Let’s clear this up first. A lot of business owners think, “I’ve got money in the account, so I can take it out.” But that’s not always true. Taking money out of your business (called drawings) does not mean you’ve made money, and it’s definitely not “free”.
So… what are drawings? Drawings are simply money you take out of your business for personal use. That’s it. They’re not income, not profit, and not a business expense. They’re just money moving from the business to you. In many cases, it’s you taking back money you’ve already put into the business.
The part most people miss is that your business can have cash in the bank and still not be making a profit. This is where people get caught out. You might have put your own money in to get started, you might have GST sitting there that needs to be paid, or you might have bills coming up. So yes, there may be money sitting in the account, but it’s not all yours to spend. A lot of that money already has a job to do.
This works a bit differently depending on how your business is set up. If you’re a sole trader, you and the business are basically the same thing. You can take drawings whenever you like, but you pay tax on profit, not on what you take out. So even if you take out more or less, your tax is based on what the business actually earned.
If you’ve got a company, your business is a separate legal entity. That means the money in the business account isn’t automatically your personal money. When you take money out, it usually gets recorded through something like a shareholder current account. If you take out more than the business owes you, it can turn into a loan from the company to you. That’s where things can get tricky if it’s not managed properly.
A lot of people say, “I thought drawings weren’t taxed?” And that’s true, the drawings themselves aren’t taxed. But that doesn’t mean the money is tax-free. What actually gets taxed is your business profit if you’re a sole trader, or the income you receive from the business, like wages or a shareholder salary, if you have a company. If you’re just taking money out without understanding what’s going on underneath, it can catch you off guard later.
A simple way to think about it is like a bucket. Money goes in from sales or money you’ve added, and money goes out for expenses and drawings. Drawings are just you dipping into the bucket. But the real question is, did the bucket actually fill up? Because that’s your profit.
If this isn’t clear, it can lead to thinking you’re doing better than you are, running short on cash, stress around tax time, and confusion about where your money is going. And none of that makes business any easier.
The big takeaway is this. Drawings aren’t the reward, the profit is. Drawings are just how the money moves, not how success is measured.
It really helps to have regular check-ins so you know exactly what’s going on in your business. Whether that’s monthly or quarterly, having someone walk through it with you can make a huge difference. It gives you clarity, confidence, and helps you make better decisions as you grow. This is what we do at Counted, we are walking alongside you, we want the best outcome for you and your business.
Disclaimer
The information shared in this blog is for general educational purposes only and is not intended as personalised advice. We are not financial advisors, and this content should not be taken as financial or legal advice. If you’re unsure about your situation, it’s always a good idea to speak with a qualified professional who can guide you based on your specific circumstances.
