Should You Pay Yourself When Starting a Company? How to Set Income

Should You Pay Yourself When Starting a Company? How to Set Income


One of the most important questions for a startup deals with how to set income. Every team can benefit from highly qualified, talented individuals with years of experience under their belt. However, many startups do not have the money to pay their deserved salaries. This led me to wonder: How should startup business owners pay themselves and their employees? Furthermore, if an employee is qualified and wants that higher paycheck, is it a good idea for a business owner to forgo paying themselves?

For entrepreneurs starting a new business, determining how to pay themselves and their employees is a tricky dilemma. Many entrepreneurs may want to pay themselves a comparable salary, similar to that of an established day job. However, the budget and demands of the startup may prevent themselves from this goal. Therefore, business owners must walk a fine line between paying themselves what they’re worth and what they need to survive. The following are some tips for entrepreneurs starting to set their salaries.

5 Salary Setting Tips for the Startup Entrepreneur

  1. Re-evaluate your Standards Many entrepreneurs start a business with the hopes of creating the next Google or Facebook. However, it may be years before the startup becomes profitable. Therefore, the business owner may have to make sacrifices in order to weather financial stresses and help the company. Some tips for startups owners are to reevaluate their personal habits and comfort of living, and determine if they can live below their standards.
  2. Budget. Business owners should always keep an eye on their budget. One common mistake that startup businesses make is to hire on new employees without the budget to support them. Make sure that your budget is able to cover your own salary, as well as the salaries of your team. Another useful tip for companies is to have enough revenue saved to cover the months of low sales and revenue. Therefore, business owners will not be strapped for payment during these lean times.
  3.  Consider the lean years. Don’t make the mistake of giving yourself a large income, especially if your budget cannot handle it. If you overpay yourself and your employees, your company may not have enough money to continue business operations.  As your company goes through the beginning years, profits may be low. During these lean years, owners may have to pay themselves a low salary, enough for them to get by.   If companies want to see themselves succeed through the years, they should minimize their overhead costs, allowing profits to expand as much as possible. 
  4. Offer Alternative Payment Options.  One common method by which startups pay employees is to through stock or equity in the company.  Stock is an excellent way of creating the incentive to work, as employees have an investment in the success of the company. However, not all small businesses can offer stock for their employees. Some alternative methods of payment include pay based on commission, or to defer compensation in favor of increased bonuses during milestones. 
  5. Interns. Nowadays, college students are looking for internships to supplement their work experiences. Therefore, interns are an excellent way for companies to save their budget as well as nurture promising individuals. Hiring unpaid interns gives the business the opportunity to find talented, young candidates at a low cost. In addition, companies can provide interns with alternative compensation methods. In addition to school credit, business owners can provide a mentorship, setting learning objectives and tracking their goals. At the end of an internship, the intern will learn valuable skills and gain experience worth far more than an hourly salary.

During the initial years of a startup, setting a salary for you and your employees may be difficult. In order for any business to succeed, owners need to keep their overhead costs low. But with patience and hard work, entrepreneurs can find a balance between a profitable company and a comparable salary.

Photo Credit: franchise.business-opportunities.biz

Amanda DiSilvestro is a writer on topics ranging from merchant services to liability insurance for Resource Nation, an online resource providing tips for small businesses and entrepreneurs.



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