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More Than Half of Entrepreneurs Forgo Salaries When They Launch Their Companies

New data from Kabbage reveals just how scrappy the initial start-up phase is for most entrepreneurs.

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BY Michelle Cheng - 28 Feb 2019

entrepreneurs forgo salaries

PHOTO CREDIT: Getty Images

For a lot of founders, starting a company can be a path to new levels of wealth. But in the beginning? Don't expect a paycheck--at least for a while.

New data from Kabbage, an Atlanta-based financial services firm that provides loans to small businesses, sheds light on exactly how long most business owners tend to forgo paying themselves.

A survey of 500 entrepreneurs across various industries revealed that 51 percent of small-business owners did not pay themselves for multiple months to control the cash flow in their company. The survey found that 26 percent of respondents had gone two to six months without paying themselves and another 25 percent went more than six months without a salary. Respondents were all Kabbage customers who had run a company for an average of 10.5 years.

The startup world is filled with now-successful founders who were forced to start very scrappily. For example, Lyft co-founders John Zimmer and Logan Green did not take a salary during the first three years of building the now $15 billion ride-sharing empire. "It was helpful that I saved some money," Zimmer told Business Insider's U.S. editor-in-chief, Alyson Shontell, in an episode of the "Success: How I Did It" podcast. "We basically lived in an apartment that was also our office. We called it the 'apartifice.'" (The founders did not, however, disclose how much they had in savings.)

The Kabbage survey also highlights how money issues affect entrepreneurs and their well-being. Sixty-three percent of respondents said they are regularly stressed or have anxiety because of cash flow concerns--often losing sleep over it, sacrificing much of their social lives, and allowing their family life to suffer.

That's something that Zume Pizza co-founder and CEO Julia Collins had to face earlier in her career. In her former role of CFO at the Mexican and barbecue fusion restaurant Mexicue, Collins said she didn't pay herself for two years, which eventually led to her feeling completely burned out. It was then she learned it's OK to divert some funding to pay herself a reasonable salary.

"The journey of being a founder is very taxing," Collins said at the Black Women Raise Conference back in January. "What I didn't know is that when you raise money in rounds, it's appropriate to take money from the table. You should negotiate a way to sell some of your equity in order to build yourself a cushion."

 

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