united-states, employees, employee-compensation, salary, ownershipLets say I own a startup with a handful of employees that is making $6,000,000 a year while only costing $1,000,000, therefore it is drowning in cash. Can I pay myself whatever I want out of the remaining cash, or are there some restrictions? Also, are there steps to take early on in order to have as much freedom as possible?
It's difficult to answer this without knowing the legal details of the company (which don't exist anyway.) If you are the only owner of your company, it's likely a sole propietorship or LLC.
Under a sole proprietorship, the individual and business share income, assets and debts. If this is the situation, the income of the company is already in your hands and you are already paying taxes on it.
Under an LLC, the rules for distributing profits to owners would be documented in your formation documents if you had any. Since you are the sole owner, you can make all of the decisions. I think the easiest way would be pay yourself a yearly salary, which you would of course have to pay income taxes on. (If you want a more detailed look at your options you may want to read this)
You may not want to pay yourself early on in the startup if you can afford it, so the startup can grow more quickly. In this hypothetical, it looks like you have plenty of cash to spare, but we don't really know the future plans of this company and can't give a definitive answer.
Also, if you really are making these kinds of profits, a few raises may be in order. Many of those employees are probably from the early, risky days of your startup and it would be nice to reward them. Your call though.
Just expanding on a few other considerations. While you most likely can pay yourself whatever you want, I would assume your end goal is acquisition or IPO, hence investing into rapid growth, while keeping some reserves would be appropriate.
You can live a nice lifestyle with $200k p/a you can expand that later if required. Early employees will either have equity or just a pay check. If they have equity they want to see an exit, if its just a pay check make sure you are paying top market rates if they are worth it. I’d put the rest into heavy growth investment. Start thinking long term, with larger returns in the 10x range coming in 5-7 years, maybe sooner.
All content is licensed under CC BY-SA 3.0.