Starting a business comes with plenty of surprises.

One of them is realising you can't simply transfer money from your business account into your personal account whenever you need it.

How you pay yourself depends on how your business is set up, and getting it right can make a big difference to your tax bill, your cash flow and even your future plans.

So, what's the smartest way to do it?

The answer isn't the same for everyone, but understanding your options is a good place to start.

It starts with how your business is set up

Before you decide how to pay yourself, you need to know how your business is structured.

If you're a sole trader, the process is relatively straightforward. The money your business earns belongs to you, although you'll still need to set money aside to pay Income Tax and National Insurance through Self Assessment.

If you run a limited company, it's different. The business is a separate legal entity, which means there are rules about how you take money out of it.

That's where terms like salary and dividends come in.

Salary gives you certainty

A salary works much like it does for any employee.

You receive regular payments through PAYE, making it easier to budget each month. It can also help if you're applying for a mortgage, renting a property or paying into a pension, as it provides a predictable income.

The trade-off is that salaries can attract Income Tax and National Insurance, depending on how much you pay yourself.

That's why many company directors choose to take a lower salary rather than a larger one.

Dividends can be more tax-efficient

Dividends are payments made to shareholders from company profits after Corporation Tax has been paid.

For many directors, they can be a tax-efficient way to take additional income.

But there are important rules.

You can only pay dividends if your company has made enough profit, and the amount you can take will depend on your available profits.

Unlike a salary, dividends aren't guaranteed. If profits fall, your dividend payments may need to fall too.

Many business owners choose a mix of both

For lots of limited company directors, it's not a case of choosing one or the other.

A combination of salary and dividends often provides the best balance.

A regular salary can cover your monthly living costs, while dividends allow you to take extra income when the business is performing well.

The right mix depends on your business, your personal finances and the latest tax rules.

Don't forget about cash flow

It's tempting to take as much money out of the business as possible when things are going well.

But your business needs money too.

Before paying yourself, think about upcoming tax bills, supplier payments, wages, and any plans to invest in growth.

Leaving enough cash in the business can help you deal with quieter months or unexpected costs without needing to borrow.

Don't let tax be your only priority

It's easy to focus on paying as little tax as possible.

But that's only part of the picture.

If you're applying for a mortgage, lenders may look differently at salary and dividend income. If you're planning for retirement, pension contributions could influence your decision too.

Sometimes the option that saves the most tax today isn't the one that best supports your long-term goals.

Avoid this common mistake

One of the biggest misunderstandings among new company directors is assuming they can transfer money from the business account whenever they need it.

Because a limited company is legally separate from you, taking money out in the wrong way can create tax complications and extra paperwork.

Understanding how director's pay works from the start can help you avoid expensive mistakes later on.