Pay Yourself vs Investing in the Business
One of the most common questions scaling business owners wrestle with is: How do I balance paying myself with reinvesting in the business? On the one hand, you’ve taken the leap, worked hard, and should be compensated for the risks and effort you’ve put in. On the other, you know that reinvesting profits into your business can fuel growth, improve cash flow, and create long-term value.
So how do you find the right balance between taking money out for yourself and leaving enough in to fund your business’s future?
Why This Matters
Too many business owners fall into one of two traps:
Paying themselves too little (or not at all): This often leads to personal financial stress and resentment, making it harder to show up fully for the business.
Taking too much too soon: This can starve the business of the capital it needs to grow, leaving it vulnerable to cash shortfalls, missed opportunities, or an overreliance on debt.
Neither extreme is sustainable. What you need is a structured way to think about owner pay that adapts as your business grows.
The “Owner’s Pay Rule”
The traditional rule of thumb is that owners should pay themselves a percentage of revenue, often between 10% and 20%, depending on the stage and structure of the business. This works as a starting point but can feel overly simplistic when you’re scaling.
For growth-minded businesses, here’s a more balanced approach:
Cover Your Base Salary First
Pay yourself at least a base salary, ideally equal to what it would cost to replace you in the business. If you’re the CEO, sales lead, and operations manager all rolled into one, think carefully about what portion of those roles is sustainable to compensate. This ensures you don’t undercut your own livelihood while the business benefits from your effort.Set a Reinvestment Target
Decide upfront what percentage of profits will be reinvested into growth initiatives such as new hires, marketing campaigns, technology, or product development. For example, you might commit to reinvesting 40% of profits during the next two years to accelerate expansion.Take Distributions in Line With Performance
Once your base salary and reinvestment targets are met, you can take additional distributions. This aligns your rewards with the performance of the business and encourages disciplined growth rather than draining profits too early.
When to Prioritise Owner Pay
If your personal finances are stretched: A stressed business owner is less effective. Paying yourself adequately helps maintain energy, focus, and sustainability. If the business finances are also stretched, seek expert advice from an accountant or Virtual CFO to determine the right approach.
If you’re replacing employment income: You need stability for your household. Undervaluing your contribution will only create pressure in the long run.
If growth is stable but not urgent: When your business is on track and growth opportunities aren’t time-sensitive, prioritising owner pay can be the smarter choice.
When to Prioritise Reinvestment
If growth opportunities are time-sensitive: For example, a surge in market demand or a chance to expand into a new territory.
If your business is heavily reliant on you: Investing in systems, automation, or team members can reduce dependency and increase long-term value.
If you need to strengthen the balance sheet: Reinvesting into cash reserves or reducing debt creates financial stability, which can open the door to future funding or acquisition opportunities.
A Practical Guideline
Here’s a simple framework you can use:
Start-Up Stage (up to $500k revenue): Pay yourself modestly but consistently. Prioritise covering your personal essentials while directing most surplus into growth.
Early Growth Stage ($500k–$2m revenue): Pay yourself at a market-equivalent salary. Reinvest heavily into team, systems, and marketing to fuel scale.
Established Growth Stage ($2m+ revenue): Balance is key. Ensure fair compensation for yourself, maintain reinvestment for growth, and begin taking regular distributions as profit allows.
Balancing owner pay with growth capital is about creating a financial rhythm that supports both your personal needs and your business’s ambitions. Pay yourself enough to stay motivated and secure, but not so much that the business is starved of the capital it needs to grow. When done right, this balance allows you to enjoy the rewards of your hard work today while building a stronger, more valuable business for tomorrow.