startup-costs, investmentI’m writing a projection document for my startup so I can present it to the investor and show him how much budget we need.
My partner told me to include a minimum amount of money to “salary” so we can have money for gas and personal stuff, since we’re gonna be working on the project the entire time without another job. We’re projecting it to 6 months, which means the document contains info how how much money we need to develop the project in 6 months.
Should we include that salary thing?
Absolutely.
Every investor I have come into contact with sees this as pertinent.
If you don’t have it in your budget, I guarantee someone will ask (if it’s a serious startup) - “Are you guys paying yourselves?” This becomes a punnet square here:
If you are paying yourself, and haven’t included it, it’s very sloppy and unprofessional
If you are not paying yourself, you better not put it on! (disregard this impossible case)
If you aren’t paying yourself, you’ll be asked why. If you need the money, you should include it. This is very important, investors want to see that you can take care of yourself and budget for taking care of yourself.
If you have a good reason why you aren’t, that’s perfectly fine. Just be sure to give it.
I’m broke. I’m poor. I opt in to pay myself. The choice is yours.
Budget what you think you need to work on the project full-time for six months. If that involves paying business related expenses like travel, include that. If you can’t afford to work for free for six months, give your self a salary and make sure to list it.
Being able to operate on a shoestring budget may impress investors, but make sure you can actually follow through with it. In the end it’s more important to the investor that you actually deliver what you commit to, for the budget you estimated.
You will definitely want to pay yourself enough to live on if you are doing this full time for six months! Hypothetically, if you had enough of your own savings to live on in that time, you may be better off from the point of view of having a realistic and credible business plan to invest that money in the business for yourself, then pay it out to yourself as a salary, so it is clear what the work you are doing is costing the business (and, in turn, the investor).
This is a little semantic, but it is worth noting that some business plans will consider the staffing costs in a ‘personnel plan’, and the purchases of goods and services from external sources in a ‘budget’. Both of these are expenses, but some investors and funding bodies will consider them separate categories.
Depending on where you are looking for funding, it might also be useful to justify why you believe you deserve the salary you wish to pay yourself, for example, with a summary of your own costs (a personal survival budget), to put into perspective why you feel the need to pay yourself the amount you do; (when I want through my last round of funding, it was noted by my mentor that my proposed salary was a little higher than many who were competing for the funding, and I was able to quantify that a little by listing my living costs, as someone who lives alone, completing against quite a few founders who were recent graduates living with their parents or similar).
The bottom line is whatever you do, make it clear from the plan!
The key question is, how are you going to pay the bills?
If you have planned to self-fund, then it’s entirely up to you how and whether you include remuneration in an initial plan. If not, then you need to be realistic and bake in a survival ration at the very least.
Only don’t confuse survival rations with salaries. Some investors, for some start-up projects, will be perfectly happy to see a plan that includes salaries at (some discount to) market rate, whether actually to be paid out in full, or to be recognised as “salary sacrifice,” a cash-like investment in the business and its risks, with an equity or equivalent reward.
You need to include EVERYTHING that concerns your budget. Your salary is truly a concern.
A good advice, is to budget you personal cost, with respect to your privacy of course. Try to show what you pay in rent, mortgage, car, food, transport, insurance etc. If you can show your investor somehow, that you are making personal cut downs on your private budget in order to focus on developing your company, you show that you are serious about your startup.
Often you also budget salary in the first couple of years. Here you will often also be underpaid according to market salary for a CEO. But you can compensate that with stocks/shares of your company. The compensation could be, that you are promised to buy shares at value 100 after 5 years, when the value hopefully is higher. So go for a low salary in the beginning, but with the option to get a compensation after a few years.
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