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6 Ways to Determine Whether to Pay Yourself or Reinvest Into Your Business

The Huffington Post The Huffington Post 5/11/2015 BusinessCollective

Business is going exceptionally well and you're starting to see your company's financials trending in a positive direction. As a young founder whose business is your "baby," it can feel like a well-deserved reward to start paying yourself a better salary.

You must also consider, however, how this decision will impact your company's cash flow and whether you can really afford to do so at this time. Here are six things to think about:

A. Think about your exit.

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I can only speak for myself, but since my goal is to exit the business with a good payout, every penny I make goes towards that goal. Every quarter I re-evaluate how much I will need to live comfortably and I will pay myself that amount, not a penny more. My standards of living haven't evolved much with the success of my business, but I'm willing to sacrifice in the short term. - Tim Grassin, Candy Banners

A. Invest in yourself and your business smartly.

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When finally making some good money with your business, most people will try to pull out as much as they can. My personal recommendation is to pour your money back into the company, while taking enough out to keep yourself comfortable at the same time. Business isn't easy and neither is paying your mortgage. Find a medium between the two, but be careful not to base your salary on your ego. - Zac Johnson, How to Start a Blog

A. Pay yourself enough that you don't have to worry about money.

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If your business is doing well, chances are that you're working your butt off. Make sure that you pay yourself enough so that you aren't constantly worried about money and can live a comfortable lifestyle while still being able to invest significant cash in growing your business. -Lisa Curtis, Kuli Kuli

A. Determine your opportunity cost.

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Try and measure what your potential raise in pay could be used for in the business. A new piece of tech? A new hire? Even if you're profitable, you may discover the extra money would be better spent solving current growth issues. Deploying free cash to new opportunities or improving your product may very well advance your company and valuation beyond what the extra compensation would bring in. - Julian Flores, GetOutfitted, Inc.

A. Weigh the costs/benefits.

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You have to ask yourself what is the cost of you not paying yourself enough, versus not investing enough back into your business for the next employee, contractor, piece of equipment or whatever resource that will help you grow your business to the next level of success. Pay yourself enough to handle the bills and so that you're not stressing over debt all the time, but invest enough to grow the business. - Steven Newlon, SYN3RGY Creative Group

A. Invest in quality of life.

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Quality of life comes from building a work/life style where you can effectively care for yourself, loved ones and your business -- and that takes priorities. Today, look for low-risk, high-return investment opportunities within your business to reduce risk and operational overhead, or to increase capabilities and throughput, so tomorrow you can reward yourself with better owner withdraw terms. - O. Liam Wright, True Interaction

These answers are provided by members of FounderSociety, an invitation-only organization comprised of ambitious startup founders and business owners.

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