Can Your Company Afford You?

When you embark on the adventure of entrepreneurship, there will inevitably be ups and downs for you financially.  At the end of the day, you pay employees, vendors and others and then you receive a paycheck.  Therefore, there are three numbers you need to have a solid understanding of.  I call them Survival, Comfortable and Ultimate. Survival is your worst case scenario.

It is the absolute bear minimum your company needs to pay you in order for you to survive and pay your basic bills.  It is very important to note though that the time you spend in Survival mode should be minimal.  If your company cannot pay you your Survival number other than in rare instances of growth or extra investment, then the hard answer might be that your company cannot afford you.

Once you get a handle on the answer to that all important question, then there are two additional levels of entrepreneurial compensation.

Comfortable is a step up from Survival.

At this level, you are taking a consistent salary, saving for retirement and taking vacations.  This is your Survival number plus the cost to do those things.  Comfortable comes with a different thought pattern.  At this level, you are supporting yourself and providing for your family, but you have the luxury of making decisions.  Maybe you can't quite get to the high end of Comfortable earnings but your passion for what you are doing makes it worth it to you.  That is your decision to make.

Ultimate is the highest number you can imagine your company providing for you.  

It's tempting to say "the sky is the limit", but try to put an actual number on this.  Goals are much more attainable if they are quantified.  This is a fun number to think about as a business owner...even if you are devoted to what you are doing and not in it for the money, passion can fuel the financial success of your company faster than anything else you can inject into it making Ultimate that much more attainable!

By knowing these three numbers, you can ensure that you know first and foremost whether your company can afford you.  Then you can build these numbers into other tools to fuel your growth likes budgets, cash flows forecasts and more.

To learn more about how to calculate these three metrics and tie them into your company's financial success, check out Tanya's on demand course for entrepreneurs - The VAST:Track Guide to Startup Success. Click here to learn more.