Small business owners withholding their personal salary to help keep things afloat

Business owners struggling in an uncertain economy have been resorting to withholding their own salary or using personal savings to help prop up their ventures, a survey shows.

A new CommBank survey has found more than 25 per cent of small business owners withheld their own salary in 2024. Picture: Emma Brasier

More than a quarter of Australian small business owners didn’t pay themselves a salary or used personal savings to help with cashflow problems in the past 12 months, according the results of a CommBank survey.

As businesses prepare for another year of economic uncertainty due to persistent inflation, high interest rates, growing costs and a weakening Aussie dollar, the survey showed almost 80 per cent of small to medium businesses (SMBs) experienced challenges to their cashflow through 2024.

Due to these headwinds, the survey found, 27 per cent of small business owners either didn’t pay themselves a salary or they used personal money – or both – to help prop up their business.

Sydney small business owner Anna Verghese didn’t pay herself for “three to four months” in 2024 when her new venture hit a rough spot.

After 20 years with CBRE, from which she left as a director, Ms Verghese in 2023 founded Cerulean, a client-side construction consulting firm. After a good first year where Cerulean counted Allianz as a client, the difficulty of managing cashflow in an unpredictable economy hit.

“People say I’m going to start a business and it’s all glamorous,” she said. “But cashflow is one of the first pieces of reality that hits you and I wasn’t prepared to manage that,” she said.

“We are a consulting business, we’re not selling a product. Part of the nature of providing a service is that you invoice at the end of a service – typically the end of the month or after 30 days.

Cerulean founding director Anna Verghese.

“When you compound that over time, (let’s say) you do a month’s work and you invoice with a payment period of 30 days, you’re waiting 60 days for payment – and that’s when everything is working on time.”

Ms Verghese said she “lacked the discipline” to forecast, instead relying on the comfort of having a good client who paid on time. But, when she had to move to new projects she found it harder to manage Cerulean’s cashflow, leading her to forgo paying herself a salary for several months in early 2024.

“One day I was like ‘oh sh..’ with expenses, so I didn’t pay myself for months. Fortunately, I had personal savings which helped me get through and I now have the discipline,” she said.

Ms Verghese said she learned the discipline to manage cash flow in several ways: “I have personally learned to diversify the sectors we work in … to risk-proof, and the business has grown to four people including myself so I can alleviate the pressure on myself.

“You also have to talk to a lot of people. I have constantly been talking to other small business owners; it’s good to know people who know how tough it is. I have a healthy distrust of business coaches, but small business owners’ knowledge is invaluable.

“And, have a great relationship with your accountant. My accountant doesn’t do everything for me; he makes me do it for myself to learn, like a parent who lets their kids go and find things out for themselves.”

The CommBank survey’s results show cashflow issues of SMBs came mainly because of declining revenue (35 per cent), low cash reserves (30 per cent) and seasonal fluctuations (27 per cent).

The survey found 85 per cent of businesses used at least one specific strategy to assist with cashflow, including reviewing or decreasing expenses (34 per cent), maintaining a cash reserve (27 per cent), finding new revenue streams (26 per cent) and increasing sales and/or pricing (25 per cent).

CBA executive general manager of small business banking Rebecca Warren said: “For small businesses, success often hinges on a delicate balancing act as they constantly juggle various aspects of their operations, from managing customers and employees to dealing with suppliers and vendors.

“It’s not surprising that the economic challenges of the past year have resulted in cashflow impacts for many Australian SMBs.

“While it’s encouraging to see small business owners take proactive steps to manage their cashflow, some of those strategies – like dipping into savings or not paying themselves a salary – may not be what’s best for the business or the business owner for the long term.”

Originally published as Small business owners withholding their personal salary to help keep things afloat