One of the questions I hear most often from handmade business owners is:
“When do I finally get to pay myself?”
In bookkeeping terms, the money you take out of your business to pay yourself is called an owner’s draw.
And if you’ve ever felt unsure about when it’s okay to take money out of your business, you’re not alone. This is one of the most misunderstood parts of running a small business.
Once you understand how owner’s draws work, the bookkeeping side of paying yourself becomes surprisingly straightforward.
Let’s walk through what an owner’s draw actually is and how it gets recorded in your bookkeeping.
In This Post
If you want to jump to a specific section, here’s what we’ll cover:
What Is an Owner’s Draw (How Small Business Owners Pay Themselves):
An owner’s draw is simply money you take out of your business for personal use.
It’s not a salary and it’s not a business expense. It’s just the owner taking money out of the business.
In practical terms, an owner’s draw is:
- money you transfer from your business account to your personal account
- NOT a business expense, so it should not show up on your Profit & Loss Report
- part of your Owners Equity, so it shows up on your Balance Sheet
Because of that, owner’s draws are tracked differently from normal business expenses in your bookkeeping.
Why Most Handmade Business Owners Don’t Take a Paycheck or a Salary
Most handmade business owners operate as sole proprietors or single-member LLCs.
If that’s your situation, you typically don’t pay yourself through payroll like an employee.
Instead, you pay yourself by taking an owner’s draw — transferring money from your business account to your personal account.
That’s simply how the IRS treats income for these types of businesses. The business profit is considered the owner’s income, so when you take money out, it isn’t recorded as wages or a business expense.
(Things work differently if your business is taxed as an S-Corp or C-Corp, but that’s a different structure than most handmade businesses start with.)
The Part That Trips People Up
Here’s the part that causes the most confusion:
An owner’s draw does not affect profit.
Profit is calculated first.
Sales
– Cost of Goods Sold
— Expenses
= Profit
Only after profit is calculated can you decide to take some of that money out of the business.
That transfer is your owner’s draw.
I see a lot of confusion around owner’s draws when I’m helping handmade business owners with their bookkeeping. Many people assume paying themselves should show up as an expense in the business, but that’s not how bookkeeping treats it when you’re a sole proprietor or single-member LLC.
Once you understand that an owner’s draw is simply money moving from the business to you, the rest of it starts to make a lot more sense.
If the difference between revenue and profit still feels a little fuzzy, this article explains it in plain English:
👉 Revenue and Profit: Don’t Get Confused Between the Two
How to Record an Owner’s Draw
Recording an owner’s draw is actually very simple.
When you decide to pay yourself:
- Transfer money from your business bank account to your personal account
- Record that transaction in your bookkeeping
- Categorize it as Owner’s Draw (Equity)
- Do not record it as a business expense
Most bookkeeping software (QuickBooks, Wave, ZohoBooks, etc.) includes an Owner’s Draw or Equity account where these transactions are recorded.
The important thing to remember is this:
The money leaves your business account, but it does not change your Profit & Loss report.
If You Track Your Bookkeeping With Spreadsheets
Many handmade business owners track their bookkeeping using spreadsheets instead of accounting software.
The bookkeeping concept is exactly the same.
When you take money out of the business to pay yourself, you record it as an Owner’s Draw, not a business expense.
What matters most is having a simple way to keep track of:
• how much money you’ve taken out of the business
• how much money you’ve put into the business
In the 10-Minute Bookkeeper Spreadsheet System, owner’s draws and contributions can be tracked so you can see both the monthly totals and the running total for the year.
Where Owner’s Draw Shows Up in Your Financial Reports
Because an owner’s draw isn’t a business expense, you won’t see it on your Profit & Loss report.
Instead, it appears in the Equity section of your Balance Sheet (if you’re using software).
This is where you can see the bigger picture of the business, including:
• how much money you’ve put into the business
• how much money you’ve taken out
• what the overall financial position of the business looks like
If the Balance Sheet still feels confusing, you might enjoy this article:
👉 5 Things Your Balance Sheet Would Tell You If It Could Talk
How Much Should You Pay Yourself From Your Handmade Business?
Understanding how to record an owner’s draw is one thing.
Figuring out how much you should actually pay yourself is a different question.
A good place to start is deciding what you’d eventually like your business to pay you.
From there, you can work backward to understand what your products need to earn in order to support that income.
The Fair Wage Calculator walks you through that process and helps you estimate the hourly wage your business would need to support.
Common Questions About Owner’s Draw
Technically yes – as long as you have the funds in your business bank account. But it means you’re taking money out that the business didn’t actually earn. Over time that can weaken the financial health of the business. Ideally, owner’s draws come from profit.
Your business doesn’t pay taxes on the draw itself. Taxes are based on the profit your business makes (and reported on your Schedule C). Taxes are not based on the amount you transfer to yourself.
No. A salary goes through payroll and is then treated as a business expense. An owner’s draw is simply the owner taking money out of the business.
Yes. There aren’t any strict rules about how often you can take a draw. Many business owners take draws monthly or quarterly so it’s easier to manage the cash flow.
Owner’s Draw Basics (Quick Recap)
• It’s the money you take out of your business to pay yourself
• It is not a business expense
• It does not affect profit
• It appears in the Equity section of your Balance Sheet
Tracking owner’s draws properly helps you see the real financial picture of your business — including how much money your business is actually supporting.
And no, you’re not the only handmade business owner who had no idea this was how paying yourself actually works.
If you found this helpful and still have questions, feel free to drop them in the comments.
If you'd rather be working with yarn, fabric, paint or clay than deal with a pile of receipts or bookkeeping spreadsheets, you're in the right place.
I help you get a handle on your numbers, make sense of what's coming in and going out, and actually feel confident running your business -- without accountant-speak or guilt.
👉 Want help figuring out your bookkeeping (without overcomplicating it)? Join the free bookkeeping community.
I am a coach/educator, not your bookkeeper or CPA.This information is for educational purposes, NOT financial or tax advice.
[…] If you’re not sure how owner pay actually works in a handmade business, this post explains it simply:Owners Draw: How Handmade Business Owners Pay Themselves. […]
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Thanks Nancy, this is very interesting. not sure i totally understand, but still learning .
Hi Janis, there are a lot of things to learn that most handmade business owners aren’t told – that’s that whole “incomplete information”. Learning the bookkeeping is really no different than learning our “craft”, we start small/slow and go forward. You’ll get there 🙂