Having a startup business is exciting. While your business idea has the possibility of bringing in a lot of money in the future, you need to make sure that you’re not paying yourself too much. At the same time, you have to see to it that you’re not paying yourself too little either. Nevertheless, you will learn soon enough that compensating yourself is an art.
Small businesses that don’t follow a startup pattern may allow owners to draw too much from their business accounts. But since your business is much different, there are some gray areas that you need to tread on. It could be a guessing game at first.
With the right information and data from your industry peers, you can arrive at a reasonable amount – an amount that may be enough to help you shoulder your home loans and other expenses. Here are some of the things to keep in mind:
Have reasonable expectations
Before the launch of your startup, you need to have realistic salary expectations. Expect that you are not going to make money right off the bat. And even if you have received a generous seed fund or you have managed to secure Series A financing, you have to keep in mind that the majority of the money will go to product development and operations-related matters. Just because you’re the CEO does not mean that you should get a high salary easily. You will need to work for it.
Try to be conservative at first
When your startup has gained a stable footing, such as receiving your initial sales and secured a paid contract with a client, you may already decide on a set amount. But at this point, you still need to be conservative. Keep the balance between your personal income and business profit at a reasonable ratio. After all, your business still needs money to sustain itself. Try to gauge the consistency of your sales before making any adjustment in your income.
Look at your business trends
After a year of making money from sales and partnerships, you will need to study the sales trends and cash flow of your business. That way, you will be able to determine when in the future you can possible give yourself bonus or incentive (but do not rely on such predictions; you’ve got make it happen!). However, remember that the business overheads will also expand, as you will be hiring new people and paying more taxes.
Look at the industry trends
Sometimes, you may feel lost in this matter. You may be worrying if you’re paying too much or too little. To increase the accuracy of your compensation, you can check the projected annual income of some startup owners featured in publications, such as Forbes; though proceed with a grain of salt, as some of these businesses are already making real money. Some venture capitalists and angel investors may also provide you with valuable insights. Use your resources at your disposal.
Be kind to yourself – but not too much!
Paying yourself as a startup owner can be tricky, but it’s an art that you will eventually learn. Just remember this golden rule: you can’t go on with your business if you keep working for free. Similarly, don’t be too hasty by paying yourself too much.