Paying yourself before positive net income

In my financial projections, I'm showing a negative net income prior to FY3. I've always understood that most startups are negative in the first year, zero around year two, and positive in year 3.

My problem is, how do I pay myself if I'm not turning a profit for 3 years?

Answer

Good question.

There is a difference between cash flow and income.

You can have losses in your company, but still have positive cash flow to permit you to pay yourself. The most common way to do this is to have loans or investor capital (selling stock).

However, many investors won't loan the company money for you to take a salary, though some will.

Otherwise, there is no way for you to pay yourself if your business is losing money. I would suggest going back through your projections and seeing if there are expenses you can cut (such as an employee whose work you can do yourself).

Your only other alternative is to save enough money to live on while your business is starting up.