Adaeze started her event decoration business in Port Harcourt two years ago. The business is making money. Clients pay. But at the end of every month, Adaeze either takes whatever is left in the business account — sometimes ₦400,000, sometimes ₦60,000 — or she transfers nothing and pays her personal bills from savings.
She cannot tell you what her "salary" is. She cannot plan her personal life. And when tax season comes, she has no idea what the NRS (Nigeria Revenue Service) expects her to pay on income she never formally recorded.
This is the most common money mistake Nigerian MSME owners make: treating their business account and their personal income as the same thing. This guide shows you how to fix it.
When Adaeze's business earns ₦500,000 in a month and spends ₦300,000 on supplies, rent, and staff, there is ₦200,000 left. That is not automatically her salary. It is the business's profit before:
If she takes all ₦200,000 every month and the next month is slow, the business cannot pay suppliers or staff. The business exists to generate income for her — but it can only keep doing that if it stays financially healthy.
The rule: pay yourself a fixed amount every month, not whatever is left. Your salary is a cost the business bears, just like rent and staff wages.
The legal structure of your business determines how you should pay yourself.
If you are a sole trader (not registered as a limited liability company), there is no legal separation between you and your business. You and the business are the same entity in the eyes of Nigerian law.
You pay yourself by drawings — taking money out of the business. Drawings are not a deductible business expense. The profit you earn (whether you withdraw it or leave it in the account) is taxed as your personal income under the Personal Income Tax Act (PITA), assessed in your state of residence.
This means:
Most market traders, freelancers, and service businesses operating under their own name fall into this category.
If your business is registered as a Private Limited Company (Ltd) under CAMA (Companies and Allied Matters Act), you and the business are separate legal entities. The company has its own tax identity.
In this structure, you pay yourself a director's salary, which is:
This is the structure Adaeze should consider as her business grows. A registered company with a formal salary structure is more credible to banks, larger clients, and corporate procurement departments.
CIT 2026 note: under the Nigeria Tax Act 2025 (effective 1 January 2026), small companies pay 0% CIT (turnover of ₦100 million or less and fixed assets of ₦250 million or less — no professional-services exclusion applies to CIT). Any other company pays 30%. This is a significant benefit for growing MSMEs — if your company is a small company, it pays no income tax on its profit.
After the company pays its expenses (including your salary) and retains some profit, you can take additional income as dividends — a distribution of company profit to shareholders.
Dividends are taxed at a flat 10% withholding tax (WHT), deducted at source. They are not subject to PAYE.
Many owner-directors combine a moderate salary (to reduce PAYE exposure) with dividends (for tax efficiency). This is a legitimate structure; a tax professional can advise on the right balance for your situation.
Whether you are a sole trader or a director, the starting point is the same: know your numbers.
Step 1 — Know your average monthly revenue
Look at the last six months of business income. Add them up and divide by six. This is your monthly average. Do not use your best month as the baseline — you need a figure the business can sustain even in slow periods.
Step 2 — List all fixed business costs
These are costs the business must pay every month regardless of revenue: rent, utilities, staff wages, loan repayments, subscriptions, insurance.
Step 3 — Leave a buffer
A healthy business keeps at least one month of operating costs in reserve. Build a small monthly savings allocation: 10–15% of the surplus after costs is a good starting point.
Surplus = ₦405,000 − ₦285,000 = ₦120,000
Buffer (15%) = ₦18,000
Available for owner = ₦102,000
Step 4 — Set your salary at or below that figure
Adaeze can pay herself ₦90,000 per month — a fixed, predictable amount — and leave ₦12,000 as additional business savings.
Is ₦90,000 enough to live on? That is a personal question. If it is not, the business needs to grow revenue or cut costs — not take a larger draw that starves the business.
Sole traders: your drawings are not the taxable figure; your business profit is, whether you withdrew it or not. Under the Nigeria Tax Act 2025 the first ₦800,000 of chargeable income each year is taxed at 0%, and the bands rise from 15% above that.
Directors on salary: your monthly director's salary attracts PAYE. For a salary of ₦90,000 per month (₦1,080,000 a year), and assuming the only deduction is the 8% pension contribution, chargeable income is ₦993,600. The first ₦800,000 is taxed at 0% and the remaining ₦193,600 at 15%, so PAYE is about ₦29,000 a year, roughly ₦2,400 a month. (₦1.2 million is not an exemption threshold under the 2025 Act.) See How to Calculate PAYE in Nigeria for the full rate table and worked example.
One practical step: whichever route you take, open a separate personal bank account and transfer your fixed salary into it on the same date each month. This creates a paper trail, makes personal tax simple, and separates your business finances from your personal ones.
In Lucrive's Budget module, owner's pay belongs under Operating Expenses — the same category as rent and staff wages. This is the correct treatment under CIMA and IFRS absorption costing: if you are performing a role the business would otherwise hire for, your pay is an operating cost.
To set this up in Lucrive's Budget module:
① Open your current month's budget
② Under Operating Expenses, add a line labelled "Owner's Salary"
③ Enter your fixed monthly amount as the budgeted figure
④ At month end, record what you actually transferred as the expense
Free plan users can add up to 10 budget lines covering the current month. If you have more cost categories to track, or want to compare this month against previous months, the Professional plan removes both limits.
Once owner's pay is in the budget, your profit figure reflects what the business earned after paying you — a much more honest picture of business health than a profit number that includes your unpaid labour.
Taking everything and leaving nothing. A business with no reserves cannot survive a slow month, a client who pays late, or an unexpected cost. One missed payment can mean you cannot pay staff.
Taking nothing and hoping the business will grow faster. Owners who pay themselves nothing often do not track the business properly — because they feel the business owes them, they become casual about cash. Paying yourself a real (even small) salary forces discipline on both sides.
Confusing personal and business accounts. If your salary, your groceries, your Netflix subscription, and your supplier invoices all run through one account, you cannot produce accurate accounts for tax, for a bank loan, or for yourself. Separate accounts are not optional — they are the foundation of financial clarity.
Not budgeting for tax. A sole trader who earns ₦6 million in a year and spends it all will receive a tax bill they cannot pay. Set aside a percentage monthly — How Much to Set Aside for Taxes in Nigeria gives specific percentages by business type and turnover level.
① Work out your average monthly revenue over the last six months
② List every fixed business cost
③ Calculate the surplus and take 15% as a buffer
④ Set a fixed monthly salary at or below the remainder
⑤ Open a separate personal account and transfer it on the same date each month
⑥ Add "Owner's Salary" as a line in your Lucrive budget so it shows as a real cost
The goal is not to maximise how much you take this month. It is to create a sustainable system that pays you reliably every month, keeps the business healthy, and gives you clean numbers when tax season arrives.
Open Lucrive and add your owner's salary to this month's budget →
People and businesses in our examples are illustrative, not real Lucrive customers. Figures are worked examples: confirm your own position with a qualified tax adviser.