HOW TO PAY YOURSELF AS A STARTUP FOUNDER
David was 3years into his Startup Business when it dawned on him that he had not earned any salary since the inception of his Business.Just like David, most founders and Business owners are like that.
Mary was the opposite of John she made sure she was the first to get paid, even before setting aside operations and running cost and when she got her first seed round of investment she doubled her salary as the CEO and founder.
Are you a Mary or a John?
An average startup business owner is almost un-bothered about earning a salary, the individual just wants to make ends meet and have a flourishing business. Wondering if you should pay yourself a salary since you are the owner of the business or not?
Here are a few reasons that should convince you
• It serves as an incentive for putting in hard work, no matter how small it is.
• It helps to increase savings either for personal use or for the business.
• Adopting a regular salary strategy shows how committed the individual is.
The first few years might allow for just a small amount to be made available for the salary, but as the business improves, so will the salary increase. When determining a salary range for yourself, it is important to take into consideration the time and effort exerted on the business, strike a balance, do not take so much that will affect the business finances or take so little that would undermine your effort. For easy accountability, you might want to meet with an accounting officer to put your through. Few years when you start you can choose not to pay yourselves any money in the beginning. That would be one of the greatest risks you can take as a Business owner.
Sometimes it might mean saving up enough money to go without a paycheck for a little while.
Say this after me I would not use company funds for personal expenses.
Unlike the typical 9-5 jobs, a start-up founder’s salary comes in different forms:
1. Commission Based Revenue: This particular form is suggested for new startups who just started out the business and want to lay a solid foundation. With this model of salary, the better the business thrives, the more money you get paid, on slow days, you do not get paid as much. This helps a founder want to do better so he or she gets a worthy take home salary and does not in any way impinge on the financial stability of the business.
2. Market-based wage: If you would like to indulge in this model, you’d have to make findings amongst other business owners like yours, who have same qualifications, exposure, and also how long they have been in the business, their assets… This would help you to set up an actual amount without going overboard or below.
3. Experience-based salary: This model implies you command a certain amount as salary by virtue of your experience, knowledge, values and connections. At this level, it is assumed your business is thriving massively based on your experience, this is not recommended for new startup founders.
Another way you can pay your self is to set an hourly wage from the beginning, this must have been done in the Businessplan, lets, for instance, pay yourself $10 for a start or $500 per month after a while you can increase your pay.
For business owners who have no prior experience in running a business, they might get carried away with the glamorous lifestyle and large take-home salaries of CEOS who have stayed longer in the business, sorry to burst your bubble years, the life of a business owner is rarely that simple especially in the aspect of earning a salary as a startup founder.
The easiest way to get into business is as a Business owner or one man Business is as a sole proprietorship . However remember the legal implication A sole proprietor doesn’t have any partners to worry about, nor a corporate identity to hide behind. As a sole proprietor, the buck stops at your desk and nobody else’s. If you get tagged with a lawsuit, you face the liability. It’s as simple as that. Finally, avoid using the Business account to fund personal expenses, those expensive cars and wristwatch you are tempted to buy. STOP! STOP !! STOP !!! Now is not the time to be foolish about it.
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