Should my startup pay me?


2

I'm getting ready to launch a startup (currently have a C corp set up that I am running under). It has a platform under development, but I'm planning on having some ancilliary services to provide in order to generate some revenue (not consulting / contract programming, as I don't want to 'own a job'). I have some resources to fall back on, but unfortunately have a fairly high personal burn rate (family, mortgage, etc). I think that this can get fairly big, but am hoping not to look for outside funding and am OK if it becomes a lifestyle business. I'm only planning on looking for ourside funding if I am cash flow positive and really need it to rapidly expand sales. Should I pay myself as an employee out of the business? Live off of my savings? There is very little revenue at the present time so the point might be mute. I'm still working at my 'day job', but due to changes here don't expect that I am likely to be here much longer. Thanks in advance for some fresh insights!

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asked Mar 17 '10 at 00:38
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Ev Conrad
561 points

4 Answers


7

It seems to me like the simple answer is... it depends.

You should pay yourself if:

  • Your company is generating enough cash to!
  • You're funded and have properly set salary expecations
  • You're not going to run out of money by doing so

You should NOT pay yourself if:

  • Your salary will put you out of business
  • If you believe your longterm model is sustainable and you can afford to not take a salary until you reach sustainability or raise additional funding.
answered Mar 17 '10 at 04:22
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Chris Savage
209 points
  • +1 - concise and focused on the company's health! – Seenu 9 years ago

2

Sorry to hear that your day job may not be around for much longer! I would look at your question from the perspective of both self and company.

You might base your decision on:

  1. Are you willing to find another day job? If you're willing to work, and are able to find a replacement position, that would probably be the most comfortable for personal cash flow. May not be a full-time position, but a contract/consulting gig instead - to last until your company's revenue projection is enough to pay you sufficiently.
  2. If you're working on your startup full-time and getting paid from it, what %age of your monthly expenditure are you realistically going to cover? Have you done any projections for revenue growth that indicate that in the next 3/6/9/12 months, you could increase your pay to a more meaningful level? If you see that revenue is going to grow (concrete deals or pipeline), it might be worth living off your savings for a while. Caveat as bennybeta and Chris indicated is that your startup shouldn't run out of money if the worst were to occur.
  3. If you want to get paid from your startup, I would strongly advise consulting with an accountant about the tax implications for the company itself. I might be talking out of my a$$ here but if a company is doing payroll, doesn't it sustain some overhead costs?

Cheers.

answered Mar 17 '10 at 06:20
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Seenu
428 points

1

Yes, your startup should pay you. Whether through the occasional disbursement (see S-Corp below) or a meager salary that won't drain all your cash flow, yes.

I'd recommend considering classifying as an S-Corp (rather than a C-Corp). There are likely a lot of advantages that an accountant could tell you about why it's a good idea.

answered Mar 17 '10 at 00:46
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Ben Edwards
601 points

-2

I disagree completely!

I've often wondered about this question myself, and I've reached the following conclusion:
Cash is king, the blood and life of your startup. One should not look to suck the blood out one's nascent company.

No investor will ever consider putting money into a company, knowing that their hard earned money, their children's inheritance, is going to go to pay founder's salary, which will in turn go to pay for mortgage, family, etc (sic).

This is the paradox of the entrepreneur: you have a shot at being rich in the future, but you have to eat dirt the first few years, whereas a regular job will smooth out your income over your lifetime (albeit almost with 0 probability of being rich, unless you are the CEO of a failed bank and manage to get millions in bonuses)

edited

answered Mar 17 '10 at 02:22
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Newyuppie
441 points
  • What? a) Investors who put their money in a tech startup should think of it as a risky investment. So they are not investing their children's inheritance. b) If you can create $10 in company value by spending $1 on your salary so you can work on the startup full time, then go for it. Your investors want you to shoot for the big payoff. – Joseph Turian 9 years ago
  • So basically you are saying that I should tell the investor, "Hey, this is my wild idea, I need your hard-earned children's inheritance money to a) pay my salary, b) pay my best-friend/cofounder's salary c) help me make my mind up quickly to finally leave my day job d) eliminate most of the downside risk for myself and my best-friend/cofounder e) rest of the stuff about running business. I'm sorry but I completely disagree: you should receive salary only if you earned it, and the only way to show that is if you make the business work, if you get utilities. Otherwise, sweat equity. – Newyuppie 9 years ago
  • It's amazing how people DOWN VOTE my answer just because they are stupefied by the reality that owning your own business should be a risk to YOURSELF, and that's why you don't take salary to begin with. They downvote not because my answer was not helpful, but because they wish I didn't say it. – Newyuppie 9 years ago

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