As the owner of a startup or growing business, it’s tempting to reinvest every dollar of profit back into your business. Many founders take the extreme path of paying themselves nothing until that magical future day when investors are repaid, the business runs in the black and they feel they have enough of a financial cushion to take a salary.
The problem is that the magical day may never come, especially if your business continues to grow. There will always be new investments beckoning, projects on the horizon or other bills to pay. Everyone else might be paid before the founders.
Becoming profitable is every business’ goal. To do so, many founders make sacrifices, including their salaries. Although you may need to pay yourself nothing (or next to nothing) in the early years of your company, at some stage of growth you should begin to take a salary. Here’s why:
- It’s counterproductive to deprive yourself: If you’re living off savings, no income from your work means nothing is replenishing your personal piggy bank. Your spouse or dependents may grow increasingly restive at Ramen-noodle suppers and setting the thermostat at 60 to avoid high heating bills. When your company reaches the profitability stage, you can safely start paying yourself and ease the worries at home over finances. Although it’s normal during the startup phase to forgo a salary to get your company off to a running start, it’s also reasonable to start taking some of the profits each month to pay yourself back.
- Fair pay for fair work: Many founders pay themselves a modest base salary but share in a higher percentage of a business’ profits. If you have investors and part-owners, this may seem like the fairest arrangement and one that inspires founders to work harder. After all, the harder you work, the more potential you have for profits and income. Setting aside some of the monthly profits for yourself is fair if this arrangement is clear to other investors.
- Your time is valuable: Founders often have curious ideas about startup costs. They often account for obvious costs, like the cost of office…