You need to pay yourself enough to stay focused while keeping burn low enough to reach the next milestone. The goal is a simple salary and benefits setup that fits your startup runway math and does not create tax or compliance surprises.
Key Takeaways
- Founders should establish a salary that maintains focus while aligning with the startup’s runway math.
- Before setting a salary, confirm runway, headcount, and tax implications. A coherent budget helps avoid surprises.
- Consider a predictable pay structure such as a lean salary, milestone-triggered increases, or varying salaries for co-founders.
- Managing payroll and understanding tax rules are crucial to avoid issues with compensation and compliance.
- Review compensation quarterly to ensure it aligns with cash flow and milestones, ensuring sustainability in the startup’s growth.
Table of Contents
What Must be True Before you Set a Salary
Use this short readiness scan so founder salary choices do not blindside the budget.
- Target runway in months, and the exact headcount plan is written down
- A baseline founder salary that covers rent, food, and healthcare is agreed upon by cofounders
- Tax and payroll mechanics are clear for your entity type
- A single owner of the budget updates cash and burn monthly
- A fallback plan exists if revenue slips or a raise takes longer than expected
A Pay-Yourself Menu that Keeps Burn Predictable
Pick one path and write the rule into your operating doc. Keywords used naturally: founder salary, pay yourself startup, healthcare for founders, startup taxes basics.
- Lean salary with automatic review: Pay a fixed amount that covers essentials. Review every quarter against cash and milestones. Default raise is 0 unless milestones are met.
- Milestone-triggered step-ups: Start at a lean salary. Increase only when revenue or funding clears a written threshold. Document the triggers to avoid ad hoc raises.
- Split approach for two founders: If personal needs differ, set different salaries and equalize with equity or a future bonus when cash allows. Keep the total founder payroll inside a fixed percent of burn.
- Avoid distributions that complicate taxes: For C-corporations, use payroll for compensation. For LLCs or S corporations, understand reasonable compensation rules and self-employment tax before taking distributions. Get CPA input so the startup taxes basics do not become a distraction.
Runway Math for Small Teams
Make burn visible and binary, so decisions are faster.
- Monthly burn equals payroll plus non-payroll costs
- Runway equals cash on hand divided by monthly burn
- Red line equals the minimum months of runway you will not cross
- If the actual runway drops below the red line, cut burn or raise immediately
Want everything in one place before you sign contracts or hire the next engineer? Model salary, hiring dates, and healthcare premiums in Nauma to see how changes move runway and funding dates.
Healthcare Without Drama
Pick a path, cost it, and schedule enrollment. Keywords used naturally: healthcare for founders.
- Marketplace plan via Healthcare.gov for most pre-Series A teams
- Spousal coverage is available and cheaper
- Small group plan when you reach a stable headcount and want a single plan for recruiting
- HSA-eligible plans can help if cash is tight and you want tax benefits on medical spending
A worked Example with Numbers
Two founders, one early hire, 18 months of target runway.
| Line item | Monthly |
|---|---|
| Founder A’s salary | $6,500 |
| Founder B salary | $4,500 |
| Early engineer salary | $12,000 |
| Payroll taxes and benefits | $3,000 |
| Office, tools, infra | $6,000 |
| Healthcare premiums total | $1,800 |
| Monthly burn | $33,800 |
| Cash on hand | $675,000 |
Runway
- $675,000 divided by $33,800 equals about 19.9 months
- Red line set at 12 months. If the pipeline slips, cut non-payroll by $3,000 and defer a hire to restore runway above 18 months.
Taxes and Entity Notes you Should not Ignore
- C-Corp founders should run compensation through payroll, with withholding and W-2s
- LLC and S-Corp founders need to understand reasonable compensation and self-employment tax before taking draws
- Track deductible health insurance premiums correctly, or through the company plan when possible
- Keep clean records of equity grants and 83(b) elections if applicable
Mistakes that Quietly Shorten Runway
- Setting the founder’s salary before agreeing on the target runway
- Mixing distributions and payroll without understanding tax treatment
- Forgetting payroll taxes and benefits when scoping offers
- Letting scope creep add non-payroll costs that do not move milestones
- Hiring before you have a 6-month cash buffer after the hire
Quick Answers Founders Ask in Month One
Many teams start between $4,000 and $8,000 per founder per month in high-cost cities, then step up only after funding or revenue milestones.
Use bonuses only when tied to milestones and when cash allows. Keep recurring burn predictable.
When headcount stabilises you can negotiate better benefits at a similar cost. Until then, Marketplace or spousal coverage is often simpler.
Quarterly. Reconfirm runway and milestones, then adjust if both the plan and cash support it.
Possible, but only if the board approves and the raise leaves at least 12 months of runway after the back pay.
