The trap of paying yourself less to boost cash flow

You’re not alone in sacrificing a decent salary to conserve capital within your business. But is this a solid strategy?

“I personally pay myself a very measly salary, and the intention there is that … I want the cash flow to be decent for the short term and to be able to say, if we’re going to run a new campaign, or if we want to build something or bring in a new staff member, I have cash to do so,” says Paul Glossop, founder of Pure Property Investment.

“For me it’s sort of been managing my own expenses and my appetite. I still drive a 30-year-old car, I’m happy to admit it. It overheated on the way here!”

According to Paul, these personal sacrifices are necessary within a young business as a means of preserving cash flow and allowing the company to grow – provided that capital is spent wisely.Large metal trap

“Cash flow in the business for me is key. If I’ve got it, I’m going to use it and spend it. It’s having confidence to say you’ve got to be able to spend it and you’ve got to spend it in the right way, so having the right support stuff around you to be able to say where you should be spending this money, if at all.”

This is a short-term strategy to boost working capital, insists Paul, and he is mindful of not getting caught in the trap of doing it on an ongoing basis.

“If I’m going to build this company … if you're going to want a million-dollar turnover … what is going to be the best money spent that’s going to a) increase my per hour money that’s going to bring me in; or b) is it going to support the mechanism? And if someone else can do this and they can do it more efficiently and cheaper and faster, is that the way I’ll grow my business?” he explains.

To avoid the trap of paying himself below fair value, Paul says he is putting a salary structure in place for everyone in the business, including himself, but keeping it in the broader context of the long-term plan.

“It’s going to be a reasonable salary, and that’s going to be sitting there,” he says.

“[My long-term goal] is to build this company up to the point where I want to have the ability to have this business running itself sufficiently without me necessarily being here every day.

“We’re looking to build an alliance of people who can do relatively similar jobs to what I do now, but potentially with more capacity, more benefits.”

Paul adds: “That’s where our spend looks to be going, and I think that’s going to build our business into different spaces.”

Hear more from Paul, including tips on qualifying new business leads and whether charging engagement fees is a good habit, on the My Business Podcast now!

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