Understanding the Entrepreneur’s wage

investment

When we decide to start a new business one of our greatest worries is obtaining the capital we need for the company. This is why we are going to have to search for different funding sources such as money from banks, venture capital, money from friends and family or our savings.

It will also be very important to cut back as much as we can the business expenditures so it can operate with the minimum costs. When we talk about expenditure reduction one of the first elements to be affected is the entrepreneur’s wage.

It is very common that the entrepreneur does not charges his wage to the company. However we cannot forget about this situation. Even if as an entrepreneur you don’t charge your wage you are incurring in an opportunity cost, because if you where performing another activity you could be earing a good income. Therefore you are making an investment in your company. But remember than on investments we are expecting to get positive results in a given moment. This is the reason why this situation can’t continue for an indefinite time.

 

What should we take into account before we start?

In this way I think that before we decide to invest our time in the company we have to think about some subjects. In the first place we have to understand this situation and evaluate if we can assume it. Some personal situations will prevent us from investing our time in our firm such as moments when we have high financial obligations or that we don’t have any other income source.

Secondly we must determine for how long are we able to remain in this condition. As I mentioned earlier, any investment is expected to generate financial returns at some point. Therefor we must determine for how long can we subsist without receiving a wage. Also we have to understand that if this situation extends for a long period of time maybe the business is not profitable.

Finally we must decide if we are able to assume the risk. Once again, as in any investment, we expect positive financial returns but there is always a possibility that the business fails. Therefor we must decide if we are in conditions to accept the risk that entrepreneurship implies.

 

With what I have just mention, I hope you have understand what the entrepreneurs wage means and what you have to take into account when you decide to make this investment.

 

Image taken from Flickr.com

Leave a Reply