Sam Parr on Payday Truths for New Owners

Key Takeaways

• Revenue is a vanity metric; a CEO can run a billion-dollar company while earning a mid-level manager's salary.
• Founders often choose lower salaries to keep cash in the business, focusing on the final exit value instead.
• Business owners must still follow IRS rules for 'reasonable compensation' to avoid audits and penalties.
• Set a survival budget first to ensure your personal life doesn't sink while your business grows.

Sam Parr, the founder of The Hustle, recently shared a story that blows up the myth of the rich CEO. He said on X that right before Ring sold to Amazon for 1.15 billion dollars, he asked the founder, Jamie Siminoff, what he was making. The answer was about $150,000.

This number shocks people who think revenue equals personal wealth. If you're starting a service shop in Ohio or a print shop in Florida, you might feel like a failure because you're not taking home six figures yet. But even the guy building a billion-dollar doorbell company was living on a salary that wouldn't buy a yacht. (Disclosure: we may earn a commission if you sign up through our links.)

Why do owners pay themselves so little?

Cash is oxygen for a new business.

Every dollar you take out for a fancy dinner is one dollar you can't spend on inventory, better tools, or a part-time assistant. Siminoff kept his salary at $150k because the goal wasn't a big paycheck today. The goal was a massive payday later. When you're in the first six months, you aren't just an employee. You're the bank.

If you take too much out too early, you risk the 'running out of cash' monster that kills most shops. You might see your bank balance sit at $50,000 and think you're rich. You aren't. That money belongs to your future self. Most solo owners I know in the trades live on $3,000 a month for the first year just to keep the lights on at the shop.

What does the IRS think of your salary?

You can't just pick a number out of a hat. If you set up an S-Corp (a tax status for some small businesses), the Internal Revenue Service (IRS) requires you to pay yourself a 'reasonable compensation.' This is just a fancy way of saying you've to pay yourself what you'd have to pay someone else to do your job.

If you pay yourself zero to avoid payroll taxes, the government might come knocking. On the flip side, if you pay yourself way more than the business can afford, you're draining your own growth. A CPA (Certified Public Accountant) is worth the $250 fee to help you find that middle ground where you stay legal but keep enough cash to grow.

How do you plan for your first payday?

Before you write your first check, you need a clear look at your costs. A lot of new owners forget about the Self-Employment Tax, which is about 15.3%. That means if you take home $1,000, you really only get to keep about $850 after the tax man takes his cut.

The Survival Checklist

• List your personal rent and food costs.
• Add 20% for your self-employment tax.
• Set your 'Owner Draw' at that total.
• Keep the rest in the shop account.
• Review your payout every 90 days.
• Never mix personal and biz credit cards.

Siminoff might have only made $150k a year, but the exit changed his life forever. Your business mightn't sell to Amazon, but it can still provide a great life if you don't eat your seed corn in the first year. Watch your cash, pay your taxes, and keep your ego out of your paycheck.

Related free tool

LLC vs. S-Corp Savings Calculator — See if an S-corp election would pay off for you. Free, no signup to start.

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📋 Disclaimer

This article is for informational purposes only and does not constitute legal, tax, financial, or professional advice. Laws and regulations change frequently, and the information presented may not reflect the most current legal developments. Always consult with a qualified professional (CPA, attorney, financial advisor) before making business decisions based on this content. MyBizNerd may receive compensation through affiliate links, but this never influences our recommendations.

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