Owner draw

Definition

Taking cash out of the business as an owner, outside of any payroll.

Why It Matters

Which way you pay yourself is set by the entity and the loan, not by preference. A draw moves cash without payroll taxes withheld, which is normal for a sole proprietorship or partnership share and wrong for an S corporation owner-operator, who the IRS expects on a reasonable salary first. After an SBA acquisition there is a third constraint: distributions beyond your salary typically need the loan agreement's blessing while the note is young. Decide the split with your CPA before the first month's cash feels like yours, and benchmark the salary line against what a hired manager would cost.

In numbers: An S corp owner taking $120k of draws on a $0 salary is a payroll-tax audit waiting; the workable shape is a $90k salary with payroll taxes paid, then distributions above it, sized to what the loan covenants allow.