Did you know….According to Pilot’s 2026 Small Business Salary Report:
- 28% of business owners pay themselves nothing.
- 88% of business owners pay themselves less than $50,000 annually.
I don’t know about you, but when I started my first business, I had a lot of questions. I found I could turn to other entrepreneurs for support.
Except for one question. Gulp..
What do I pay…myself?
Apparently, a lot of you have the same question, and it’s going unanswered.
I get it. It’s not because you don’t understand your business, but because most business owners were never taught how to determine their own compensation.
Usually, you start a business because you want to make a positive impact on the world, right? Then you start realizing you can also have more freedom, more control over your future, and hopefully more financial security.
Then somewhere along the way, you become the last person to get paid. Your employees get paid. Your vendors get paid. Your software subscriptions renew automatically every month. The electric company gets its money. The landlord gets theirs. And whatever is left over (if anything) is what you take home.
Are You Solving the Wrong Problem?
When entrepreneurs ask me how much they should pay themselves, they’re usually looking for a magic percentage or a universal number. They want someone to tell them, “Take 20% of revenue,” or “Pay yourself $100,000 a year.” But there isn’t a one-size-fits-all answer because every business owner lives in a different reality.
Some business owners live in areas where housing costs have doubled over the past several years. Others are navigating rising insurance premiums, increased childcare costs, higher grocery bills, and the lingering effects of a more expensive economy. The amount one owner needs to maintain a reasonable quality of life may be dramatically different from that of another.
At the same time, you may not even know what your life actually costs. You may have a rough idea of your mortgage payment and utilities, but have you calculated the true cost of maintaining your household and personal life?
Before you can determine how much to pay yourself, you need clarity on both.
Profit First and Owner’s Compensation
One of the reasons Profit First resonates with so many business owners is that it challenges a belief we’ve been taught for decades: profit comes last (LIES, I tell you!).
Traditional accounting says: Sales minus expenses equals profit.
BUT – most businesses expand expenses to consume whatever money is available. If there’s money sitting in the account, it feels like it’s available to spend. Before long, profit disappears, and owner compensation becomes whatever happens to be left over.
Profit First flips that equation: Sales minus profit equals expenses.
This forces you to become intentional about where money goes. Instead of hoping there’s enough money left for you, compensation becomes part of the plan from the beginning.
The owner – you? No longer treated as an afterthought.
That’s exactly how it should be. You started this business to create a better life, not to become the lowest-paid employee in the company.
How Fix This Next Helps Too
In Fix This Next, I discuss the concept of Order. Order exists when a business runs predictably and consistently. When Order is missing, chaos fills the gap.
One of the clearest signs that Order is lacking is inconsistent owner compensation.
I’ve seen business owners take $20,000 one month, nothing the next month, $5,000 the month after that, and then drain the account because a personal expense unexpectedly appeared. That’s not compensation. That’s financial improvisation. It’s too unpredictable.
When you don’t know what you’re going to earn, it becomes impossible to plan. Stress increases. Decision-making becomes reactive. Every business challenge feels more personal because your household finances are directly tied to every fluctuation in revenue.
Consistent compensation creates stability. Stability creates confidence. Confidence allows you to make better decisions.
Determining your compensation isn’t just a financial issue. It’s an Order issue.
The Goal Isn’t Wealth. The Goal Is Stability.
Don’t focus on what you want to earn instead of what you need the business to support.
Those are two different conversations. The first conversation is emotional. The second conversation is practical.
Start by understanding what it actually costs to run your life. Not your dream life. Not your someday life. Your actual life today. What does housing cost? Utilities? Food? Transportation? Healthcare? Childcare? Savings? Retirement contributions? Debt obligations?
You never know – you may have been working with assumptions, not facts.
Once you know your actual living expenses, you have a baseline. That baseline becomes the starting point for determining what compensation needs to accomplish.
Then compare that number to the value of the role you perform within the business. If you hired someone to replace you tomorrow, what would you have to pay them? Somewhere between those two numbers lies the compensation target you’re working toward.
Six Steps to Determine and Improve Owner Compensation
Rather than guessing, follow this process. It combines principles from both Profit First and Fix This Next and creates a practical path forward.
Step 1: Calculate the Real Cost of Your Life
Most entrepreneurs know their revenue better than they know their household expenses. Great. But then you’re not getting a clear picture of what you need holistically. Spend time calculating your true monthly cost of living. Include every recurring expense and every financial obligation. This exercise isn’t about judgment, but awareness. You can’t determine whether your business is supporting your life if you don’t know what your life actually costs.
Clarity removes uncertainty and gives you a target worth pursuing.
Step 2: Determine the Market Value of Your Role
Many owners underestimate their value because they view compensation emotionally rather than objectively.
Imagine you decided to step away from the business for six months. What would it cost to hire someone to perform your primary responsibilities?
That’s the market value of your role.
Your compensation should eventually reflect the value you’re creating inside the company, not simply what’s left over after everyone else gets paid.
Step 3: Identify Whether the Order Is Missing
If your compensation fluctuates dramatically from month to month, don’t immediately focus on increasing your pay.
Focus on increasing stability.
In Fix This Next, Order always comes before optimization.
Look for inconsistencies in cash flow, budgeting, spending decisions, and operational processes. The goal is to create predictability. Once the business becomes predictable, owner compensation becomes predictable as well.
Step 4: Implement an Owner’s Compensation Allocation
One of the most powerful elements of Profit First is creating a dedicated Owner’s Compensation account.
Every time revenue enters the business, a predetermined percentage is allocated specifically for the owner.
This removes emotion from the equation. You’re no longer wondering whether you can pay yourself. The system already made that decision.
Even if the percentage starts small, the habit matters.
The consistency matters.
The intention matters.
Step 5: Evaluate What the Business Can Sustain
This is where honesty becomes essential.
If your personal financial needs significantly exceed what the business can currently support, you have valuable information.
That information may reveal pricing problems. It may reveal excessive expenses. It may reveal inefficiencies. It may reveal that revenue growth needs to become the immediate priority.
The goal isn’t to ignore reality. The goal is to understand it so you can improve it.
Step 6: Increase Compensation Methodically
Many entrepreneurs try to solve compensation problems with giant leaps.
Instead, focus on gradual improvement.
As profitability improves, increase compensation strategically. As efficiencies improve, increase compensation strategically. As revenue becomes more predictable, increase compensation strategically.
Small improvements sustained over time create far more stability than dramatic changes that can’t be maintained.
Stop Treating Yourself Like an Expense
You are not a burden on your business.
You are not the expense that should always be cut first.
You are not the backup plan whenever cash flow gets tight.
You are the person who created the opportunity in the first place.
That doesn’t mean you should pay yourself irresponsibly. It doesn’t mean draining the business account whenever you want something.
Profit First teaches us that profit should be intentional.
Fix This Next teaches us that stability and Order come before growth.
Together, those lessons help you understand that owner compensation should be planned, consistent, and aligned with the reality of both your business and your life.
If you’re constantly wondering whether you can afford to pay yourself, don’t start by taking more money.
Start by creating more clarity.
Once you know what your life costs, what your role is worth, and what the business can sustainably support, the question changes.
You stop asking, “Can I pay myself?”
And you start asking, “How do I build a business that consistently supports the life I want to live?”
That’s a much better question. And it’s one worth answering.
You’ve got this.
-Mike
