With a possible recession on the horizon, entrepreneurs are reevaluating how much to pay themselves
Some founders are thinking about how a
recessioncould impact their own pay.
- A 2021 report found that some entrepreneurs pay themselves six figures while others earn no salary.
Limited funding opportunities this year mean that entrepreneurs could face more difficulty raising the money they need to keep their businesses afloat. Meanwhile, layoffs are sweeping Fortune 500 firms like Netflix, Tesla, and Coinbase, and tech startups are also experiencing labor cuts. These developments have founders reevaluating their own
Last year, the small-business accounting firm Pilot launched their Founder Salary Report, where they asked more than 150 founders across the US about their salaries. The
Here's how startup leaders view their salaries and tweak them in economic downturns.
Salaries send messages to employees and stakeholders
The Founder Salary Report found 33% of entrepreneurs that responded to the survey had a salary between $100,000 and $149,000, while 9% didn't pay themselves at all.
Ethan Mollick, an associate professor at Wharton, told The New York Times that the decision to not have a salary can feel like a rite of passage for many business owners. He added that these entrepreneurs are waiting to see if their companies will be profitable first before rewarding themselves with equitable pay.
However, some experts argue that founders should pay themselves equitably from the very beginning because it showcases their value to the company.
Alice Bredin, a marketing entrepreneur, told Business News Daily in June that entrepreneurs need to pay themselves a salary as soon as they can afford to do so, or they're not painting the true picture of the company's financial health to the outside world.
"If you are not allocating funds for your own salary, your books do not accurately reflect the health of your company," she said. "Without factoring in all expenses, you won't know if you need to raise prices, market more, cut costs, or make other adjustments that will help your company succeed."
Some entrepreneurs are cutting their own salaries as a precaution
The Harvard Business Review found that in times of economic downturn, entrepreneurs looking to reduce costs usually cut jobs instead of
For founders who are considering whether they should take pay cuts, Maria Colacurcio, the chief executive of the workplace-equity platform Syndio, told The New York Times that they can seek their investors' advice. After all, they don't have to make the decision alone.
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