I recently wrote a blog about controlling your costs. I got a few emails pvalia@businessangelblog.com (thank you) asking me about salaries for the management team in a business plan. I hope you find my response below helpful.

There are two types of money you can earn; Income and Wealth. Entrepreneurship is about generating wealth for yourself and your investors in the business. If your primary objective in starting a business is to generate an income, there is nothing wrong with that. Please recognize though that this is what I would call a lifestyle business and it is not an investable proposition for external investors (friends and family may still wish to invest).

In business plans for start ups where the entrepreneur does not have a great track record, the salaries have to be very modest. I simply will not tolerate a situation where the investor is seen to carry all the risks and the so called entrepreneur carries on with a great lifestyle irrespective of the fate of the business.

I do see business plans, where the Entrepreneur puts himself down to earn over £60,000 per annum. I find this figure a tad high for a start up situation. They should recognize that till the business starts delivering a profit, they need to earn enough to just keep going. They should be motivated by generating a huge amount of wealth for themselves rather than income.

The defence they (owners seeking high salaries) often cite is that they are very talented and could earn a much higher salary in the market place. I hear that, but I think they have missed the central point about wealth v income. And if they value an income so highly - I would urge them against being an entrepreneur - as it really is probably not for them. They should stay in a highly paid job.

As an interesting aside, I looked at the businesses I have invested in over the last few years and found out that the average salary of the CEO’s I have backed is around £40,000. Interestingly (and not scientific at all), businesses that have failed for me tend to have much higher CEO salaries (average in this bunch has been £60,000)

I am working on a new start up at the moment, and I will not take a penny as a salary until the business generates revenue. I accept this happily as I have a 75% stake in the business. My attitude is simply - sod the income - think of the wealth if it succeeds!

Related posts

• Controlling your costs (4)
• Which structure? (2)
• Where do I start in raising money? (2)
• What is a hedge fund? (1)
• What are investors obsessed with? (1)