Paying Employees During the Startup Stage

May 1, 2015

Q: I need to hire three employees to help get my business started, but I don't have enough financing to pay the salaries for all three. Should I try to raise more money before hiring anyone or should I hire just one employee and hope that I can make it work with limited resources?

A: Every entrepreneur faces the question of how to pay employees during the startup stage when money is tight and the business has yet to prove itself.

You'll be able to determine the right answer to your question by understanding the nature of your business and your appetite for risk. If your business growth is best executed in small steps, your staffing strategy should be very different than if your business needs financing in large portions. For example, if your business is a restaurant, it would be foolish to try to launch it without adequate staff and equipment. Alternatively, a one-man army could be the best way to start an import-export business or consulting practice.

If you're convinced your business needs three employees to get off the ground, you shouldn't launch it until you can hire all three. This is a surefire way to increase the possibility that your business will fail due to poor execution. If you don't have enough money to pay for three employees, there still might be a way to make it work. Here are some creative ways to compensate your employees during the startup stage:

  • Hire stay-at-home moms and dads. Part-time employees, particularly stay-at-home moms and dads, are a secret weapon for startups.
  • Defer compensation. One of the most common ways that cash-strapped entrepreneurs hire employees is by convincing them to accept deferred or delayed compensation.
  • Use equity and stock options. Another alternative is to offer employees equity grants or stock options instead of cash.
  • Employ interns and volunteers. Hiring unpaid staff is an obvious solution for startups but one that's often overlooked.
  • Focus on revenue. As any entrepreneur will tell you, the best way to pay for three employees when you only have the financial resources to hire one is to generate more revenue.

View this article by Entrepreneur for more details on paying employees during the startup stage.

Through the Michigan Chamber’s partnership with WageAccess, you can gain access to valuable Compensation, Benefits, Pay Practices and Incentive Pay information and trends in the State of Michigan, and across the United States. Learn more about discounts offered to Chamber members.