04 Nov How Much Should You Pay Yourself? Owner Compensation in Pharmacies
Running an independent pharmacy comes with a long list of responsibilities, and as the owner, you wear many hats—manager, pharmacist, HR, finance, operations. But when it comes time to pay yourself, the answer isn’t always straightforward. How much should you take home? And just as importantly, how do you determine the right method for doing it?
This isn’t just a financial question—it’s a strategic one. Your compensation affects cash flow, tax planning, and the long-term stability of your business. Here are a few key considerations to help you strike the right balance.
Salary vs. Draw: What’s the Difference?
Pharmacy owners who operate as sole proprietors, partnerships, or S corporations often pay themselves through owner’s draws or shareholder distributions, rather than formal salaries. In contrast, C corporation owners are typically required to take a salary subject to payroll taxes.
The method you use should align with your business structure and financial goals. A draw can offer flexibility, but if taken inconsistently—or without proper documentation—it can create confusion in the books. A reasonable salary, on the other hand, creates predictable cash flow but may trigger higher payroll tax obligations.
What’s Considered “Reasonable Compensation”?
For tax and compliance purposes, the IRS expects business owners—especially those operating as S corporations—to pay themselves a “reasonable” wage for the work they perform. But what does “reasonable” mean?
It depends on several factors, including:
- The size and profitability of your pharmacy
- Industry benchmarks for similar roles
- The number of hours you work
- The value of the services you provide
Overpaying yourself can strain the business and limit reinvestment, while underpaying may raise red flags with the IRS or mask the true profitability of the business.
Owner Compensation and Financial Visibility
How you pay yourself can also affect how you view the financial health of your pharmacy. If draws are sporadic or not clearly recorded, it can be difficult to track how much you’re truly earning—and how much the business can afford to pay. That, in turn, can impact everything from cash flow planning to succession strategy.
Establishing a consistent, well-documented approach to compensation provides more than just clarity—it helps you plan for taxes, prepare for growth, and set realistic financial expectations.
Finding the Right Balance
There’s no one-size-fits-all answer to owner compensation. The right approach depends on your pharmacy’s structure, financial performance, and long-term goals. That’s where an experienced advisor can provide real value.
At Blackman & Sloop, we help independent pharmacy owners gain clarity around compensation strategies by looking at the full picture—your financials, your goals, your tax obligations, and your cash flow. Whether you’re unsure how much you can afford to take home or you want to reevaluate your compensation structure as your business evolves, our team can help you make confident, informed decisions that support both your personal and professional success.