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I am trying to raise seed capital for my next venture and have a quick question regarding salary. There are two founders involved and both will work full-time, suppose if I mark the salary of each founder as $75 K per annum, how much should I allocate in terms of budget? $100 K? Is overhead $25 K good enough to take care of misc things such as employer taxes, insurance etc? We are based in NJ, we are NOT trying to get formal numbers but rough estimate to plan. |
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Mmmmm... More info is needed to field this question but I'll take a swing. First your salaries should be categorized as either direct labor or overhead. For direct labor use the following breakdown:
Finally you need to sum up your overhead expenses [Rent + Insurance + (6.5% of salaries for you company portion of FICA taxes) + State&Local Payroll Taxes etc.]. Once you come up with a figure, make sure your arbitrary gross up factor covers your overhead. Your best bet is to stay as LEAN as possible during the start up phase. Less Overhead is preferable. Also, your salaries should be lower than those paid to competitor employees doing similar jobs (use payscale.com) because you own it and just starting it up. CASH ON HAND is the key to a healthy company, Start-UP or Mature. CALL PAYCHEXs thou dude..... Payroll Processing is the last thing you need to be worried about. |
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When I started my company 5 years ago we were making 70k at our normal jobs and set it up to be about 30k salary for year one when we went full time at the startup. Luckily, even in our first year we ended up making more than we did at our previous jobs. But anyways thats not the point, the point is that there are a lot of things outside of salary. Just as a tip we grossly under-estimated marketing. If you are raising money for the venture make sure you account for all those things not just a lump 'overhead' I broke everything down as it's own line item and still have it that way. Founders in startups usually take financial sacrifices, and they should be prepared for that. Most investors don't like seeing founders pulling large or ever fair salaries on their initial investment money. |
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The answer to your direct question for costing is generally 30% is the "oncost" factor per person to cover the basics. There are other ways of calculating it based on your specific situation but if your going for ballparks its a generally accepted figure. Have a read of my answer to why do startups need so much money? for a few more ideas on what should be included in your planning. |
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