Founders' compensation in business plan: include it or not?
We're presenting a business plan for our startup, and I wonder if we should include our own compensation in the financial projections. I mean, our compensation is distributed on a "as-available" basis, meaning that if on a given month we have money, we get paid, otherwise we don't (or we get paid only a small amount). Anyway, we'll handle our compensations in a very flexible way.
We have some (mostly fictitious) sales projections that should generate some revenue. Should we include our own compensation based on these sales projections, or is it better to just say that we get paid at the end of the fiscal year?
Note that this business plan is oriented to advisors, not potential investors.
3 Answers
You should put as many relevant facts and assumptions in your plan as possible.
By the way - I would not call your revenue #'s "fictitious" - I think you want to refer to these as assumptions - and you should be able to easily show someone how you derived these #'s - "we hired two sales people, each of whom we assumed could close 5 deals per month and we assumed an average deal size of $10K, and we assumed a sales cycle of 3 months so after 3 months, we show revenue of $100K / month...."
It's OK to make part of your comp contingent - as in "if we achieved X $'s in revenue, we'll take out Y $'s in compensation".You might consider a variable construct - "we get a base salary of Z $'sand if we achieve these aggressive targets, we'll get a bonus of Q $'s."
You can structure this as potentially deferred if you don't have the cash flow - just don't lose it completely.
The other nuance here is that I am presuming you're keeping a big chunk of equity as the founder so you probably don't want to look too greedy - you want just enough to live on.
A) this is more attractive to investors
B) if you do this right - and set up your 83B election correctly - you're going to be taxed at capital gains and not ordinary income rates. Just make SURE you set up the 83b election properly and on time.
Good luck.
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+1, especially on "ficitious" – Jason 14 years ago
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Well, fictitious as in "not backed by any real data". They're predictions. – Deleted 14 years ago
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Think of them this way - they should not be predictions - they're fact based assumptions - "if the car gets 20 miles to the gallon and we travel 100 miles and gas costs $3.00, then we'll spend $15.00 on gas". Reality is that your mileage might be different, the distance might be different and the cost of gas might be different but at least you'll be in the neighborhood. You're not committing to these #'s - you're simply using them to illustrate what might happen and you need to be clear that these are assumptions - not predictions. – Warren E. Hart 14 years ago
You should include everything in your business plan. It's critical that you model all of your costs and sales as accurately as possible. Your credibility will be nil if you don't include playing people.
What I have done is to separate out the costs so that your can intelligently talk about it. That way, your potential investors know where the money is going.
Your salary should be included even if you don't have enough to pay yourselves that month. You can put it in the accounts as deferred salary which means you will be rewarded for the time you have put in when the business does become successful
