three, separate performance from pay. This is a biggie. Owner's pay is not a weekly or every two-week judgment on how well you showed up. You don't get paid more because this week felt productive. You don't get paid less because you felt uncertain or moved slower or took time off. When pay is tied to mood or effort or confidence level, it becomes unstable, really unstable and it becomes inconsistent. That's the opposite of what we want.

When your pay is tied to ownership, you as the business ownership, you as the business leader, then it becomes dependable. Owner's pay is not something you have to re-earn every month. It is something you lead with every month.

All right, so here's a quick recap on owner's pay 101. From the practical standpoint, if you're an LLC or a solo business owner, then owner's pay looks like an owner's draw. It's taken intentionally, not randomly. You do it on a schedule, whether that's monthly or twice a month. You can do it more frequently if you want, but really twice a month works brilliantly.

If you're a corporation, like an S Corp, then owner's pay looks like payroll salary plus owner's distribution. You pay yourself as an employee through payroll and that's on a schedule, by the way, once a month, twice a month, and you receive additional owner compensation through distributions. And how you split that is something you should discuss with your CPA, but it's okay to take the greater share through distributions and a lower salary.

We covered how owner's pay isn't initially about maximizing your personal income, what it's really about is stabilizing you as the woman at the center of the business. That's really what it's about. And we covered how owner's pay is not what's left, it's not a reward, and it's not something you decide after everyone else is taken care of. Owner's pay is a leadership decision. It is a structural standard inside your business, and it's the mechanism that turns revenue into personal stability.

So what does owner's pay require? It requires a structure that complies with your business entity. It requires consistency, not emotion-based decisions, and it requires a clear separation between your ownership of the business and your weekly performance inside of the business.

All right, and as always, I have powerful coaching questions for you to evaluate your current owner's pay. The first question is, what would change if your business treated you as essential infrastructure, not as a variable cost? And the second question is, what standard are you willing to set and keep for your own financial support? You know, when I first started paying myself twice a month and it was so difficult to do, I just stuck to it. I made it work because I knew that it was vital to seeing myself as a true business leader and as a million-dollar business owner. And again, I did that when I was making barely any money.

A business that grows while its owner stays financially tight, that's not motivating, and it's really not success. Owner's pay is how you stay resourced so that you can lead and decide and expand without resentment. This is how business revenue becomes stability for you personally. And this is how your leadership shows up in a practical, tangible, monetary, accountable way. This is how you build wealth that actually supports you.

So this episode is a window into the kind of money work we do inside Secret Energy of Money. Secret Energy of Money is where women like you create million-dollar emotions and make million-dollar decisions about your business and about your life. Decisions that create more income, keep more of what you earn, and allow your business to reliably fund your life and lifestyle. We coach through creating cash flow, creating overflow, owner's pay, million-dollar decisions, million-dollar emotions, and so, so much more so that money stops being something you feel reactive about and starts becoming something that works for you. You are in charge of your money.

So if you're ready to increase your income, increase the amount of money that you have, to pay yourself consistently and build real financial support into your life, definitely come learn more about Secret Energy of Money. I have a free training for you at the link below in the show notes. The workshop is called "Uplevel" and it's how you create the money breakthrough that unlocks your million-dollar business. It's a great workshop, very popular. You'll learn so much about yourself and about money and I go into detail about joining me inside Secret Energy of Money.

All right, so to close here, just remember you are here for more. More money peace, more money power, absolutely, more unapologetic wealth on your terms. This is your money empowerment era, and I am so excited for you. I'm so here for you and I really want to thank you for listening, and I'll see you next week.

Thank you so much for tuning into this week's episode of The Money Coach School Podcast. If you enjoyed this podcast, make sure you follow so you never miss an episode. Also, I would so love and appreciate if you would leave a 5-star review. Your review supports women just like you in discovering all of the juicy tips and insights I’m sharing here on how to coach women on money.

And if you want to learn how to excel at coaching women on money, definitely go to KendallSummerHawk.com and check out the wealth of money coach trainings that we have for you. Thanks so much for being part of this money coaching movement and for tuning into the show every week.