Let’s say you went $100,000 in debt starting a business, and it costs $5000 to operate every month and you make only $4000 every month for the first year.
But you have a house and family, etc.
Where is the money going/ coming from??
In: Economics
It depends how the business is structured. One important thing to note is that an owner is often an employee, so they will get paid a salary. This means part of the $5000 it costs to operate will be going to pay their salary.
Outside of that, it’s generally one of 4 ways:
1. Savings. If a company isn’t going well yet, but the owner believes in it, they might keep pumping their own cash into it.
2. Investors. If a company isn’t going well yet, but other people believe in it, they might pump their cash in, I’m exchange for future profits. The owner can pay their salary out of this, and depending on how strict the investor is, thisncould be a lot of money.
3. Debt. There’s multiple ways this can work, but the company can take on debt, either through a bank loan or issuing bonds, and use the to pay expenses including the owners salary. Alternatively, the company may choose to pay it’s owners salary over other bills.
4. Personal Loans. If you own a company that is losing money, but people think it has the potential to become really successful (such as Amazon back in the day), banks will loan you money secured against your shares. This means if you don’t pay the loan back, you’ll give some of the company to the bank. This is how most owners of big companies live, because it works as a tax dodge.
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