Getting Paid From Your Business

Do you pay yourself or do you work for free?

You may decide to work for free as you start a new business, spending time and energy without any compensation because the revenue is not there yet to support paying you a salary. This is an important consideration of the business, because it cannot go on indefinitely, and resolving when and how to start getting paid from a newly created venture can be more complicated than it may first appear.

At this juncture, I jovially advise that (You) the business owner get to develop a case of Professional schizophrenia: You become two people with two different personalities and two different incentive models. First, you are the business owner that owns the business asset and is responsible for the business results, and you are the employee, the person who gets the work done.

For me, the best experiences have been where, in the beginning, if my partners and I were working for free, we allocated (and usually accrued) some meaningful percentage of the business revenue for a fair salary for the tasks that we were performing but not receiving compensation.

For example, if you work 10 hours this week in a job that is worth $15 an hour to your business; the business owes you $150 as an employee. The philosophy here is that you accrue the value that you bring to the company. When the business actually starts making a profit, the business will be able to reimburse you for your past work.

There is another very important reason to approach compensation this way. When the business becomes more profitable, you can choose to do the work or hire someone else. When you determine that it is time for you to delegate that task, you would have already made the allocation to pay a fair salary for that job.

I cannot tell you how many businesses I have seen stay small and do not grow because the owner never paid himself, so he has no clue how to pay somebody else to do his job. They bypass incredible opportunities in their lives because they cannot give up doing the bookkeeping in their business because they “have been doing it since the beginning,” when they could be spending those four or five hours a month going in and engaging in other things that would utilize their talents and passions more effectively.

There is nothing wrong with true self-sufficient self-employment, but if you ever want to go on vacation for a month, or if you ever want to go to Columbia to learn Spanish for two or three months, that business model will not work. If you have to always be in your business, then you do not have a business, you own a job. There is nothing wrong with owning a job, it just has the potential to rob you of freedom.

The idea here is for you to make sure that you allocate the appropriate value for what a job is worth in your business, so as your business grows, you can begin to remove yourself from the operations and get paid from your profits. You will also be able to readily reallocate the wage to the new person who is responsible for doing the job.