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!
It seems to me like the simple answer is... it depends.
You should pay yourself if:
You should NOT pay yourself if:
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:
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.
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)