How to Track Owner Draws in a Small Business

By Cedar & Ledger

If you run a side hustle or a small business on your own, the money you move from the business account to your personal account for yourself is often called an owner's draw. It's simple to do and easy to lose track of. A draw isn't a business expense, so if it ends up mixed in with your expenses, your profit looks smaller than it really is. This guide shows a simple way to log draws, decide how much to take, and keep them off your profit numbers.

Pine Ridge Pet Sitting and all dollar amounts below are made-up examples, not typical numbers. How owners can pay themselves, and how that's taxed, depends on how the business is set up. The IRS page Paying yourself explains the basics in general terms. This is general information, not tax or legal advice, so check with a tax professional for your situation.

Quick checklist

• ☐ Keep business money in its own account
• ☐ Decide on a draw amount and a schedule (for example, the 1st of each month)
• ☐ Set money aside for taxes before you take a draw
• ☐ Log every draw: date, amount, from, to and why
• ☐ Keep draws out of your income and expense list
• ☐ Check once a month: profit vs. draws vs. what's left in the business

Step 1: Know what a draw is (and isn't)

For a sole proprietor or a single-owner LLC taxed as a sole proprietorship, the owner generally doesn't get a paycheck from the business. Instead they take money out as draws. In general terms:

• A draw is not a business expense. It doesn't lower your profit.
• Profit is what's usually taxed for these owners, not the draws. Taking a bigger or smaller draw doesn't change the profit number.
• Other business setups work differently. For example, owners of a corporation or an LLC taxed as an S corporation usually have different rules for paying themselves. That's a question for a tax professional.

If you haven't split your money yet, Separate Business and Personal Money for a Side Hustle walks through setting up the accounts first.

Step 2: Pick an amount and a schedule

Taking money out "whenever you need it" makes it hard to tell how the business is doing. A set schedule is easier: once a month, or every two weeks, after you've looked at the numbers.

A simple order to follow each month:

1. Work out last month's profit (income minus expenses).
2. Move a share to a separate tax savings account.
3. Leave a cushion in the business account for slow months and upcoming costs.
4. Take what's left, or less, as your draw.

Step 3: Log every draw

Keep a short log with one row per draw. It can be a separate tab in your bookkeeping spreadsheet or a simple list. Here's a made-up example for the first three months of the year:

Log other transfers the same way, with a clear reason: money you put into the business to cover a cost, a reimbursement for a business cost you paid with a personal card, or a move to tax savings. None of these are income or expenses, so labeling them keeps your numbers honest.

Step 4: Keep draws off your profit numbers

Here's the made-up monthly check for Pine Ridge Pet Sitting. They set aside 25% of profit for taxes (your percentage may be different) and started the year with a $500.00 cushion in the business account.

After three months, the cushion went from $500.00 to $1,112.50 ($500.00 + $250.00 + $25.00 + $337.50). Total draws were $2,500.00, but total profit stays $4,150.00, because the draws were never counted as expenses.

February is the month to look at. Profit dropped, and the same $800.00 draw left only $25.00 in the business. That's the kind of thing the monthly check is for: next time, they might take a smaller draw in a slow month.

If you're not sure how to work out the profit number, Simple Profit and Loss Statement for a Small Business shows how to build one from categorized income and expenses.

Common mistakes

• Logging a draw as an expense. Your profit looks lower than it is, and your records won't match your real numbers.
• Paying personal bills straight from the business account. Move the money to personal first and log it as a draw.
• Taking the draw before setting aside for taxes. The tax money ends up already spent.
• Not writing down a reason for each transfer. Months later it's hard to tell a draw from a reimbursement.
• Draining the business account to $0. Leave a cushion for slow months and yearly costs.

A short weekly check-in makes all of this easier. The weekly bookkeeping routine covers a 20-minute version.

A spreadsheet for the income and expense side

The draw log above is easy to keep on its own. For the income and expense side, the Small Business Bookkeeping Spreadsheet ($12, Excel and Google Sheets) has a transactions tab with room for 1,500 entries and category dropdowns. From those rows it fills in a monthly and yearly profit and loss, a dashboard with year-to-date net profit and profit margin, and a summary of the expenses you marked deductible. It doesn't have a separate draws tab, so keep draws out of the transactions tab and log them in a tab or list of your own, as in Step 3. It doesn't connect to your bank, so you type in transactions yourself, and it tracks one business and one year per file. It's a record-keeping tool, not accounting software and not tax advice (details).

Honest note: I make this spreadsheet and sell it under Cedar & Ledger, so I'd earn from a purchase. General information only, not tax, legal, accounting or financial advice.

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Related template: read about the small business bookkeeping template

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