Learning how to pay yourself as a photographer isn’t always simple. There are different ways depending on how you file for taxes, different techniques, different methods, and just different amounts that you can pay as well. So let’s dive in!

How to pay yourself as a photographer

In this post, I chatted with Danielle Hayden, who is a financial expert and works with tons of photographers. And today we’re covering ways that you can pay yourself, how much and how to analyze your profit and loss for each month, and how to analyze those to make business decisions. 

I think it’s a good conversation to have because it’s one of those things, it might not come natural to everybody, and it might be one of those things where, yeah, I got really excited to start a photography business or just to start whatever business I wanted. I didn’t really think about the financial side of things and I didn’t really think about getting that organized first before all the fun creative things that I wanted to do. So I think that this is going to be a really good topic to talk about!

How much to pay yourself

You are never too small or too big. I think as new entrepreneurs or as creatives, we tend to tell ourselves a story like, oh, I don’t need to do that. That’s for the big companies, or I’m just not a money person, or I’m not good with finances. I’m not a money person. I’m a creative. And so we use these stories to let ourselves off the hook. And so I just want us to reframe those stories. The minute you file an LLC, the minute you start taking money from your clients and signing up with vendors, you are a business owner. 

You have a responsibility to manage your money, to know your numbers, to pay taxes at the end of the year and to pay yourself. And we have to do that in a correct way. So turn off the stories. Let’s reframe your mindset. We have to get you paid. We have to take this serious because yes, you can be a creative and get paid too.

When to get started

I have seen people say, when should I file for an LLC? When should I start paying myself? When should I file for taxes and all those things? And it’s never day one. The second that you start, you need to start that right off the bat. And I do see some poor business advice going that direction. So I am a big fan and a big believer of like, let’s just kick things off correctly. Let’s start off on the right foot!

We can do things better moving forward. And one thing that I think is a reframe for creatives is to know that the money coming into your business, it’s not all your money, it’s your business’s money. And so it’s really important that we separate our business and our personal finances. So every single person listening, you should have a separate personal checking account and a business checking account, personal savings, personal credit card, business savings, business credit card. And that’s why it’s so important to get you paid because your business finances are going to be paid from that business checking account. 

And then when it’s time to pay your mortgage, your rent, your kids’ daycare, whatever it might be, we have to transfer that money from your business to your personal account. We can’t pay personal expenses from our business. I think there’s a story we tell ourselves, it’s all my money. What difference does it make? The IRS says, it’s a huge difference. The IRS would stay otherwise!

Tools for money management

Financial statements is a tool everyone should utilize. They are these really amazing useful tools that when we can put them into practice in our business, they don’t have to be scary. They’re not your business’s report card. It’s a business tool that you can use to make business decisions. When we think of financial statements, we kind of think of this, I call it the report card effect. Growing up, we all got a report card every quarter and it literally told you if you passed or failed, if you were going to be held back or not in my house if you were going to be grounded or not.

So the report card wasn’t this exciting thing. And so a lot of times as business owners, when we get our financial statements, we’re waiting for this report card to validate our story of, see, you were never good enough. You never should have started this business. Nobody’s saying that, and that’s not what it means. But we’re so hard on ourselves that we use the financial statements as another way of shaming ourselves. 

And the financial statements are this beautiful tool to be able to learn from your business, to be able to learn from your numbers so that you can figure out what you should do more of, what you should do, less of what you should stop doing. And so I really want every single business owner, no matter what size you’re at first, our business and personal is separate. Then you have accounting software that is keeping track of all of your business expenses.

We use QuickBooks online at our firm, so we have every single one of our clients on QuickBooks online. And then preferably since you’re a creative and not an accountant, you should not be doing your own bookkeeping. Your bookkeeper should be doing all of the bookkeeping for you so that everything is accurate and correct, and then sending you your financial statements at the end of each month. So now the tool is to look at my income statement and be able to, with curiosity to be excited to say, wow, I created a profit this month. What worked? How cool is it to be curious? And if you lost money, okay, I can understand what happened so I don’t do it again. 

Calculating how to pay yourself

So there is a simple calculation. First, I want to give a caveat that it depends on how you are filing your taxes. So if you are filing your taxes, so this means that you are an LLC, but filing as an S corp, this changes the way that you pay yourself. So if you are an S corp, just know that you are a business expense to your business because you are an employee. The minute you become an S-corp, you now go on payroll and you’re a  business expense to your business and you have to pay yourself a reasonable salary. It’s actually kind of a relief when you become an S-corp because we have this really cool calculator that we use at our firm to calculate your reasonable compensation. And it takes into consideration where you live, how much you make the industry that you’re in, and it spits out the exact number you need in order to be able to pay yourself.

And the idea is that you are paying yourself similar to what you would need to pay somebody else to do your job. So to do this on your own, you could go to salary.com or any of those payroll type companies to see what would you have to pay somebody else to do your job in your business. So if you’re an S corp, it’s a little different than an LLC. So as an LLC, you are not an employee of your business, so you’re not on payroll, and the IRS really couldn’t care less how much you take. So as an LLC, you have a ton of freedom. Every time you pay yourself, I call it going up to the cash ATM of your business account, you’re just literally going up to the ATM. You take out as much money as you want. You are not paying taxes on those owner’s draws.

The only thing you pay taxes on is the net income on your income statement. That’s it. So you can take out as much money as you want. However, this is also the number one area where we see clients. They’re like, you keep telling me I’m profitable, but I have no money. Where did the cash go? And I’m like, into your personal account. You’re not seeing it because you already took it. So just know that it’s not a business expense. It doesn’t lower your tax liability, you’re transferring that money to your personal checking account. 

But here is where people are like, okay, but how much cash do I take from my business? I think that there’s a simple calculation that if you want to be able to automate it, I just want to take the same amount every month. Take your average monthly sales minus your average monthly operating expenses, minus your average monthly debt payments.

This is the net cash amount you bring into your business on average each month. And that way you can automate that salary amount that you’re going to draw from your business into your personal account. So that average number, if you are not looking at your financial statements every month, that’s like a good average, right? So just average sales minus average operating expenses, minus average debt payments, you’re just going to take the net amount out of your business each month. I hope when they’re done reading this, you are receiving your financial statements from your bookkeeper each month, that you are at a totally next level as a business owner. So when you start looking at your numbers every month, seriously, you’re being set up for so much success. You are next level when you do that, when you look at that income statement, you can see every single month how much you had in a profit.

Knowing your income

How cool is that? You know exactly how much money you can take out of your business. So you’ll go down your income statement, it’s the last number on the very bottom of the income statement. That’s how much you made as a profit that month, and that’s how much money you can take. Now, you’ll want to leave cash in there if you’re saving for a rainy day fund, saving for taxes, maybe a big investment or some equipment coming up. You’ll want to leave some money in there for savings. But once you’ve built your nest egg of savings, you can take all that cash. You just have to have your income statement available.

Saving for taxes

You’ll always want to save about 25% of your net income for taxes. So when we send our clients their financial statements at the end of each month via their snapshot, we always calculate that number for them so that they know how much to save. You can do that your own by taking that net income, multiply that by 25%. You want to make sure you’re doing net income year to date, not just for the month. 

You might’ve had an awesome February and an awful March. We need to even that out. So I don’t want you over saving some of the other profit first. Other methods are really confusing. They may have you save money every single month, and a lot of our clients who do this and are not looking at it year to date, you can end up over saved and if you end up over saving and not under, that’s fine. 

However, I like to use my money throughout the year. So if I’m over saving for taxes, that means I’m not buying that piece of equipment that I want or signing up for a mastermind that I want. So I like to only save what I need. So again, you’ll just take 25% of that net income to save for your taxes, and then you can take the rest as withdraws.

How often to pay yourself

It really depends on you and your cash management style. This does depend on you and how often you like to pay bills, what your management is like throughout the month. If you’re somebody who as soon as you get the money, you want to use it, then you might want to do weekly so that you have that stream of cash. We find that our free spenders, they’re people who don’t look at the balances before they spend. And so if you’re a free spender, it might be wise for you to do a weekly transfer so you’re not overspending. 

If you’re somebody who loves to save, then I would do more monthly so that you can see that money accumulating in your business account and then transfer that money. It’ll also depend on how you’re billing your clients and what that cashflow looks like in your business.

For me, I like small amounts over time. So for me, it’s easiest to set up an automatic weekly transfer that I add up at the end of the month. So I just have a small automatic transfer throughout the month. At the end of the month when my clients receive their financial statements, they can compare their income, like their profit versus how much they already transferred to their personal account and compare the two. 

You can always transfer it back to the business or you can cut back on your transfers the next month. So it’s fluid, and that’s why I always suggest people work with a money team and ask them to do this for you. Running a business is hard, right? It is hard. So we don’t have to be good at everything. Hang up your superhero cape!

How to approach fluctuations

It depends on what season of your business you’re in. If you are an established business, you have a few years worth of history under your belt where you know that you have a seasonality and you can start to predict your seasonality. So most of us, depending on where we live, we start to know when our slower seasons are going to be and we can plan a little bit more efficiently for those slow seasons. 

And so during the months that things are going really well and we’re taking out higher draws and we are enjoying those profits that we’re saving enough to be able to weather those downstreams. So I like for every single one of our clients to have three months worth of not just operating expenses, but operating expenses and debt payments saved in a rainy day fund. So I always want people to have three checking accounts, their operating account, their tax savings account, and a rainy day fund. And the rainy day fund helps you as a business owner be able to plan for those down seasons.

Understand that your business is going to have those seasonalities. And when we can embrace that type of mindset and we just learn from it, find that peace and calm and knowing our numbers,

Final piece of advice

You don’t have to do it alone. And I mean this for any area of your business. Obviously at Kickstart we help our clients with bookkeeping and tax services, but maybe it’s some other pain point in your business. One of the first things I did was hire a team because I knew there was things that were just not my zone of genius.

I know that hiring can be really heavy and hard, especially as a creative, and so be patient with yourself, but give yourself the grace to be able to find help in your business. I want every single listener to be able to create a healthy, sustainable, profitable business. And we can’t do that if we’re burning both ends of the candlestick.

Find more from Danielle Hayden here on her website. And be sure to check out more Gold Biz Podcast episodes!

Photography Business Coach

What up, I’m Rach!

Your Photography Business Coach (but my students just call me their magic inquiry fairy) because I seem to sprinkle the inquiry dust and they get magically get inquiries after our coaching calls

My teaching approach focuses on customization—using proven methods tailored specifically to your business, so we can truly customize your learning experience together and break free from the cookie-cutter techniques everyone else is using

Here’s my golden rule: help you radiate in your own realm of expertise 

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