Calculating Your Owner's Salary: How Much You Can Pay Yourself Each Month

You've got money in your business account and every month you ask yourself the same question: how much of it can I actually pay myself? Some months you generously transfer a chunk to your personal account, other months almost nothing, because a big bill is about to come due. The result: you never know exactly what you really earn, and next year's tax bill catches you cold.

A fixed owner's salary solves this problem. It's the amount your business pays you every month, regardless of what your account balance looks like right now. In this article, we'll work out step by step how much that amount should be in your case.

What an owner's salary is – and what it isn't

Keeping profit, drawings and owner's salary apart

Three terms often get mixed up:

• Profit is what's left of your revenue after deducting all business expenses. It shows up in your profit calculation, but not necessarily in your bank account.
• Drawings (private withdrawals) are, for sole proprietors and freelancers, any amount you transfer from your business account to your personal account. They're not a business expense and don't reduce your profit.
• Owner's salary is the amount you pay yourself, as planned, for your own work. It's a notional figure: in your planning you treat it like a salary, even though for tax purposes it remains a drawing.

If you're the managing director of a GmbH (German limited company), things are a little different: your salary is a genuine business expense and runs through payroll. The logic of the calculation stays the same, though.

Why “whatever the balance allows” doesn't work

If you pay yourself based on your account balance, you're getting three things wrong at once without noticing:

1. Part of the money in the account doesn't belong to you but to the tax office (VAT, income tax) and to your future costs.
2. Good months feel better than they are, bad months feel worse. Your personal planning swings along with them.
3. You never see whether your business actually supports your work. A year can look profitable on paper and still amount to a pitiful hourly wage.

The article Profit on paper, but no cash? explains in more detail why profit and account balance often drift apart.

Calculating your owner's salary: three steps, working backwards

Many people calculate from revenue downwards. For the owner's salary, the reverse route is better: you start with what you need personally and work your way forward to the revenue you need.

Step 1: Work out your personal needs honestly

Write down all personal expenses in a normal month: rent, living costs, insurance, transport, children, hobbies, subscriptions. Don't forget the irregular items: vacation, car repairs, dentist. Scale them up to a full year and divide by twelve.

One item that's missing particularly often for the self-employed: retirement savings. Nobody pays them in for you. If you don't build them into your owner's salary, they simply don't happen. Health and long-term care insurance belong on this list too if you pay them from your personal account.

The result is your personal net requirement: the amount that has to land in your personal account after tax.

Step 2: Add tax on top

The owner's salary is a gross figure. Out of what your business pays you, you still have to cover income tax, and depending on your situation church tax and the solidarity surcharge as well. How big this share is depends on your total income, your marital status and other factors.

For planning purposes, a flat percentage is enough – you set it as an assumption and later compare it with your actual tax burden. The formula:

Owner's salary = personal net requirement ÷ (1 – tax share)

With an assumed tax share of 25%, a net requirement of €3,000 therefore results in an owner's salary of €4,000.

A note at this point: THA·ONE is a planning aid and not tax advice within the meaning of the German Tax Advisory Act (StBerG). Which tax share is realistic for you and how high your prepayments will be is something best clarified with your tax advisor.

Step 3: Check whether your business can support it

Now you flip the calculation around. To the owner's salary, add all business costs (software, insurance, bookkeeping, office, marketing) plus a reserve for investments. The total is the net revenue you have to generate per month, excluding VAT.

Divide this total by your realistically billable hours per month, and you have the hourly rate you need at minimum. If it's higher than what you charge today, you know where the problem lies: not in your discipline, but in your price or your utilization.

For this cross-check, you can use the free hourly rate calculator.

Worked example: a consultant's owner's salary

The following example is entirely fictional. All figures are assumptions and serve only to show the calculation method.

Lena is a self-employed consultant operating as a sole proprietor, lives alone in a mid-sized city and works an average of 80 billable hours per month. The rest of her working time goes on sales, bookkeeping and training.

Steps 1 and 2: From net requirement to owner's salary

Calculation: €3,150 ÷ (1 – 0.25) = €4,200.

Step 3: Can the business support this salary?

Lena currently charges €60 per hour. At 80 hours, that's €4,800 in revenue – €700 less than she needs. She hadn't noticed so far because she paid herself according to her account balance and simply skipped her retirement savings in weak months. The calculation makes it visible: either the hourly rate rises to around €69, or utilization rises to about 92 hours, or she deliberately lowers her net requirement.

Putting a fixed owner's salary into practice

One standing order instead of many individual decisions

Set up a monthly standing order from your business account to your personal account, ideally on a fixed day. From now on, your private life is decoupled from the ups and downs of the business. The tax share moves to a separate tax account on the same day; the net requirement lands in your personal account. The 3-account method describes how to organize this cleanly with three accounts.

Build a buffer before you start

A fixed salary only works if the business account can absorb fluctuations. The goal is a cushion of at least two to three monthly payouts in the business account before you activate the standing order. If the cushion isn't there yet, start with a lower salary and increase it once the buffer is in place.

Readjust once a quarter

The owner's salary isn't a number set in stone. Check every three months: has your personal requirement changed? Does the assumed tax share match your actual prepayments? Is the buffer in the business account growing or shrinking? If it keeps growing, you can treat yourself to a deliberate special withdrawal at the end of the year. If it's shrinking, the salary is too high or the price too low.

Typical mistakes with the owner's salary

Not building the owner's salary into your price. If you only account for business costs in your hourly rate, you're working for free. The owner's salary is the biggest cost block in your calculation and belongs in it as the very first line. THA·ONE's pricing tool builds the hourly rate on exactly this logic: costs including owner's salary, divided by realistic utilization.

Calculating with wishful hours instead of real hours. 160 hours a month is working time, not billable time. Sales, admin, vacation and sick days are missing from that number.

Confusing salary with revenue. €8,000 in monthly revenue sounds good. After VAT, business costs and tax reserves, only part of it remains that you can actually spend.

Treating provisions as a luxury. Retirement savings and a personal emergency fund aren't an extra you add in good months – they're a fixed part of your net requirement.

Conclusion

A fixed owner's salary isn't a question of discipline but a calculation: personal net requirement plus tax share gives you the monthly amount your business has to pay you. Whether it can do that is shown by the cross-check via business costs and billable hours. If the required hourly rate is above your current one, you have a clear task: adjust your price, utilization or requirement. If it's below, you know for the first time with certainty that your business really pays for your work.