Should You Pay Yourself as a Startup Founder? A Financial Perspective

10 December 2024

Starting a business isn't just about having a game-changing idea; it’s about rolling up your sleeves and jumping into the chaotic yet thrilling world of entrepreneurship. But as a startup founder, there’s this big, nagging financial question that keeps popping up: Should you pay yourself? It's a debate that has divided founders, accountants, and financial gurus alike.

On one hand, paying yourself seems like a no-brainer—you’ve got bills to pay and maybe even mouths to feed. On the other hand, keeping every penny in the business could be the difference between soaring success and burning out. So, what’s the right move? Let’s break it down and explore this topic from a practical and financial perspective.

The Startup Reality: Why This Question Even Exists

Let’s face it—startup life isn’t all Silicon Valley glamour and billion-dollar valuations. More often, it’s ramen noodles, late nights, and financial uncertainty. When you’re bootstrapping or relying on seed funds, every dollar counts.

Paying yourself can feel almost selfish, like you’re robbing your business of potential growth. After all, isn’t every extra cent supposed to go toward hiring that rockstar developer or covering marketing expenses? But at the same time, not paying yourself can leave you financially vulnerable—and burnt out. Who can give 110% to their dream project when the rent is overdue?

Why Paying Yourself Matters

1. You’re Not a Volunteer

Sure, chasing your startup dream feels like a noble endeavor, but let’s not forget—you’re building a business, not running a charity. Your time and skills are valuable. Think about it: if your company had to replace you, how much would they pay someone with your expertise? Why should your sweat equity be any less worthy than that of a paid employee?

Plus, you’ve got your own financial needs to consider. From rent to groceries to student loans, those bills aren’t going to pause just because you’re hustling on a startup. You’ve got to think about sustainability—not just for your business, but for yourself.

2. Motivation and Accountability

Here’s the thing: paying yourself creates a sense of accountability. It signals to yourself (and to potential investors) that you’re taking this seriously. Think of it as putting some skin in the game.

Let’s not forget what motivation looks like, either. Knowing that your business is contributing to your livelihood can be a powerful reason to stay focused and push harder. It’s like hitting the gym; when you’ve got a goal in mind, showing up feels more rewarding.

3. Avoiding Founder Burnout

Look, we get it. You’re passionate about your business, and you’d work on it 24/7 if you could. But the reality is, not paying yourself can lead to financial stress, which can quickly spiral into a full-blown case of burnout. You can’t pour from an empty cup, remember?

By paying yourself—even if it’s a modest amount—you’re preventing the “starving artist” syndrome. You’re giving yourself the breathing room to focus on your startup without constantly worrying about how to make ends meet.

Why You Might Hesitate

Okay, so it’s clear there are good reasons to pay yourself. But let’s play devil’s advocate for a minute. Why do so many founders hesitate?

1. Tight Budgets

In the early days of a startup, the budget’s tighter than that one pair of jeans you swore would fit again someday. Every dollar feels precious, and diverting any of it to your own pocket can feel, well, selfish.

2. Investor Perception

Another concern is how paying yourself might look to investors. Does it make you seem less committed? Like you’re prioritizing yourself over the business? It’s a valid fear, especially if you’re working with limited funds.

3. Bootstrapping Mentality

If you’re bootstrapping, it’s easy to fall into the mindset of wearing 15 hats and doing everything for free. The logic here? The less you take out of the company, the more it can grow. And while that’s true to some extent, it’s not sustainable in the long run.

How Much Should You Pay Yourself?

If you’ve decided that paying yourself is the right move, the next question is: How much? Unfortunately, there’s no one-size-fits-all answer, but here are a few strategies to consider:

1. Cover Your Basic Needs

Start small. Your goal here isn’t to live lavishly; it’s to survive. Calculate your bare minimum monthly expenses—rent, utilities, groceries, insurance—and use that as a starting point.

If you can cover these without stressing out the business’s finances too much, you’re in a good place.

2. Match Industry Standards

Another option is to look at the average salary for startup founders in your industry and location. While you might not need to match it exactly, having a benchmark can be helpful.

For example, according to various startup surveys, early-stage founders in the U.S. typically pay themselves anywhere from $30,000 to $75,000 annually.

3. Tie It to Milestones

Here’s a smart approach: set financial milestones for your startup, and only increase your salary as those milestones are hit. For example, you could decide to give yourself a raise once you hit a specific revenue target or secure a round of funding.

This keeps your salary aligned with your startup’s performance, and it also ensures you’re not overcommitting resources too early.

When Not to Pay Yourself

While paying yourself is important, there are situations where it might make sense to hold off temporarily.

1. Pre-Revenue Stage

If your startup hasn’t started generating revenue yet, it might be worth waiting. In this phase, every dollar is likely being funneled into product development, marketing, or hiring key team members.

2. Tight Cash Flow

If cash flow is an issue, paying yourself might not be feasible. However, always weigh the short-term sacrifice against the long-term potential for burnout or financial strain.

Alternatives to Paying Yourself

If you’re not ready to take a salary just yet, there are a few alternatives to consider that can still keep you financially afloat:

1. Equity Compensation

Instead of taking a salary, some founders choose to reward themselves with equity in the company. While this won’t pay your bills today, it could pay off big time if your startup succeeds.

2. Part-Time Work

Many founders juggle part-time jobs or freelancing gigs alongside their startup. While it’s not ideal—dividing your focus can be tough—it’s a way to keep income flowing while your business grows.

3. Deferred Salary

If you’re confident your startup will secure funding or become profitable soon, you might consider deferring your salary. This means you’ll eventually get paid for your work, just not right away.

Final Thoughts: Balance is Key

At the end of the day, there’s no right or wrong answer to whether you should pay yourself as a startup founder. It all comes down to balance—between your personal financial needs and your startup’s growth potential.

Remember, your business is only as strong as the person leading it. If you’re stressed, distracted, or burnt out, it’ll show in your company’s performance. Paying yourself isn’t selfish; it’s a way to set yourself up for sustainable success.

So, whether it’s a modest paycheck to cover your bills or a more strategic equity-based approach, don’t leave yourself out of the financial equation. After all, you’re your startup’s most valuable asset!