Pay Yourself What You Can

Advantages

  • Reasonable, realistic. The financial health of your business is key. Making a personal financial sacrifice now could pay off in the longer term if it helps your company become stronger financially. The money the company saves by reducing overhead could help it reach a profit sooner.
  • Flexible. This approach is logical and flexible. As the company is able to, it can and will pay you more.
  • Positive signal. By taking a lower salary, you show your long-term commitment to the company’s success. And that sends a positive signal to investors.

Disadvantages

  • Shelters company; could create an unrealistic framework. Paying yourself an unrealistically low salary now may work today, but it could possibly set up the company for a big adjustment later on.
  • May be too big a personal sacrifice. What if you don’t have the resources to help the company through the initial lean period? How will you survive financially if you don’t have enough money saved to get through this start-up period?

Deciding Factor

  • Do you have a financial cushion to fall back on?
  • Does your spouse or partner work?
  • Do you have major monthly financial obligations – such as a mortgage, tuition, or alimony – that you need to address?
 

Game Plan

  • Prepare a budget or personal financial statement. Make sure you aren’t making things too tight on your own finances.
  • If married or living with a partner, discuss any sacrifices they might have to make.
  • Talk with your accountant and learn about any tax issues surrounding compensation and salary payment terms.
  • Learn more about this and related issues at www.entrepreneur.com.
 
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