Why Business Founders Need to Take a Salary
As a business founder, it may be tempting to reinvest every dollar you make back into your startup. However this is not a wise idea. When business founders make the mistake of paying themselves zilch, anticipating that one day they’ll be able to suddenly draw millions when business is booming, they cause themselves nothing but trouble. The truth is that the magical day when business is booming may not come, especially if you plan to expand your business. There will no doubt always be bills to be paid, investments to make, new equipment to buy or staff to pay. Although for a while you may need to sacrifice your salary, you shouldn’t do so indefinitely. As a business founder you should pay yourself once your company has grown sufficiently. Here is why you need to start taking a salary.
Failing to pay yourself skews your understanding of your business
Although you might need to skip paying yourself once in a while, if you do this on an ongoing basis it will skew your perspective and potentially damage your business outlook. Not paying yourself will distort your perception of how solvent your enterprise really is. Everything might appear to be functioning when you are living on next to nothing but that doesn’t mean that you’re actually making a profit or meeting the goals you set yourself. As a business founder you need to use your wits, even and especially when it concerns yourself, your salary needs to be part of the business budget. It need not be the most lavish salary but it should not be measly or you may kid yourself that you can manage the business when in fact you can’t and changes need to be made.
Failing to pay yourself means you fail to look after the most important person
As the business founder you are the most important person in the business and pivotal to the company’s success. You need to be functioning at full capacity so that you can make wise business decisions and steer the company in the right direction. If you are worrying how you will pay the mortgage, trying to subsist on cheap junk food, losing weight, low on energy and morale chances are that you won’t be able to think clearly. You will neither have the stamina to work long hours nor the creativity and motivation it takes. Taking a reasonable salary means taking care of yourself first, your needs should supersede those of the company.
Failing to pay yourself sends the signal that failure is a risk
Business founders, especially at the inception of their startup, worry about taking a salary as they fear their employees will view it negatively. However not taking a salary will worry your employees even more. Employees might start thinking that if you can’t afford to pay yourself, then in the future you might not be able to pay them either. Not taking a salary therefore sends the wrong signals to your staff.