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Home > Blog > What Entrepreneurs Pay Themselves
Out of Our Minds
Thursday, August 19, 2004 1:23 PM
What Entrepreneurs Pay Themselves
Anita Sharpe on Business

money2.jpgYou might think that people who write their own paychecks would jump at the opportunity to reward themselves handsomely. In fact, that rarely happens.

This is typical and it seems smart. But is it?

A story in today's New York Times quotes a couple of financial counselors who advise entrepreneurs to determine a fair pay package for themselves and book it as an account payable even if the company can't or doesn't want to pay it now. The argument is that this more accurately reflects the true cost of running the business -- and that the people who are making the tough decisions should be 'compensated well.'

That still doesn't feel right to me, at least in the early stages of building a business. Anyone disagree?



4 comments

Erick - 8/23/2004 11:45:44 PM
My wife and I own the companies. We didn't take a salary until three years ago.

The first 8 years we just wrote checks to ourselves each month, depending up on the ups and downs of the company.

Paying a salary, then taking the excess as bonus keeps our CPA happy, and it gives us the chance to fund a tax-deferred savings plan, similar to a 401k.
Chris Yeh - 8/20/2004 11:48:14 AM
Especially in a VC-backed startup, whether the founder takes a $50,000 salary rather than a $150,000 salary really doesn't make a big difference to your chances of success, but it does make a big difference in the founder's financial and marital health.

When I was a first-time entrepreneur, I let myself get talked into underpaying myself. Never again. I'm 100% behind taking a market salary!

Note that this isn;t an excuse to overpay youself--that's just as bad.
Ingmar Bornholz - 8/20/2004 6:42:52 AM
Well, I´ve been an entrepreneur for six years now, building up 3 companies during that time, and what I´ve learned is: you must have a good personal income, no matter how the company is growing. Of course, if there´s no money to pay out, you won´t be able to. But for your own motivation a good income is essential. Greets from Cologne, Ingmar
sbaldwin - 8/19/2004 5:22:30 PM
It's perhaps a way of suppressing profits in a young business.

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