The founder salary problem

That choice bought something real. Every kina I left in Stella went into the next print run, the next RUNWAY show and the next issue on a shop wall. Leaving it there also kept the decisions with me. In effect, the arrangement worked as a loan from me to my own business, at zero interest, with the repayment date left blank and the tally kept in my head.

Picture Joel, who runs a carpentry crew in Popondetta. Each fortnight he pays his two workers K600 each, buys timber and fuel, and takes home what the job leaves him, which some fortnights comes to the cost of a PMV fare. Five years in, the business owns a generator, two saws and a ute, and every kina of that value sits in the business rather than in his name.

The catch with a loan like that is who covers the founder while it runs. Whenever the advertising fell short of the printing bill, I covered the difference myself. When I put Stella on hiatus, I was carrying the debt of running it. I swallowed my pride and negotiated payment plans, running from 6 weeks to 88, with everyone I owed.

Debt costs time as well as money. Every fortnight of repayments sends that fortnight's pay to the past, and every other plan waits in the queue behind it. Economists call that opportunity cost, the value of whatever a choice made you give up. David I. Green wrote about it under that name in 1894, observing that in "devoting our efforts to any one task, we necessarily give up the opportunity of doing certain other things."

My last instalment cleared in 2019. I remember the first fortnight after it, when the whole pay was mine. I turned my fire extinguisher, the 20 per cent bucket I had aimed at my debts every fortnight, towards my future plans instead. I savoured the symbolism of it. My twenty-five-year-old voice still told me money talk was rude, so I kept it to myself.

After that an automatic transfer filled the fire extinguisher every fortnight. I adjusted it whenever my pay changed, and otherwise lost track of it. Four years on, the balance snuck up on me: I could afford a deposit on a house.

The founder salary problem comes down to timing. The business gets paid first, in cash, and the founder gets paid last. That order cost me years, first paying down the debt and then growing the deposit.

Best

Amanda

P.S. What’s your view on today’s newsletter? Did I miss something out that you’d like to share? Write to me, [email protected]. I may not get back to you, but I will try to read what you send in.

Wild Money is general information only, drawn from my own experience and research. It isn't financial advice, and nothing in it is a recommendation to buy, sell, hold or manage money in any particular way. What worked for me won't necessarily suit you. Please seek advice from a licensed financial adviser before making decisions about your own money.