I was 22 when I started my company. At 22, I had no idea how to place value on my work and time.

In fact, I was under the impression that entrepreneurs and founders should get paid when there's enough money. I thought that everyone should be paid first and you should keep reinvesting your money in your company and your team in order to make the company grow.

I cash-flowed my living expenses on nine different personal credit cards and put myself in debt in the first three years of my business.

Now a decade later, here's what I learned about why you should always pay yourself first:

1. You are the best and most valuable employee you have

I would pay my managers sometimes more than I was getting paid in the first few years.

I was the one that was bearing the legal liabilities, the financial risk and the responsibility of managing everyone that worked under me. I was essentially the manager of my manager and I should have been getting paid more and first.

The investment I was making in another who would inevitably end up leaving the company, was really an investment I should have been making in myself.

I would have avoided some or most of my debt that I accrued at a high APR and I would have been able to start saving more cash either for personal growth or to have a pot to pull from if I wanted to reinvest back into the business.

Instead I was investing that money in an employee who would never reinvest back into the business if need be and could leave the company at any time.

2. When you work for free, you start to resent your work

After a few years of working for free and accumulating debt, I started to feel bitter and more importantly exhausted. You have to give yourself oxygen to be functioning well before you can assist another with their oxygen mask on a plane. I have always known that and somehow forgot to apply it to my financial well being as a startup entrepreneur.

It's important as the head of your company that you feel good--emotionally, physically and mentally--which often requires cash to spend on personal care, well being or to lessen financial stress and have more stability in your life.

If you are burnt out, underpaid and starting to become bitter, it will take a toll on your team and hinder the growth of your company.

3. When you pay yourself first, you will create more efficiency in your company

When you come from the mentality that you need to pay yourself first, you are forced to cut costs in other areas of your business.

Your company becomes more cost efficient and ultimately, that will lead to a more profitable and operation. In the long term, a company with lean expenses will be worth more than a company with high overhead.

Most of the time the salary you pay yourself in your company will be added back to the value of your company when you are considering an exit.

 

The transition for me took place when I started to do the work I was hiring other people to do. This allowed me to be in the details of my business so that I could continuously make tweaks making the operation increasingly efficient.

Once I did that, I was able to pay myself more and eventually hire individuals cost efficiently, while giving them further specified work and goals. 

 

Published on: Jul 26, 2016