The Importance of Paying Yourself a Salary as a Founder
With the goal of becoming profitable as quickly as possible, many business founders forgo paying themselves. You may need to sacrifice your own wages initially, but once you reach a certain stage of growth, you absolutely need to consider paying yourself a salary.
If you’re still on the fence about whether or not you should begin to take a salary, keep reading — here’s why founders should pay themselves.
In your business, there will always be new investments to make
Are you holding off on paying yourself because you want to invest every penny you can into your business? It’s a noble idea, but it’s also a slippery slope.
There’s a strong chance there will always be something else you can invest in to continue growing your business. Whether it’s more employees, new technology, or any number of other things, it’s very easy to deprive yourself for the benefit of your company.
If this is your current mindset, consider assessing what your business truly needs to be profitable. You may decide that investments need to be made at the expense of paying yourself... but also try to remember the benefits of investing in yourself, too.
As a business founder, your time is valuable
You know that your employees deserve to be paid a fair market value for their skills and experience, and the same can be said about you and your contributions to the business.
With this in mind, you could determine what your expertise would be worth to another company. Then, use that figure to calculate a base salary for yourself.
How much should founders pay themselves?
There’s no one-size-fits all answer to the question, “How much should I pay myself?” That figure is going to vary dramatically from one business to another.
The Wall Street Journal shared a fantastic article on what entrepreneurs should pay themselves. They interviewed several startup experts to get their answers, and not surprisingly each expert has a slightly different answer. One recommended paying founders what they need to live, plus generous equity. Another answered the question this way (the emphasis is ours):
“At the end of each month, subtract your personal expenses from your overall sales, and then subtract your company costs. It may sound strange to essentially pay your personal expenses before covering company costs, but it is counterproductive to run a business while struggling to keep yourself afloat. Many entrepreneurs take the needs of their company into consideration first, but what they really need to do is restructure their thinking and tend to their own needs in order to see their business thrive.”
It’s an important point to remember — if you’re worried about paying your bills, you’ll bring that stress to work, and you’ll ultimately limit your growth.