Financial Survival Guide for Entrepreneurs: Managing Zero-Salary Periods

In May 2022, we sold Traverse Data to DMS. It wasn't the exit we dreamed of after six-plus years of hard work, but it gave us enough financial cushion to start focusing on Wellput.

As a married man with two teenagers, a mortgage, and many expenses, I hoped our savings would get us through to a full salary or another exit. Wellput is growing and profitable, and Dahlia's career has taken off. Full salary is close enough that I can breathe a little easier. Over the last two years, however, I've had many sleepless nights and stressful conversations.

Inspired by my experiences with LeadSpend and Traverse Data, I have included some practical tips to help fellow entrepreneurs navigate the zero-salary or low-salary times when starting a new company.

1. Deferred Salary

Zero-salary is a misnomer. You shouldn't work for free. If you have cofounders, agree on what a full salary looks like for each of you. Defer those salaries on your balance sheet so that when an exit does happen, or the company can afford it, you get paid back.

2. Understand Current Expenses

Use apps like Quicken Simplifi and YNAB, or download your credit card and bank expenses into a CSV. Review your spending over the past two years and categorize the expenses. Knowing what you and your family spend is a crucial first step.

3. Estimate How Much Income is Needed to Support Current Expenses

Consider your tax rate—if it's 40%, you need to earn 1.4x your expenses to break even.

4. Breathe, Stay Calm, and Communicate

Don't panic about the gap between income and expenses. Communicate openly with your partner, friends, co-founders, and mentors.

5. Set a Timeline for Full Salary

Make an assumption about when you'll return to a full salary. Write it down and share it with your support network.

6. Shift Investments to Income Mode

If you're lucky enough to have savings, optimize your portfolio for income generation and preservation. Consider bonds, dividends, MLPs, REITs, and annuities.

7. Create a Super Lean Budget

Identify essential expenses—housing, health, utilities, groceries, transportation. Cut all non-essential expenses—travel, entertainment, and dining out of your budget. Don't worry, we'll add some of these back later.

8. Reassess the Gap

With income from investments and reduced expenses, reevaluate your budget.

9. Adjust as Necessary

If the gap is minimal, gradually reintroduce non-essential expenses into your budget.

10. Stay Healthy

Prioritize your health with a balanced diet, daily exercise, and sufficient sleep. Managing stress is essential for performing well in all areas of life.

Navigating zero-salary phases as an entrepreneur can be scary, but with thoughtful planning, communication, flexibility, and some discipline, all of us are capable of it. By implementing these guidelines, you can keep stress levels in check and focus on growing your business until the next financial windfall arrives.

Reflecting on my journey with LeadSpend and Traverse Data, I’ve experienced firsthand the challenges and rewards of entrepreneurship. Building and selling these companies were incredibly rewarding and brought life-changing windfalls, yet these experiences taught me the importance of planning and budgeting.

Thank you for reading.

With Love,

Craig Swerdloff, CEO & Founder, Wellput.io

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