With CEO Pay being in the news recently, it’s probably a good time to talk about how much startup owners, the majority of which are CEO’s should pay themselves:
$4.27 million?
$70,000?
Nothing?
It’s true that the figures quoted in the Herald include share based compensation in the form of options. It’s also true that the majority of startup owner compensation will come in the form of shareholder value increases.
Therefore your salary, or how much you take home every week needs to be as low as possible. Everyone still has to live, but current and future investors will be looking at how you can fund further growth in the business, and paying an owner more sometimes might not achieve this.
Before you start paying yourself, you should agree with other shareholders and investors how much this will be on a weekly or monthly basis and determine a date to review it.
Is $70k enough?
Add up your personal weekly living expenses to see if you can make this work. In our experience founders take home as much (or as little) as $500 to $1,000 per week to pay their expenses. Tax is usually added on top of this when added into the Payroll System. Using the trusty IRD PAYE Calculator we can figure out that this works out to an annual salary between $36k and $84k per year, and will cost the startup between $3k and $7k per month.
What can your startup afford?
This might be a good time to start a cashflow forecast for your startup, which can be as simple as a back of a napkin monthly estimate or a more detailed spreadsheet (example). This will give you a good idea of how much the startup can afford to pay you by forecasting the cashflow of future revenue, expenses, and incoming investment.
Should you have any queries about forecasting or paying yourself please get in touch