HOW MUCH SHOULD STARTUP FOUNDERS PAY THEMSELVES?

As a startup founder, you have many complex decisions to make—the trickiest one may be how to determine your salary.As the driving force behind your venture, you're constantly juggling the desire for growth, your personal needs, and ongoing living expenses you need to cover. Assigning yourself a salary at an early-stage when your business still isn’t making enough money is just as difficult as determining your founder pay at a later round of funding.It’s an especially challenging question as start-ups navigate a moment of layoffs, limited funding and uncertainty after months of riding high. After all, money founders pay themselves is money that isn’t going back to the company to pay for things like staff salaries and rent.Paying yourself a salary means that you, as a founder, receive regular payments from the startup as compensation for your role in the company. This salary forms a part of your startup payroll and is subject to applicable tax and legal considerations. You may consider assigning yourself a salary for the following reasons:

• Personal financial needs: Paying yourself a salary helps maintain personal financial stability and address needs like living expenses, student loan repayments, or savings goals
• Fair compensation: Founders invest significant time and expertise into their startups, and a salary ensures that you get fair compensation for your contributions and efforts
• Professionalism and credibility: Paying yourself a salary adds a level of professionalism to your role as a founder, demonstrating to employees, investors, partners, and customers, that you treat the business as a professional entity, which is especially important in early-stage startups

If you opt for a salary, you need to pay income taxes on the earnings just like any other employee. Not drawing a salary can look appealing so the money can be used for the business, but may give a false sense of profitability and success. Not getting paid is not sustainable, and when an owner gets to the point of needing to be paid, is that going to be a big hit to the financials and stress out the investors?This really depends on the size of the startup and the capital available to the startup and if there are other shareholders in the company. If there is very little cash available it is quite common for founders not to draw a salary in cash especially in the beginning.It is however vitally important that you keep record of your compensation package. You are entitled to this money and you should be compensated before the profit of an exit is shared between the remaining share holders.Your great idea for a business is only the first step of building a successful company. Next, you’ll need to fully understand your skills: what you bring to the business, your leadership style, your personal USPs. By taking a salary, you demonstrate confidence in yourself and in your business. Your salary proves you’re committed to your venture and you know your value - and reassures investors that their money is in safe hands.   

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