Last updated: 15 July 2024.
You have your own startup or small business and everything seems to be going well. You’re busy, for sure, but you can see growth coming your way.
The one question that will no doubt start playing on your mind at this point is when should you start paying yourself a salary?
Taking it too soon may damage growth in some ways, but not taking one will leave you doing nothing but working for no reward. So, what is the happy medium? What do other founders do?
From the outside, founding a business looks like an idyllic experience. You had the bravery to take an idea and put the wheels in motion. With a little luck, you’re going to grow your idea and become very wealthy indeed.
That’s the idea anyway.
Many startups and small businesses never get off the ground, and those that do find it very difficult to stay afloat, let alone make a profit. And that's without taking into account the economy right now.
So, for a founder, the reality of the situation is dealing with all of that.
Founding a business is hard work. You will struggle to maintain a good work-life balance for a while and every moment you spend thinking about your business will consume you.
The responsibility on your shoulders will be immense and somewhat unexpected, as Sonya Barlow, the founder of the LMF Network, pointed out on the FounderMetrics podcast:
"When someone asks "What does it take to be a founder?" No one says you have to be responsible, but it's so important for you, your company, your finances, your accounts, your taxes, your cash flow..."
You’ll probably pour all your money into your business and spend the rest of the time looking for investment sources so you can finally get things breaking even and moving on.
You’re doing all of this, burning the candle at both ends, and you need some of that money you poured into your business to start pouring back out with interest on top.
So, when should that be?
The general rule of thumb is that you should take what you need, at the point you need it and not before.
After all, you can’t look after the business and your employees if you have nothing and you’re pouring all your energy into the endeavour.
Founders who start pulling money out of the business pre-seed are unlikely to see major returns. However, that doesn’t mean you shouldn’t take anything.
VC Michael Boevnik says, "Investors want to see founders salaried because it demonstrates a full commitment to the success of that venture."
And warns that, "If you’re worrying about making mortgage or rent payments at the same time as running your business, the impact can be catastrophic."
Take what you need and then once you have seed funding or capital coming your way, you can increase your salary at that point.
Carrie Rose, CEO and founder of Rise at Seven, says she and her co-founder paid their first key hires more than they paid themselves.
You will certainly deserve more than you’re getting at the early stage, but it’s important to be able to grow your idea toward major success. Or that’s the idea, at least.
Once a round of seed money has been secured, you have a comfort blanket to fall back on, to a certain degree. You will be able to recruit more employees and you’ll be relieved of some of the workload.
According to Glassdoor:
The average salary in the UK for a founder and CEO is around £89,144.
At the top end of the spectrum, there are UK founders taking home over £176K.
However, once you start to take a salary it’s important to talk to your investors to settle on the actual amount you’ll be paid and when that will be reviewed and potentially increased.
If you opt for an amount that’s too high, you may find yourself struggling in terms of capital to help grow your business. But, if you go for an amount that’s too low, you’ll struggle financially in your personal life and become stressed.
And a stressed founder may struggle to make sound business decisions! Entrepreneur and investor Sam Marchant agrees:
It's worth exploring every avenue when it comes to preserving cash flow.
One cost-effective way to grow your team without spending a fortune on salaries alone (which, let's face it, few startups can afford) is to offer a share scheme.
You can attract, motivate and reward key players, not just employees, with equity while protecting your business interests. Book a free consultation today to learn all about share schemes.
There isn’t a ‘one size fits all’ answer to the question of when you should start paying yourself a salary as a founder.
It really depends upon your business, the rate of growth, how many employees you have, and projections for the near and far future.
But, it’s important to remember that founders should not be expected to run on empty. While pouring everything you have into your business is admirable, it may not help you to move towards success.
It’s far better to take what you can in the early stages, and once investment has been secured, look to increase your salary at that point.
Now, we can't help you make that decision. But we can help you take care of company admin and equity management.