For me, one of the hardest parts of running a venture-backed startup is knowing that I make far less income than I would if I still ran my web agency. At the agency, all the profits were mine; at my venture-backed startup, my board of directors has control. In calculating my salary, we collectively set it so I could earn enough to fund my life—barely. Yes, my budget includes a small amount toward my retirement and enough cash to purchase a TV-ready wardrobe. But that’s it. No fat.
When a new year rolls around, expenses in November and December usually exceed my just-enough income. So I depend on a $10,000 February bonus to start the year in the black. Many find it ironic that as the head of a financial media company I don’t simply negotiate for a higher salary. But when I’m also the largest shareholder, I consider my enterprise’s cash flow to be just as important as my personal cash flow.
Before I launched DailyWorth, I’d taken annual cash bonuses without considering the tax ramifications—and been stung at tax time for it. But this year I got help.
First, I turned to CPA Dennis Najjar, co-founder of AccountingDepartment.com. He suggested that I consult with my tax advisor and compile a projection for the year based on my expected income and expenses. Then he advised funding an IRA or a 401(k) with part of the bonus to reduce my overall taxable income.
Putting retirement first might not make sense to every founder. Still, given the enormous financial stress and risk of growing our companies, it’s important that we don’t risk our personal security for the sake of our business.
From Emily Boothroyd, a certified financial planner with Westport Resources in Connecticut, I learned that I needed to balance the tax benefits of a 401(k) or an IRA with building up an emergency fund that could cover a few months of personal expenses.
“This fund is crucial so you aren’t maxing out your credit cards or pulling from retirement accounts early if disaster strikes,” Boothroyd says.
I’ve now got an A-to-Z plan for my bonus: ensure that my taxes withheld and deductions taken are correct, put a small percentage toward retirement for the tax benefits, and split the rest between paying off holiday expenses and replenishing my emergency fund. It’s a simple plan, but following through on it this year and in the years to come should ensure that my own cash flow is as healthy as that of my company.
