From $50 a week to $250,000 a year: Here’s what Australian business owners pay themselves

While there’s a lot of glory associated with starting a new small business or startup, almost none of that glory comes in the form of a fat paycheck — at least not straight away.

It’s one of the starkest differences between running your own business and working at someone else’s, and the question of pay is one that often plagues the mind of a founder. When you’re an employee, it’s usually up to someone else to decide your pay level and structure, but when it comes to setting that yourself, business owners are often left with no clue.

Often this leads to business owners paying themselves nothing, or next to nothing, as they pour all their potential earnings back into the business to give it the best chance to grow. This can work, but it leads to founders with smaller salaries than any other employee, and still well under market rates despite their business continuing to go from strength to strength.

Smart 30 Under 30 alumni Katherine Roberts, co-founder of meal delivery service This Little Pig Went To Market, tells SmartCompany she and her co-founder decided from very early on that the two would take a small salary from the business, but they didn’t actually start to draw it from the business until a few months in. The salary was very low, mostly for tax purposes, but the two had the vision they could backpay themselves in the future.

“We thought that while we might not be getting the best wage now, as the business grows and starts to make a lot of money we could look back and eventually backpay us for those lean years,” she says.

Roberts says business owners are more likely to forego a large salary in the early days because cash flow is such a pertinent issue. In those times, founders are more likely to allocate resources where they’re “desperately needed”.

“So in a lot of cases, you just end up being the burnt chop, because you have to pay everyone else before yourself,” she says.

Roberts also says it’s “so depressing” as a founder to start employing people full-time and see them on higher salaries than yourself, but says she viewed this as essential for the growth of the business.

“From my perspective, while the business is making money it should go back into the growth of the business because extra cash flow should go into an extra cool room or an extra delivery van rather than into my wage,” she says.

It’s a bit of a different story for founder of IT services company itGenius Peter Moriarty. Speaking to SmartCompany, the founder says in the first two years of his business, he was 20 years old with minimum living expenses, and he still lived at home.

This allowed the business owner to pay himself a salary of around $40,000, which would bump up to around $50,000 after he claimed various expenses on tax.

“It was enough to live on in Sydney, but not enough to have kids or own a house or anything like that. But I knew this was a long game, so I was happy to pay myself that much for the first three or four years,” he says.

But the young founder says it was definitely a “kick in the nuts” when he began to pay other employees $80,000 salaries while he was still on $50,000. Like Roberts, he viewed it as necessary to keep growing the business.

Around year five is when the business began to make “good money”, says Moriarty, which led to the founder increasing his salary incrementally, first jumping up to $80,000, and then increasing it by $20,000 for the next two years after.

Today, with itGenius nearly 10 years old, the founder says he’s on a “comfortable” six-figure salary, but doesn’t think that will increase, or needs to increase.

“I don’t think business owners should be earning $1 million a year out of the business. They should be paid market rate and the rest should be recapitalised into the business,” he says.

“I think once you hit a comfortable salary, you should focus on getting some more time back rather than getting more money back. It’s about knowing when enough is enough.

“I see the guys who drive the $300,000 Porche to the office every single day and think, ‘what the hell are you doing mate?’ Just drive a Ford and give yourself a bit more time and freedom instead.”

However, both Roberts and Moriarty believe business owners should also know when’s the right time to increase their own salaries, as business owners often work the hardest, so they deserve to be rewarded.

So what do business owners pay themselves?

To try and shine more light on exactly how much business owners pay themselves, SmartCompany spoke to over 30 small businesses and startups of different sizes. Of those who responded, around half agreed to share their compensation details anonymously.

We’ve included those responses below, along with details on the company’s size and amount of time it has been running. The average current salaries of these business owners (when provided) is around $110,000, and the majority of them have doubled their salaries since they first began to pay themselves in their business.

Nearly every founder paid themselves nothing at the start of their business and didn’t start paying themselves a salary until one or two years into the business. The lowest starting salary for a business owner was $50 a week, and the highest was $150,000 plus dividends.

While this is an incomplete and patchy dataset, we hope this helps business owners to decide how best to compensate themselves in their business. The full set of responses are below:

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