#760 - The 7 Most Common Money Mistakes for Bootstrappers
Tropical MBA: Entrepreneurship & Founder Lifestyle
Set a salary cap based on labor efficiency ratio
To determine a salary cap for your business, consider how much you would compensate someone to run your business while you are on a six-month holiday. Not having a salary cap is a financial mistake as it prevents you from knowing the maximum payroll your business can handle. Use the labor efficiency ratio based on your gross margin to set a salary cap. This ensures that individual contributor pay decisions align with the overall business context, similar to how a sports team manager reallocates savings for team members.
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