This is quite tricky and deserves some thought.
On the one hand your business is new and can’t afford high salaries, and on the other, you can’t eat baked bean sandwiches for the rest of your life. However, there is a balance, with various things to consider:
Investors prefer to invest in growing the business rather than paying you a hefty salary. They may ask why you’re not shouldering some of the financial risk by taking a lower (or even no) salary.
If you pay yourself a high salary, it may need to be replicated with your co-founders and early employees, which further drains the cash.
You’ve got to be realistic that early employees will not be enticed from their current employment if they have to take a huge salary drop. Share options can play a role here.
You risk putting undue pressure on your family relationships if you take a sudden and dramatic drop in salary and give up the family medical care, car allowance etc.
Unrealistically low salaries hide the true cost of running your business.
You need to consider the minimum wage and the statutory requirement to have a pension scheme.
I think as a founder you can’t expect to pay yourself the same salary you’d be paid for doing the same job in a well-established and profitable business. But it’s also important not to pay yourself nothing, if only to make sure you’re paying enough NI contributions towards your state pension. It’s generally a positive if you can say to investors that you’re taking a pay cut in the early stages. But it’s also fair to make it clear that your remuneration package will rise as the company can afford it. You might consider deferring some of your salary until the business reaches a critical event – next financing round, product or service launch, positive cash flow. Or set business conditions for when a bonus can be paid.
In those early days it’s entirely possible that you’ll pay yourself less than some of your employees – who don’t have the same vested interests that you do. That’s often the nature of start-ups, but this is your opportunity for a big win, not theirs.
In some of my start ups I found myself being paid less than some of the most talented engineers, marketing and ops people. For a while I paid myself the minimum wage, but in 2017 (by way of a benchmark) I paid myself £50K, which was neither nothing, nor reflected my true value, but seemed to sit well with investors.
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