How to know when your business is really an expensive hobby. Lesson 1: not paying yourself

For my next few posts, I wanted to provide the best insight possible into how you can discern an expensive hobby from an actual business.

While I’m sure there are still people who believe a start-up can generate millions out of nothing, hopefully most will realise that building a business is going to cost a lot of money. As previously stated, the average cost of setting up a business is £94,000.

So how can you be sure when spending all your savings/borrowed money/loans that you’re laying the foundations for a great business success or just flushing your cash down the toilet?

Well, here are some key indicators.

Not paying yourself

I think over the course of 4 years, Jo and I probably paid ourselves about £1,000.

This is one of the most common ways for start-ups to keep cost downs. I remember seeing a job advertised on “Escape the City” (a recruitment site specifically for start-ups) and under the job’s remuneration it said, ‘Based on experience (though you’ll be paid more than the owner’s!)’. And I thought, what sort of career progression is this start-up offering when it seems the higher the ladder you go, the less you’ll be paid.

Ideally, the boss should be earning the most. Then, again ideally, when the business is bought for mega-bucks all the employees can receive something of a windfall. But if the employees are being paid more than the founder, this I would say would not only rouse suspicions about the start-ups financial security but also whether the boss is just motivated by short-term success.

Therefore when doing your budgeting, factor in your own pay. And if you’re not paying yourself to make the numbers add up, then accept that you’re kicking a whole can of problems down the road.

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