I started a business in July. It is a sole proprietorship, providing
consulting services. I have no employees, and one client. I bill in
bi-weekly invoices based on a fixed hourly rate and the number of
hours I have worked. I have received payments for those invoices,
with payments to continue as I continue to invoice. This could go on
for several years in this fashion. I am keeping records using
Quickbooks (Invoices, Payments received). The payments go into my
business checking account. There are very few expenses (insurance,
some one-time expenses for office equipment), which are already paid
off. There is positive cash in the business checking account. Now I
personally need some money - need to pay myself from the business to
my personal account - as I have not had any personal income since
before July. How do sole proprietors customarily handle this?
My question is mainly about what is customary for a sole proprietor,
no-employee, simple consulting business such as I have. Everything is
very simple in my business and I want to handle the owner?s payments
in the simplest way possible now. The final specific point is a
software question around recording the transaction in Quickbooks.
- How do I determine on the right amount to pay myself (and how much
gets left in the business account)?
- Should the pay be based on the amount of time I worked, and thus can
vary? Or be a fixed flat amount every so often? Or based on how much
cash is in the business to leave a fixed amount there after each
- How often should the payments be made? On a regular basis, or as needed?
- What happens at the end of the fiscal year (end of Dec, 2005)?
Should I transfer all profits to myself or is there a reason to keep
some in the business? If keep some in the business, how is that
- How do I create this transaction in Quickbooks? I have looked in
the Help file and see some information but it leaves a question. It
"Paying an owner or partner
Owners of sole proprietorships, as well as partners in unincorporated
partnerships, are not on the business payroll. Instead, they have
equity in the business. The equity of a business increases when the
business makes a profit.
Owners and partners can take money out of the business by drawing on
their equity. Payments to owners or partners are not business expenses
unless the person is being reimbursed for a business expense paid for
Recording an owner's draw
From the Banking menu, choose Write Checks .
Make the check out to the owner.
In the detail area of the check, assign the amount of the check to the
equity account that you use to record owner's draws.
Save the check."
My question about the above is: In Quickbooks Chart of Accounts, the
only two accounts with any value to them currently are my Business
Checking Account (payments received for invoices) and my Accounts
Receivable (waiting on payment for invoices already sent). I see an
account in the list named Owner?s Capital, and it has two
sub-accounts, Draws, and Investments. These currently have no
balance. There is also a Retained Earnings account. How do I use
these and/or other accounts to record the payments to myself?