<°| What are the payment terms towards paying yourself once you raise VC? 💰📝💱🏢|°>

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The Early Bird’s Club

7 min readAug 18, 2021

📌Among the personal finance and investing techniques that were certainly developed, one of the best methods in terms of saving a particular amount of money is the “pay yourself first” strategy.

The pay yourself first method is basically considered as an investor mentality, personal financing method, and retirement-planning literature that automatically routes for a specified savings contribution from each paycheck at the time it is received from the business platform. Thus, the savings contributions are automatically routed from each paycheck towards their savings or investment account by paying themselves first. In other words, paying yourself before the business begins paying their monthly living expenses and making discretionary purchases. The pay yourself method has basically proven the current roots in the business platform and allowed an extraordinary difference in the amount of ultimate net worth which the businesses accumulate for themselves and their family as that surplus cash quickly builds into certain funds which the business can use for investing in the business stocks, investing in bonds, building up a portfolio for index funds, or even beginning its accumulation on cash-generating real estate properties. Thus, the pay yourself first technique can be effortless to implement usually low-cost method and the business can start its income through minimal planning. Several personal finance professionals and retirement planners route for the “pay yourself first” plan as a very effective way for ensuring the business continues making their chosen savings contributions month after month. As the regular saving contribution goes a long way towards building long-term business growth, many financial professionals go for “pay yourself first” as the golden rule for doing personal finance. Alternatively, the business may put down its funds in a cash savings account, and therefore, the paying yourself first method simply involves the purpose of building up a retirement account, creating an emergency fund, or saving other long-term goals such as buying a house. According to certain research, a relatively small percentage of Americans basically follows the “pay yourself first” method. The advantage of “paying yourself first” out of their business paycheck basically builds up the business for securing their future and creating for financial emergencies. If anyone holds a small or medium business, they may want to pay themselves last in order to conserve their money, but putting yourself first is the basic trick for succeeding in their profitability since, they need to pay many of their business expenses for their company utilities, rent, inventory, staff wages, marketing which is very difficult for paying through their own salary.

Many of the business owners basically bootstrap their companies which makes them feel like paying themselves is a luxury in the necessity for the success of their business growth. In case the business begins to fail for one day, they would basically pay off by their profit and saving a little bit of money for a day. The businesses should not provide themself with a basic amount of salary because it allows tax benefits for certain business entities and also a reduction in their company’s profit.

Importance of paying yourself first in the business platform:-

The actual benefit of paying yourself first out of your own paycheck basically allows us for building up enough wealth in order to secure our future and create a business cushion for certain financial emergencies, such as vehicles break down, financial crises, business crises, unexpected medical expenses, etc. Without having enough savings, many people would basically experience certain stress if they do not pay sufficient money for their survival. Thus, people usually claim that they do not earn enough money for saving and basically feel anxious if they start saving from the beginning, they may not have enough money to cover out their living expenses. Several financial advisors usually recommend certain measures in order to survive in the economy such as allowing downsizing in order to reduce their business bills and free out themselves for some profitability for doing enough savings and it is very much important for knowing that their money should be set aside their retirement income access if it basically required in the near future purposes.

How to pay yourself from your own business platform in case of necessary requirements?

a)Checking your business profit: Before the business gets started by taking a hefty paycheck, you need to keep ensuring that your business is profitable or not, and if the business is running barely, then, lower your personal income. Unless you have a perfect business cash flow, then, only you can increase your income. You need to make sure that your business retains enough of its profits for growing continuously and operating efficiently.

b)Look into your expenses: As a business owner, you basically have all sorts of expenses and you need to also pay your certain taxes and overhead expenses for insurance, inventory, etc. Whenever you are considering paying yourself from your own business platform, you need to look upon your profits and overall expenses. If your business has more employees, then, you need to also pay certain wages, training costs, and benefits and if you are working as an employer, you need to take certain responsibility for ensuring that your employees get paid before you pay yourself by thorough checking of your expenses which are accountable during determining your pay.

c)Taking out reasonable compensation: The compensation is also known as the amount of money that the government expects you to take from your own business platform which depends on the size of the business, the market sector, and level of turnover and profit. The reasonable amount could be like how much would a similar business pay for the work in which the business holder works, recruitment ads and agencies offer for paying someone in your position, whether your wages are similar to your duties, and are those duties being performed and whether your wages seem reasonable when taken into account of your level of responsibility and the amount of business handling. The business could also talk to their founders which are similar to their businesses and also try to find out roughly what they pay themselves.

d)Considering the legal structure of your business: It is basically required on how much you can pay yourself, and when since, it might be restricted by the legal structure of the business through which the business process runs. If you run a sole proprietor business, you are usually free to pay yourself whatever and whenever you like and you do not have accountability for the shareholders or stockholders. In the case of incorporated businesses, the business owner is basically on the payroll and they would receive wages on a regular basis, just like any other employee.

e)Invest the money for growth: The profit on which the business usually takes out from their company which is not relatable for their business is the amount that cannot be used for investment and business growth and the real value of the money which they keep in the company is even greater. If you think that your business is going to grow in the future, you can use some of your profits for your business growth. The more you invest in your business platform, the more your company will grow at a larger scale.

Thus, when any business platform starts to pay itself first, they are prioritizing much of their long-term financial and other than focusing only on the immediate needs whether it is bill payment or business purposes, the owner would allow saving in case of their own future purposes rather than spending too much.

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<°| What are the payment terms towards paying yourself once you raise VC? 💰📝💱🏢|°>

Written by Dona Ghosh Dastidar