How to Start a Retail Business: A Step-By-Step Guide

ByIvan Stevanovic
April 26,2022

If owning your own retail business is your vision of a perfect career, you are not alone. With over one million retail businesses in the US alone, retailers thrive in online and real-world environments. Moreover, the opportunities for SMEs and micro-businesses have never been greater.

However, opening a small online retail business - with or without a brick-and-mortar store - requires a lot of strategic planning and hard work. So, how to start a retail business in this day and age? Check out our guide, which will take you through all of the steps needed.

Is Opening a Retail Store Right For You?

Before looking at names for your proposed venture, you must look at the pros and cons of retail to determine whether it is a suitable business model for you. Whether you’ve been planning to start a retail store for many years or it’s something that has emerged following career problems during the pandemic, there is a lot of potential for entrepreneurs looking to enter the arena in 2022 and beyond. Here are just six eye-opening statistics to highlight that:

  • Total global retail sales generated over $25 trillion in 2021 and are anticipated to top $26 trillion in 2022
  • Total eCommerce sales for 2021 were estimated at $870.8 billion, showing a CAGR of over 14% compared to 2020.
  • Over 98% of all retail businesses in the United States are small firms with under 50 employees. 
  • Small to mid-sized retailers have a gross margin of 51% on average. 
  • The retail industry accounts for more than 18% of America’s total gross domestic product (GDP).
  • Small to mid-sized US retailers complete an average of 482 transactions per month.

As the statistics above show, this is an excellent time to consider starting a store. Small retail businesses might not always grab the headlines, but they continue to be the backbone of the retail sector and can achieve significant and stable profits. Moreover, running a business of your own puts you in control of all important work-related matters.

However, be prepared to face a number of challenges. Before looking at how to become a retailer, it’s important to be honest with yourself. There will be long days ahead, particularly in the pre-launch phases. You’ll also need a passion for what you sell and the ability to manage your team effectively. Likewise, you’ll probably have to utilize both eCommerce and traditional selling methods to achieve your business goals.

Still, the best candidates for starting a retail business have never had it better.

12 Steps To Opening a Retail Store in 2022

If you are going to open a local store or a small online retail business, it’s imperative that you do it properly. After all, retail companies are prone to the same failure rates (20% in the first two years) as companies in any other industry. With the right strategy, though, your business will have a much higher chance of thriving in the highly contested retail market.

When starting a retail business, these tips will point you in the right direction.

Step 1: Find Your Niche

Retail is a very broad term., which is why researching the industry and finding your place in the market is the first step you’ll need to take. The results will influence everything from where you look to gain inventory for retail startup stores to guiding your target consumer profile. Finding the right niche is the perfect platform to build your upon.

Very few retail businesses boast a universal appeal. So before starting an eCommerce site or opening a store, you should do the following;

  • Try to create a business you are passionate about. Working on something you love will make tough times seem more manageable, while your enthusiasm can rub off on consumers and workers alike.
  • Think about potential obstacles, particularly in the early stages of running a company. Knowing the pros and cons of retail will make a huge difference.
  • Research the profitability of your niche by looking at Google Trends and other online industry insights. If there is no demand, you’ll need to look elsewhere.
  • Research the competition. Before starting a store, you can learn valuable tips about what to do - and, more importantly, what not to do - as a business owner.
  • Consider whether there is a gap in the market or an area that has shown potential for future growth.

As a business owner, whether you’re in the home decor retail, fashion or food industry, or just about any other niche, there are three main ways to attract customers. You can either bring something entirely new to the table, improve on the quality currently available on the market, or undersell the competition.

Step 2: Write a Business Plan

Many entrepreneurs (not only in retail) will create a basic business plan because they have no experience writing one and don’t realize its importance. In reality, the document is something that provides continued guidance and clarity as you look to turn a vision into a successful enterprise. A good business plan can increase the chances of growth by as much as 30%.

You may use a lean startup business plan or a one-page retail business plan if you have a very clear idea of what you are doing. A more thorough approach is necessary if you also need funding. Your plan must:

  • Include an executive summary with a  company description and a look at the internal organization and management. It should also have a  market analysis, a product line, marketing and sales information,  funding requests, financial projections, and an appendix.
  • Detail the challenges you’ll face and what makes your offline or eCommerce retail business unique.
  • Accurately outline your retail startup costs.
  • Detail your intended hiring process, even if you run a home-based online retail business powered by outsourced workers.
  • Follow a suitable format.

The business plan is made for your benefit as much as for finding potential backers or partners. Besides, adopting good organizational skills and an analytical approach at this stage will serve you well throughout the process to come.

Step 3: Finance Your Business

If you’re wondering how to open a retail store with no money, the good news is that there are options available. Making the business a legally sound operation costs next to nothing while online retail startup costs are very low too. Meanwhile, almost a quarter of retail sales are facilitated by drop shipping, which highlights an excellent opportunity to avoid stock costs.

With that said, you’ll still need some funding to get the company rolling - even when you expect to see quick returns. Some good funding options include:

  • Crowdfunding from friends, relatives, colleagues, and even strangers online
  • Bank loans
  • SBA business grants and loans
  • Small retail business credit cards
  • Private investments/angel investors.

You must have a clear understanding of the total retail startup costs and always give yourself a buffer of at least 10% over the estimates. There is nothing worse than failing even before you got the venture up and running because you underestimated the expenses.

Your ideas for a retail business are little more than wishful thinking until you’ve officially registered the company. You must first familiarize yourself with the different types of entities you could register. In most cases, it will be either a sole proprietorship or an LLC, but partnerships and corporations are options too.

The registration process is these days quicker and more convenient than ever before. Nonetheless, you’ll need to complete the following steps;

  • Check your proposed business name against trademark filings in the US Patent and Trademark Office.
  • Establish a detailed description of the business.
  • Register for your Federal Tax ID or Employer Identification Number so that you can work and employ a team.
  • Satisfy any state insurance requirements.
  • Set up a retail checking account for the business.

This part of the process will impact everything from your level of legal protection to the process of receiving funding. It will also determine the way the income will be taxed. With this in mind, it is often advised to use an accountant or financial advisor to handle this part of the process, especially if it’s your first venture.

Step 5: Develop Your Brand Personality

There are almost two billion websites online, and many of them are from competing retailers. If you want your retail store website to stand out from the crowd, you must develop a winning brand personality that resonates with your audience. Again, knowing your niche will be essential.

It takes an average of seven touchpoints to create brand awareness, and prospective leads and clients will form opinions based on several factors. So, you must look to perfect the following:

  • The brand’s visual elements including the logo, color schemes, website design, and more.
  • The layout of a store. When opening a storefront, you must also focus on the signage and window displays. Likewise, your website must have the right landing page.
  • Your mission and vision statement will define what you are and how you want to serve your community. Two-thirds of customers want to use brands that share their views. 
  • Your brand story. It should present the people behind the company earnestly and be something people can relate to.
  • Brand positioning: formal versus informal, budget-friendly versus premium products, etc.

A well-defined brand will help you select the right products, target the best audience for your niche, and perform more consistently.

Step 6: Gain a Business License For Retail

Obtaining the appropriate business licenses for your shop or retail store website might not be the most exciting aspect of launching your company. Still, it is one of the most significant steps you will have to undertake. It will ensure compliance and help you avoid penalties ranging from fines to enforced closure.

To make your business compliant even before opening its doors, you must ensure that you:

  • Get a sales permit from the state, allowing it to actively sell products and collect sales taxes
  • Gain an online retail license (if applicable) that reflects the type of products you are planning to sell
  • Secure product-specific permits (if applicable) for items like alcohol
  • Acquire any local government-issued sign permits and certificates of occupancy for your brick-and-mortar store
  • Secure any appropriate exporting licenses if you plan on having your eCommerce retail business selling internationally.

You will also need to consider issues like COVID-19 mandates and health and safety signage. While primarily thought of as an issue for physical stores, online retail companies may still need to take note for the sake of their workers.

At this stage, it will be worth finding the right business insurance too.

Step 7: Assemble A Winning Team

New retail businesses are unlikely to have an HR team, especially when it’s a home-based online retail business. But that doesn’t change the fact that assembling a great team is one of the most important tasks you’ll face.

There is a long list of workers you may need, from factory workers to shop floor assistants. When starting a retail business, this is one area where you will have plenty of options to consider. You can:

  • Hire permanent on-site workers like store salespersons and office workers
  • Utilize remote workers 
  • Partner with courier services and order fulfillment teams, as well as IT and cybersecurity experts
  • Utilize the gig economy to find short-term contractors for issues like graphic design
  • Use work placement schemes and internships to manage your staffing budget.

Not all of your employees will be needed right away. Even so, it’s essential to plan ahead so that your retail business keeps running smoothly. Otherwise, you could hit numerous setbacks along the way.

Step 8: Know Your Products

Finding the right inventory for a retail startup can be tricky. Whether it’s a greenhouse retail business or a food venture, you need to prioritize top-shelf goods to make a dent in the market. Ultimately, you will achieve nothing if the product quality isn’t up to scratch. Returning customers spend 33% more than first-time visitors. Giving them a reason to return is vital, and products are the answer.

There are various options at your disposal. If looking at how to start a fashion retail business, for example, you may wish to;

  • Design and manufacture the products in-house
  • Take your designs and outsource the manufacturing to another company
  • Consider selling existing garments as a reseller
  • Dropship or look to affiliate marketing 
  • Create a combination of two or more of the methods given above.

Whether it’s fashion or not, you need to focus on quality and be able to provide a wide range of options for consumers. Don’t forget about product personalization, though. 93% of B2B professionals believe it has a significant effect on revenue growth, so it’s definitely worth considering. If using outside vendors, be sure that they are trustworthy and will represent your brand well.

Step 9: Develop Your Physical & Online Stores

When starting a merchandising business, you have to create the right store to attract traffic. For a brick-and-mortar store, you’ll need to find a location where foot traffic is viable without spending a fortune.

It’s important that your retail store website ticks a number of boxes. You need to:

  • Check that your web host offers excellent uptime. Nearly 90% of consumers won’t return to a site that delivers a poor user experience.
  • Make the website visible. Search engines are the number one source of online traffic, especially from consumers prepared to do some shopping.
  • The website uses a suitable CMS and has a layout with clear navigation to product pages.
  • Utilize several landing pages. Creating 30 or more can bring as many as seven times more leads.
  • Support your website with social media marketing and PPC.

In short, your online store is a storefront and shop floor at the same time. If you do not make the right design and marketing choices, even the best products will fail to convert leads to sales. Conversely, an attractive-looking store that’s easy to navigate keeps users interested for longer, translating to more revenue.

Step 10: Consider Third-Party Selling

Even with a strong marketing strategy, it will be difficult to get people to find your store at first. Therefore, you may want to consider starting an Amazon retail store too. Around half of all US eCommerce goes through the platform. You’ll still be competing against other companies, but displaying your goods in the largest shopping window around will give you a better shot at success.

You may find that consumers buy from Amazon at first because they trust it more than a newly opened store. Give them time, though. Here are some things you can do to draw potential prospects in faster:

  • Ensure that all product images make a big impression
  • Focus on creating backend search terms
  • Utilize your product descriptions to tell your brand story.
  • Look for social media integrations and social influencer marketing. 

Other popular options include Etsy, eBay, and Walmart. However, the right choice will depend largely on the type of products you sell.

Step 11: Find The Right Retail POS

If you want your in-house retail store website or physical store to perform well, you’ll need to use a variety of tactics. Partnering with another local non-competing business or playing an active role in the local retailer community will help greatly. You should also consider your retail POS system carefully.

Omnichannel integration works great for retailers in both eCommerce and offline ventures. Here are some other factors that you’ll want to consider at this stage:

  • Online consumers want multiple payment options. You never want to lose a sale because someone is unable to make a payment.
  • eCommerce sites that offer repayment models will open their doors to bigger client bases due to the added flexibility they provide, but this could easily be a trap if your finances aren’t solid.
  • Mobile POS terminal payments have become increasingly common, especially with local retail businesses.
  • You will need a quality retail POS system to boost consumer satisfaction and sales.
  • POS terminals can now integrate with customer care, order fulfillment, and other features to deliver a better UX.

Even as a new retailer, you must look to set high standards right away. It is the only way to win new customers and set the foundation of a long-lasting relationship that will see them spending big on your brand in the years to come.

Step 12: Make an Advertising Push Before Opening Your Doors 

At this stage, you are finally almost ready to open your doors and start selling products. A good local advertising campaign for a brick-and-mortar store will go a long way towards generating hype for your products. The same goes for your online store, which you’ll need to advertise well on social networks and in the relevant forums and chat groups. At this stage, you should know your target audience well and can make the most impactful advertising campaign.

Final Words

Thousands of entrepreneurs will start an eCommerce retail business this year, while many more will open brick-and-mortar stores. While some will be destined for failure, those who take all the necessary steps to prepare properly and enter their niche with the right attitude will see their retail business thrive and generate profits quickly.


Consumers are far more interested in quality products, customer experience, brand authenticity, and corporate responsibility than the brand's size. Find the right audience and meet their needs well, and success should follow.

FAQ
How can I open a retail store with no money?

Home-based online retail business ventures remove the costs of renting premises. Meanwhile, you can look to free online website builders and eCommerce strategies like dropshipping or affiliate marketing to save even more funds. Some money is needed for registering the firm and hosting your site, but you can save these funds in no time.

Is retail business profitable?

Successful ones certainly are. Research shows that brick-and-mortar stores can expect to make around 4% profits while online shops see 6% returns. While this may be smaller than some industries, companies that perform well will see far larger profits. Better still, unlike many business ideas, retailers can see those profits as early as year one.

How long does it take to open a retail store?

Timescales will vary from one business to the next.  You’ll have to consider issues such as what stage of planning you are in and whether it is a full-time venture or a side hustle. On average, though, a new business owner can expect to open a brick-and-mortar store in around six months or an eCommerce retail store within a few weeks.

Is starting a retail business hard?

If you’re looking at how to start a retail business, the good news is that officially registering an entity and launching an eCommerce store is now more affordable and accessible than ever. The real challenge comes from sourcing and marketing the right products to the right people. Traditional brick-and-mortar stores will need a longer preparation and will cost far more to get started, but it’s still a worthy consideration, especially if you have premises you could use for your business operations.

About the author

Ivan is an energetic ambivert with a passion for creative writing, music, languages and technology. He loves writing about small businesses and startups, and is on a constant mission to help you make the most informed choices about the various aspects of running your own business. In his free time, he enjoys playing and listening to music, biking, cooking, reading novels and playing video games.

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This is because people are more likely to get frustrated with a voice-activated assistant if they have to keep asking for clarification on product descriptions. Conventional Payment Options Will Take a Back Seat As the world becomes more digital, we expect to see a shift from traditional payment methods to newer, more secure methods such as mobile payments and cryptocurrencies. Unlike recent B2B eCommerce trends, this one will have a more profound and lasting impact on the way businesses interact with customers.  With a variety of ways to pay for goods and services online, customers will have more choice and flexibility when it comes to how they make purchases. We expect mobile payments to become more popular as people become more comfortable using their smartphones to make transactions. Contactless payments have become common during the pandemic, and established players such as Apple Pay, Google Pay, and Samsung Pay are likely to benefit from this trend. Cryptocurrency is another payment method that is gaining popularity, particularly among younger generations. Bitcoin payments, one of the major new trends in eCommerce shopping, have been on the rise lately. As more people become aware of cryptocurrency and how to use it, eCommerce customers will have more options when it comes to how they make payments. Headless and API-Driven Commerce is Gaining Momentum Headless commerce is an architecture that decouples the back-end systems from the front-end. This allows businesses to build their eCommerce store using any programming language and framework they want. API-driven commerce is a similar concept, but it takes things one step further by allowing businesses to connect their eCommerce store to any third-party service using APIs, a type of software that allows two applications to communicate with each other. This eCommerce industry trend is gaining momentum because it gives businesses more flexibility and control over their stores. Companies can also get the advantage of the incorporated SEO, content marketing tools, and digital experience features. Finally, back-end developers and front-end developers can work independently of each other, which speeds up the development process. Product Videos Will Become More Popular As broadband speeds continue to increase and more people watch videos on their smartphones, customer engagement through product videos will continue to grow. Short video content is a great way to show off your products in a way that is more engaging than traditional product photos. They are also a great way to showcase how your products can be used in real-world scenarios directly from your eCommerce store. Unlike photos or descriptions, video content can quickly grab a viewer’s attention and give them an idea of what your product is all about. If you want to stay ahead of the curve, you need to start thinking about how you can use video content to showcase your products or services effectively. Conversion Strategies Will Focus on Building Trust In order to convert leads into customers, businesses need to focus on building trust. Multi-channel selling, Facebook advertising, and Instagram marketing are great ways to convert leads into customers, provided you focus on building trust with your target audience.  As recent online sales trends indicate, consumers are more and more skeptical of advertising and are looking for brands they can have confidence in. This can be achieved in a number of ways, such as by displaying customer testimonials and reviews, social proof, and security seals. Another way to build trust is to offer a money-back guarantee or free shipping. This shows that you are confident in your product and that you are willing to stand behind it. Finally, focusing on transparency (e.g., disclosing your business practices, the manufacturing process, etc.) and building a strong social media presence can also help any business in the eCommerce industry build trust with potential customers. Big Data is a Game Changer Big data is a term used to describe the large volume of data that businesses now have access to. This data can come from a variety of sources, such as social media, website analytics, CRM systems, and more. Big data can be used to improve the customer experience in a number of ways, such as by personalizing the experience, identifying customer pain points, and improving customer service. We've all experienced seeing suggestions on shopping platforms or search engines, and most of us have found them to be pretty accurate. The more data a company has, the better it can cater to its customer's needs, and this will become increasingly important in future eCommerce trends. However, big data carries big challenges as customers are more and more concerned about data privacy. So, businesses need to make sure they are handling customer data responsibly and transparently if they want to keep using it to boost profits. Mobile Commerce Will Continue To Grow Mobile commerce is expected to continue growing in the coming years. According to statistics, mobile devices are used for over 40% of online transactions, their rising popularity indicates that this is one of the trends in online shopping that’s here to stay. Mobile commerce offers a number of advantages for businesses, such as increased reach, shorter buying cycles, and improved conversion rates. It also offers many advantages for customers, including the ability to shop anywhere at any time. If you want to stay ahead of the competition, it’s important to make sure your eCommerce platform is mobile-friendly. This means having a responsive design that looks good on all devices, as well as providing a smooth and easy-to-use mobile shopping experience. Omnichannel Selling Will Become the Norm Omnichannel selling is a term used to describe the practice of selling products through multiple channels, such as brick-and-mortar stores, online stores, mobile apps, and more. This eCommerce trend and approach allows businesses to reach more potential customers and provides a more seamless shopping experience. In the past, businesses have often treated each selling channel as a separate entity. However, this is changing as more and more businesses are adopting an omnichannel approach. This shift is driven by the increasing popularity of online shopping and the need for businesses to provide a more cohesive customer experience. As omnichannel selling becomes more common, it’s important for businesses to make sure they’re building eCommerce websites that can support it. This means having a platform that is integrated with all of your other selling channels and that provides a consistent experience for customers regardless of how they shop.  Environmental Sustainability Will Play a Big Role As we become more and more aware of the impact our consumption has on the environment, sustainability is becoming an important factor in purchasing decisions. Customers that follow new online shopping trends want to know if the products they’re buying have been ethically sourced and if the company they are buying from is taking steps to reduce its carbon footprint. In order to stay ahead of the competition, businesses need to make sure they’re considering environmental sustainability in all aspects of their operations. This includes everything from the sourcing of materials to the packaging and shipping of products. Customers are now more willing to pay extra for sustainable products, so there is a big opportunity for businesses that are able to meet this demand. How To Make the Best Use of ECommerce Trends ECommerce is constantly evolving, and it can be difficult to keep up. However, by staying informed and making sure your eCommerce platform is up to date, you can ensure that your business is able to stay ahead of the competition. To make the most of the latest eCommerce developments, consider the following: 1. Keep Up With the Latest Trends To stay on top of your game, you must be proactive and regularly seek out new information. There is a number of ways to do this, such as reading industry news, following relevant blogs and industry influencers, and attending eCommerce conferences. You can get to know what’s going on in the industry and find inspiration for your own business.  Read up on the research data and statistics that are available on eCommerce growth trends. This can help you understand the current landscape and make informed decisions about where to focus your efforts.  2. Take Advantage of Digital Tools There are a number of digital tools that can help you improve your eCommerce business. From marketing automation software to customer relationship management systems, there’s a variety of features that can make it easier to run your business and provide a better experience for your customers. Check the data and sales figures, and invest in analytical tools so you can understand where your customers are coming from and what they are looking for. 3. Learn From Your Competitors It’s important to keep an eye on your competitors to see what they are doing and how they are reacting to the latest eCommerce retail trends. You can learn a lot from observing their strategies and understanding their strengths and weaknesses. Should they fail, you can learn from their mistakes. If they succeed, you can try to replicate their success. Final Words As the global eCommerce ecosystem continues to grow and evolve, it's important to stay on top of the latest trends. Instead of leaning on traditional shopping methods, more and more consumers are turning to the internet to purchase items. Mobile phones play a big role here, as they provide a convenient way to shop on the go. What's more, consumers are getting more comfortable with new technologies such as AI, AR, chatbots, and voice search. These eCommerce trends in technology are changing the way we interact with eCommerce platforms and retailers. With all that said, we're confident that you now have a solid understanding of the current eCommerce landscape. Just remember to keep your eyes peeled for new trends so you can stay ahead of the curve.
By Danica Djokic · September 15,2022
As a business owner, you are likely responsible for overseeing all aspects of your company’s operations. This includes setting your own salary. This decision can be difficult to make, especially if you’re not sure what’s standard or how to determine what’s appropriate for your situation. In this article, we’ll discuss some factors you should consider when deciding how much to pay yourself as a small business owner. What To Consider When Setting Your Salary Setting your own salary can be daunting, especially if you’re a freelancer or small-business owner. After all, you need to make enough money to cover your expenses and earn a profit, but you don’t want to price yourself out of the market. So, what factors should you consider when paying yourself from your business? Business Structure One of the first things you should consider is your company’s business structure. Are you a sole proprietor? Do you have a business partner? Are you an S corp? Your company’s business structure will affect how much money you take home and how much in taxes you need to pay. For example, if you’re a sole proprietor, you’ll likely take home less money than if you’re running a corporation because you’ll be paying taxes on both your business income and personal income. On the other hand, if you’re running a corporation, you’ll only be taxed for your corporate income. This means that more of your business profits will stay within the company, which can be reinvested or distributed to shareholders. Business Expenses Another factor to consider when paying yourself as a small business owner is your business expenses. How much does it cost to run your small business? You should consider expenses like rent, utilities, payroll, and marketing. You’ll need to make enough money to cover these costs, plus your personal living expenses. One common mistake small business owners make is not accounting for all of their business-related expenses. Make sure you have a clear understanding of all the costs associated with running your business before you start setting your salary. Personal Living Expenses In addition to business-related expenses, you also need to account for your personal expenses, such as housing, food, transportation, and health care. Again, one common mistake people make is not accounting for all their personal expenses when calculating the business owner’s salary. Industry Standards Another factor to consider is industry standards. What do other businesses in your industry pay their employees? This will help you determine a reasonable salary for yourself as the business owner. Of course, you don’t want to undervalue your services.  Ultimately, setting your salary comes down to determining what you need to earn to cover your costs and make a profit and then finding the right balance between pricing yourself too high and too low. By taking the time to consider all the relevant factors, you can ensure that you set a fair and competitive price for your services. How to Calculate Your Owner’s Pay You should consider a few balance sheet items when calculating your salary as a small-business owner. These include your monthly net income, all business-related taxes and fees, and business expenses.  According to some small business revenue statistics, 86.3% of small business owners earn less than $100,000 a year. However, this does not mean you must stay within this bracket. Below are some steps you can take to get a clear picture of a small business owner’s salary and how to calculate it yourself. Calculate Your Monthly Net Income Your monthly net income is the total revenue your business brings in minus any taxes or fees. This number can fluctuate from month to month, so it’s important to take an average over a period of time to get an accurate number.  Next, you’ll need to subtract all business-related taxes and fees. This includes income taxes, self-employment tax, and any other business-related expenses. Once you have your monthly net income minus taxes and fees, you’ll be left with your profit.  Calculate Your Tax Savings The next step in calculating owner pay is determining your tax savings. This includes any deductions you can take for business expenses, home office expenses, and health insurance premiums. You can consult with a tax professional or use a tax calculator to get an accurate number. Once you have your tax savings figured out, you can add this amount to your monthly net income to get your total monthly compensation. Calculate Your Business Expenses The final thing you’ll need to consider when setting your salary is your business expenses, including office rent, utilities, supplies, and employee salaries. Once you know how much it costs to run your business each month, it will be easier to calculate how much to pay yourself as a small business owner. One mistake many small business owners make is not accounting for their salary when calculating their business expenses. This can lead to severe financial problems down the road, so be sure to include yourself in the equation. By following these steps, you should be able to come up with fair and reasonable compensation for yourself as a small business owner. Remember to avoid common mistakes, and you’ll be on your way to success.  Ways To Pay Yourself As a business owner, you have two options: Either pay yourself a salary or take distributions from your small business. Here are the pros and cons of an owner’s draw vs. a salary.  Paying Yourself a Regular Salary To pay yourself a regular wage, just like you would an employee, you’ll need to set up payroll for your business and withhold taxes from your paycheck. One advantage of this method is that it can help you separate your personal and business expenses and make it easier to track your business expenses come tax time. The downside of drawing a salary is that it’s subject to payroll taxes, which can eat into your earnings. Additionally, if you have a slow month or two, you may find yourself struggling to cover your personal expenses if you’re relying solely on your business income. An Owner’s Draw If you are self-employed and paying yourself a salary, an owner’s draw is another method you can use. This method is often used by small business owners with irregular or variable income. With an owner’s draw, you simply draw money out of your business bank account as needed to cover your personal expenses. One advantage of this method is that you don’t have to worry about payroll taxes. Additionally, it can give you more flexibility regarding how much money you take out of your business each month. However, one downside is that it can be challenging to track your small business expenses come tax time. So, which method is right for you? How to pay yourself as a sole proprietor? Ultimately, it depends on your circumstances and the needs of your business. If you have a stable and predictable income, having a regular salary may be the best option. However, if your income is variable or unpredictable, an owner’s draw may be a better option. Final Thoughts Paying yourself as a business owner can be a tricky task. And there’s no universal rule on how much business owners should pay themselves. However, by following some simple guidelines, you can ensure that you are fairly compensated for your work without putting your business finances at risk.  What’s most important is to find a method that works for you and your business. And, of course, to avoid any common pitfalls.
By Nikolina Cveticanin · September 14,2022

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