Your child just made their first sale.
Maybe they sold a bracelet for $10. Washed a neighbor's car for $20. Sold a few cookies at a market. Whatever it was, they're holding money they earned from something they created or did themselves.
And now comes one of my favorite parts of a kid business:
What happens to the money?
It's tempting to look at a $20 sale and say, “You made $20!”
But that's not really how a business works.
The customer paid the business $20. That doesn't automatically make all $20 spending money.
That's why in our daughter's business, we handle the money in two separate stages:
- The business divides the money it earns.
- Our daughter divides the paycheck she receives from the business.
That distinction has created opportunities to teach money lessons that would be difficult to explain with an allowance alone.
Step 1: The Business Gets Paid
When a customer buys something, we treat that money as business money first.
Our current business split looks like this:
| Business Category | Percent | Purpose |
|---|---|---|
| Paycheck | 40% | Used to pay our daughter based on her work log. |
| Taxes | 10% | Money we set aside toward taxes. |
| Profit / Roth IRA | 10% | Paid out to her periodically as wages and contributed to her Roth IRA. |
| Operating Expenses | 40% | Materials, booth fees, tools, packaging and other costs of running the business. |
These percentages aren't a rule for every kid business. They're the system we currently use with our own daughter's business. Your costs, tax situation and goals may be completely different.
Why Doesn't She Just Keep the Whole Sale?
Because selling something and making a profit aren't the same thing.
If a child sells a product for $10 but it cost $4 to make, the business needs money to make the next one.
There may be packaging to buy. A booth fee for the next event. New tools. Supplies. Taxes.
If every dollar disappears into someone's pocket after a sale, eventually there's nothing left to keep the business going.
That's a surprisingly big lesson hiding inside a very small kid business:
Revenue isn't the same thing as personal income.
What About Taxes?
We keep tax money separate instead of waiting until a bill arrives and wondering where the money will come from.
The exact taxes a business owes depend on where you live, what you're selling, how the business is structured and other factors. Our 10% category is simply part of the system we use for our own situation; it isn't a universal tax calculation.
Parents should check the requirements that apply to their own business and location.
Step 2: Now the Child Gets Paid
This is where the distinction becomes especially useful.
The business has money.
Our daughter also works for the business. She keeps a work log, and the business pays her for the work she actually does.
Once that money becomes her paycheck, we don't treat it as business money anymore.
It's hers.
But instead of immediately spending the whole paycheck, we divide it again.
Our Personal Money Split
| Personal Category | Percent | Purpose |
|---|---|---|
| Roth IRA | 40% | Contributed by us to her retirement account based on eligible earned wages. |
| Future Investments | 20% | For larger future opportunities such as a car, investments or another business idea. |
| Personal Goal | 10% | Money toward something specific she wants to save for. |
| Spend Money | 30% + extra cents | Her fun money, which she can use however she wants. |
Again, the important lesson isn't that every family should use our percentages.
It's that the money has different jobs.
Let's Follow a $20 Sale
Suppose a customer pays the business $20.
Using our business percentages as a simplified illustration:
- $8 goes toward the paycheck category.
- $2 goes toward taxes.
- $2 goes toward the profit/Roth IRA category.
- $8 stays available for operating expenses.
But that doesn't necessarily mean our daughter immediately receives the $8 paycheck allocation. We pay her based on the work she actually records, rather than simply handing her a percentage of every individual sale.
When she is paid wages, that paycheck enters her personal money system.
For an $8 paycheck, the percentage split would be approximately:
- $3.20 — Roth IRA
- $1.60 — Future Investments
- $0.80 — Personal Goal
- $2.40 — Spend Money
So a “$20 sale” and “$20 to spend” are two very different things.
Why We Still Include Spend Money
We're not trying to teach our daughter that earning money means watching every dollar disappear into responsible grown-up categories.
She did the work.
Some of that money should be fun.
Her spend-money category is intentionally hers to use. At the same time, she gets to watch money accumulate for things she cares about now, opportunities she might want later, and a future that's still decades away.
Those lessons become much more concrete when it's money she actually helped earn.
You Don't Need Our Exact System
If your child's business just made its first $10 sale, you don't need multiple bank accounts, complicated bookkeeping or our exact percentages before celebrating it.
Start with the concept:
Business money and personal money are different.
Then give the money jobs that make sense for your family.
You might create categories for:
- Supplies for the next sale
- Taxes or other business obligations
- Your child's paycheck
- Long-term saving or investing
- A specific savings goal
- Money they're completely free to spend
The percentages can change as the business changes.
The lesson is learning to make the decision intentionally.
The First Sale Is Only the Beginning
Making that first sale is exciting.
But what happens after the sale can teach just as much as making it.
Your child gets to see money come into a business, learn that some of it needs to keep the business running, get paid for their own work, decide what they want now and start putting money toward things they may want years from now.
That's a lot of real-world learning from one little business.
And if your child hasn't made that first sale yet, that's exactly where I'd start.