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Ask HN: How do you pay yourselves?
I'm aware this can vary by quite a bit by where people are. I'm involved in a local incubator, techstars/y-combinatoresque type of program (called BoomStartup). My cofounder and I are trying to figure out the best way to pay ourselves (to pay for rent, food, etc). We've been talking with a few people including financial people and attorneys but there hasn't yet been a good consensus on any of these three main options: 1) Pay ourselves as employees and deal with payroll taxes; 2) Pay ourselves as contractors and deal with taxes later; 3) Pay a dividend based on shares and pay capital gains tax (and we'd have to set something up with the incubator so we don't pay them for the shares they are holding, which we've already discussed with them and they are totally fine with doing - they are the only other people on our cap table).
I just thought I'd see what suggestions people here might have regarding this. I'm still trying to figure out the benefits and consequences of each method.
- cgherb911 16y agoYou're paying yourself? I would highly suggest keeping as much cash in the business as possible and put off paying yourself for as long as possible. You'll suffer now but thank yourself later. Get entrepreneurial on how to score free rent and food.
- ryanelkins 16y agoUnfortunately that doesn't really work for us. We do have some minimal costs - it would be great if we could live for free but that's not going to happen right now. I think even PG says that the money they give to companies is mostly to cover living expenses for a few months. Anyways, the question is how a founder in the earliest of stages takes money out for personal expenses when they need to.
- philwelch 16y agoScoring free rent and food sounds like almost as much work as the startup itself. I guess if you're in a college town, you could just pretend to be a student and attend student club meetings for the free pizza. I don't know how to handle the rent. You could always seduce girls, I guess. But that seems time consuming. And if you can score free food and seduce girls already, maybe your youth would be better spent that way rather than in a startup?
- cperciva 16y agoIANAL, but the "pay a dividend" approach can cause problems. It's generally illegal to pay a dividend which makes a company insolvent (for some definition of "insolvent"); and in many jurisdictions it's also illegal to pay dividends beyond a company's profits (for some definition of "profits"). If the company is spectacularly successful none of this will matter, of course -- but if the company fails, you'll want to be able to put it behind you without being hauled into court by allegations of fraudulent conveyance.
- byoung2 16y agoI'm involved in a local incubator, techstars/y-combinatoresque type of program (called BoomStartup) They should have someone who can advise you on this. I think if you are at this early stage, you should be paying these expenses out of your savings. Was the money from the incubator paid to you personally, or the business? If your startup is currently making money, you should be reinvesting that into the business. If it's you and a cofounder in a small apartment/office, you can probably pay rent, electricity, internet, etc., from the business checking account.
- waivej 16y agoInitially I moved savings into the business and started taking a draw. It might make sense to do this as payroll. I think regularity is important so you can ignore home issues and focus on the business. For several years, I've given myself a bimonthly check. When I hired an employee, he got the same rate. It's relatively low, but keeps me frugal at home. Eventually, I added a $15/month retirement deposit. It was all I could afford at the time and eventually increased it to $416/mo. (max a Roth IRA allows).
- AmberShah 16y agoI haven't gotten to the point of paying myself, but I'd probably just pick the easiest thing - paying myself as an employee. I think there are calculators online that show how much to deduct, etc. And then you avoid shooting yourself in the foot by paying a huge percentage come tax season (if you did it as a contractor).
- apowell 16y agoMy understanding is that the correct way to handle this is to pay yourself as an employee. I run my personal payroll through Intuit online payroll with direct deposit. It costs me a few bucks each month, but the time I spend not thinking about payroll is well worth it.