There isn’t a real set rule on how to pay yourself as the CEO of your own company, but what you should know is you shouldn’t expect a six figure salary, especially not at first.
You should keep in mind that the salary you pick for yourself is also the standard for the entire company and tells people about your financial discipline. If you start out by giving yourself a high paying salary it will use up a lot more of your company’s money.
With a startup company your goal should normally be to finish outstandingly well and make sure everyone does well financially. But before this happens, CEOs have to be smart about how they start paying themselves, and adjusting the compensation to go with how their company is growing. When you get started, you should pay yourself basically nothing. This is helpful because it allows you to have more flexibility with payment of the rest of your company and also allows room to grow.
As your startup grows and locks down its funding it’s not unusual for owners to feel the desire to give themselves and their teams the reward of a bigger salary or bonus. This is somewhat of a bump in the road but as long as it’s still in line with the demands of the business. However, there is no “right” way to decide how much you should pay yourself as the founder or CEO. But, to help you out, here are some ideal tips.
How much your business makes a month is obviously the best thing to base how much the CEO’s salary should be on. Until a company is making more than $10,000 a month, the average salary won’t be any more than $50,000. Then whenever a startup business gets more than a million a month in revenue, the founder’s salary will be over $100,000. In the earlier stages there isn’t a lot of money and the compensation will either be really low or not existent at all. Once your company starts progressing and the revenue starts increasing, you can increase the compensation as well. Make sure you understand that as your company grows, you will have to start hiring more employees, and how much you pay yourself is seen by your employees and affects them.
SETTLE ON YOUR LIVING WAGE
A way to figure out salary is by taking a look at how much you need to meet your requirements to live. Depending on things like relationship status, children, property, food, mortgage, and health can all play a role in figuring out how much your monthly living should be. When starting a business, you should be ready to only be paying for what you absolutely need until your company takes off and you’re making more. Make a budget that lists all your debt and expenses which shows you how much you need to be making to just be living.
A number of starting businesses choose a salary as if the business was making a profit already and then take a break from that salary for a while. The only break until they actually have the funding they need. These founders don’t instantly raise themselves to that salary but they go up slowly. Basically, make sure you’re not setting too high of a salary, but one that makes sense for you and the rest of your business. Take your time to work up and increase it as you grow.
Whenever you reach a milestone in your business, go back to your salary and be sure your company is utilizing all of its resources the best it can. This may mean giving yourself or any other members a raise that they’ve worked for and that you’re able to give them while being able to afford it.
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About the Author: Lalanii Wilson-Jones, MBA is a dynamic business leader based in Dallas, Texas who owns & operates multiple companies across several industries. Her range of talents and experience makes her an ideal candidate for strong economic partnerships all over the world, a great mentor and a great source of information that can change the mechanics of any sized company.
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