Owner Pay and Distribution Template
Two documents and three sheets that model what the business can afford to pay its owner against what a reasonable salary requires, priced in FICA.
Free download · No account needed
Affordability Model
Cobalt Creative Studio LLC. What is actually available to pay the owner this year.
| Line | Amount |
|---|---|
| Annual revenue | $420,000 |
| Operating costs excluding owner pay | $234,000 |
| Net income before owner compensation | $186,000 |
| Target cash reserve (2 months, already funded) | $39,000 |
| Planned capital spend this year | $9,000 |
| Maximum affordable total owner pay | $177,000 |
The reserve target is already covered by the current $52,000 balance, so nothing further gets held back for it this year.
Salary versus Distribution Scenarios
| Scenario | Salary | Distribution | FICA | Meets floor? |
|---|---|---|---|---|
| A. No salary | $0 | $177,000 | $0 | No, high audit risk |
| B. Salary at the floor | $92,000 | $85,000 | $14,076 | Yes, recommended |
| C. Salary above the floor | $130,000 | $47,000 | $19,890 | Yes, but overpaid |
Scenario C costs $5,814 more in FICA than Scenario B on the same $177,000 total, for no additional protection once $92,000 already clears the floor.
Cash Impact, quarter end
| Quarter | Salary paid | Distribution paid | Ending balance | Above reserve target |
|---|---|---|---|---|
| Q1 | $23,001 | $21,250 | $45,249 | Yes |
| Q2 | $23,001 | $21,250 | $47,498 | Yes |
| Q3 | $23,001 | $21,250 | $49,747 | Yes |
| Q4 | $23,001 | $21,250 | $51,996 | Yes |
The $39,000 reserve target holds in every quarter, including the quarter that also absorbs the $9,000 equipment purchase.
Every free small business template on how much to pay yourself answers one of two questions, never both. One kind is a reasonable-compensation explainer: the standard, the factors, the audit risk of paying too little. The other is an affordability calculator: revenue minus costs equals what is left. Neither says what to do when the affordable amount and the defensible amount are two different numbers, which they almost always are.
Cobalt Creative Studio, invented for this pack, is a four-person design and branding studio taxed as an S corporation. Net income before owner pay is $186,000. After a $9,000 equipment purchase and a two-month cash reserve that its current balance already covers, $177,000 is affordable this year. Separately, the IRS requires an S corp to pay a shareholder-employee reasonable compensation for services performed before any non-wage distribution goes out. Three comparable postings put that figure at $92,000 for the owner's actual mix of design and business-development work.
The $85,000 between those numbers is where the real decision sits, and it cuts both ways. Paying no salary risks the IRS reclassifying distributions as wages, with back payroll tax and penalties. Paying $130,000 clears the floor just as well as $92,000 does, for $5,814 more in FICA. Pair this with the owner financial dashboard for the profit-after-pay figure this split feeds, and the cash flow forecast for whether the distribution schedule actually lands when the model says it will.
What's in the pack
Compensation Rationale
Ties the affordability ceiling and the reasonable-salary floor into one number for the year, and states which scenario was chosen and why.
Reasonable Salary Note
The comparable-role case for the salary figure, built from real postings and the owner's own split between personal-service work and staff-generated revenue.
Affordability Model sheet
Revenue, non-owner costs, a cash reserve target and planned capital spend, netted down to the maximum total pay the business can support.
Salary versus Distribution Scenarios sheet
Three splits of the same total, each priced by combined FICA, so underpaying and overpaying the salary floor are both a number, not a guess.
Cash Impact sheet
The chosen split's monthly salary and quarterly distribution schedule, run against the reserve target month by month rather than assumed to be fine.
How it works
- 1
Open in River, or download it
Take the blank Word and CSV files with no account, or install the pack in River and hand it your own financials and entity type to build the model.
- 2
Set the ceiling from your own numbers
Net income before your pay, minus a cash reserve target and any planned capital spend, is what the Affordability Model treats as available.
- 3
Set the floor from comparable roles
A rough estimate from a couple of job postings for your actual work is enough to start; refine it as better comparables turn up.
- 4
Price every scenario between the two by FICA
Land on the split that clears the floor at the lowest salary that does, then confirm the payment schedule against the reserve target in Cash Impact.
Frequently asked questions
Is this template free?
Yes. Two documents and three sheets download as Word and CSV files with no signup and no credit card. Edit with AI is the optional path where the agent builds the scenarios from your own numbers. The rest of the library is at the template index.
What format are the downloaded files?
Word documents (.docx) for the Compensation Rationale and Reasonable Salary Note, and CSV (.csv) for the Affordability Model, Salary versus Distribution Scenarios and Cash Impact sheets. They open natively in Word, Pages, Google Docs, Excel, Numbers and Sheets.
Does this tell me whether to be an S corp in the first place?
No. Entity selection has real tax consequences specific to your situation, and that decision belongs to your accountant. This pack starts from the entity you already have and works out the pay split inside it.
What if I can't find a good comparable salary for my role?
Start with the closest postings you can find, even if the match is rough, and note where they differ from your actual work. The Reasonable Salary Note is meant to be revisited as better comparables turn up, not finalized once.
Why does Scenario C in the worked example still count as meeting the standard?
Reasonable compensation has a floor, not a target. $130,000 clears the same $92,000 bar that $92,000 itself clears, so the extra $38,000 in salary buys no additional protection, only $5,814 more in FICA than necessary.
How often should the salary and distribution split get revisited?
Annually at minimum, and sooner if the business's affordability changes materially or the owner's role mix shifts, such as hiring someone who takes over part of what the owner used to do personally day to day.
Find the gap between what you can afford and what is defensible
Download the blank pack as Word and CSV files, or open it in River and have it build your own scenarios from your financials.
Edit with AI