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Entrepreneurs and people who work with entrepreneurs know that most people don’t pay themselves the salary they would have to pay someone else to do the same work. The common metaphor of the founder not receiving a salary for his first three years is well known and even revered as a sacrifice to start a new business. This can work well for entrepreneurs who have a financial safety net or who can reasonably stay on a friend’s couch or otherwise avoid spending a few years. That doesn’t work for entrepreneurs who find themselves in tough financial situations to begin with.
A closer look at entrepreneur pay data reveals another problem. That is, the lack of equal pay between men and women is widely evidenced beyond employment. Despite laws and social movements, women continue to receive lower salaries than men when working for others. A study conducted by FreshBooks found that 70% of female entrepreneurs started their own business “at least in part because they faced sexism or a glass ceiling in a previous job.” However, this problem is not fixed when women cut their own checks. Our report at Polsky Exchange, a community-focused incubator at the University of Chicago, found that in 2022, only 42% of male members paid themselves a salary consistent with industry standards. For female members, less than 18% paid a similar salary.
Research shows that our members are not special. According to the same Fresh Books study, “On average, female entrepreneurs earn (or pay themselves) 28% less than their male counterparts.” Some experts say this may be partially due to some women starting companies in lower-paying occupations such as food businesses, childcare, and cleaning, resulting in lower salaries. It is pointed out that there is. However, the study found that this problem has not been rectified even when male and female managers are in the same industry.
The University of Chicago’s Polsky Center requires entrepreneurs on the Polsky Exchange to report on their revenue, profitability, number of employees and contractors hired, and to ensure that they receive a fair salary (defined as the amount they should receive). We are asking you to indicate whether you are paying. Paying someone else to perform a task. This is a solopreneur who not only develops and delivers a product or service, but also acts as the company’s accountant, (often unqualified) lawyer, marketer, web developer, administrator, etc. This poses a particularly complex problem for Balancing all of these roles, most entrepreneurs couldn’t find anyone else with the ability and desire to perform such a broad and deep task.
We’ve also found that many entrepreneurs tend to add their salaries and distributions to their balance sheet last, or just take what’s left in their business accounts at the end of the month or quarter. While we recognize the difficulty of accurately forecasting revenue and anticipating the negative financial events that occur in any business, we want to clarify the implications for business owners who operate their businesses in the following ways: I would like to make a correction. “It’s too valuable not to get paid.”
There are many strategies for increasing your salary as a business owner. Here are three that we have seen working in the wild.
Check if the business is profitable.
Businesses need to understand their margins (the difference between the cost of producing a product or providing a service and the cost of selling it) and create a balance sheet that shows the company’s current financial position. Several online accounting platforms can help with this, such as Quickbooks, which can automate the process by pulling information directly from a business’s bank account.
Improving profitability
To increase profitability, companies increase revenue, reduce costs, or both. Entrepreneurs may need to raise prices for some or all customers, find new customers willing to pay more, or find cheaper suppliers, manufacturers, or team members. not. Some work done by founders or employees may need to be outsourced. While this may seem like an expense, a founder’s time is often best spent selling and developing strategies to reach more customers and new markets. Hiring or contracting should save your business, not reduce it.
Run your finances, including your desired salary.
Business owners need to start with a salary that makes sense to them. Add that number to your income statement to see how much revenue your company needs to generate to pay that payroll. Adding it as a fixed cost also helps in setting sales targets.
If the numbers don’t work, that is, if the business can’t make its current model work if the owners pay them fairly, then the business won’t be profitable. The model should be tailored to allow them to pay for themselves what they need and preferably value.
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