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2 in 3 Business Owners Aren’t Paying Themselves Due to Inflation

Shayna Waltower
Shayna Waltower

A majority of small business owners are skipping their paychecks to keep their businesses afloat amid high-rising inflation rates.

  • Due to rising prices from higher inflation rates, many small business owners are forgoing their salaries to cover their business expenses.
  • Lower profits, supply chain issues and increased resource costs are some of the challenges business owners face because of inflation.
  • Reducing expenses, taking out a loan and increasing product prices are some ways to increase liquidity and cash flow within your business.
  • This article is for small business owners who want to learn how inflation is affecting businesses and find ways to combat the increased prices.

Many small business owners are reducing or completely forgoing their salaries to make sure they can cover their business expenses. As inflation continues to impact prices for virtually everything, this phenomenon has become staggeringly common — it might even sound like your own experience. Below, you’ll learn more about how inflation is affecting business owners’ pay, along with some tips that can help you combat these financial challenges.

Owners adjusting salaries to keep up with inflation

According to a Forbes Advisor survey, about 64 percent of small business owners aren’t paying themselves a salary due to rising inflation. As inflation rates increase, many business owners are scrambling to cut costs, including their own salaries. By diverting this money away from their own payment, these business owners are instead covering operational expenses like payroll and supplier invoices.

“Clients are taking more time to pay, which means you have less assurance of when you’ll receive payment for an invoice,” said Paula Glynn, owner and founder of Click Academy. “Paying yourself is the first thing that is sacrificed.”

However, doing so masks the financial health of a business, which could have serious consequences if not rectified. According to a CB Insights survey of failed startup owners, 38 percent of respondents said a lack of capital was the main factor in their failure. Although owners can defer their own payments to keep the lights on, doing so for a long time could be covering up a potentially fatal lack of liquid capital. That means bolstering cash flow and securing cash reserves should be a top priority if a business owner finds themselves funding their business with their own paychecks.

Business owner salary vs. owner’s draw

Generally, there are two ways that business owners pay themselves: through a salary or owner’s draw. A salary is a set, regular payment. Meanwhile, an owner’s draw is a nonfixed amount of money an owner takes from their business to cover their personal expenses.

With an owner’s draw, an owner might base their income on how well their business is performing. They’ll take out a larger draw during months when their profits are higher and lower their compensation when their business generates less revenue. 

Due to the rise in inflation, many business owners are decreasing their salaries, moving to fluctuating owner’s draws or temporarily pausing their payments altogether.

“While struggling to adjust to the supply chain crisis and cutting back on our inventory, I’ve removed 5 percent increments several times from my salary and redirected that money into our cash flow,” said Richard Clews, founder of the e-commerce company Pants & Socks.

Key Takeaway

Many small business owners have had to reduce or sacrifice their salaries to adjust to high inflation rates.

Additional ways inflation is affecting business owners

Small businesses are feeling the effects of inflation in many of the same ways as consumers. Business owners have to juggle the increased costs of production, resources and labor, along with less reliable payments from their equally cash-strapped clients. Below are some additional ways that inflation is affecting business owners.

Restricted consumer spending

Due to higher inflation rates, consumers can’t afford the same number of goods with their income as they could when rates were lower. As a result, many consumers are either focusing on purchasing essential goods over discretionary items or buying fewer items in general. These adjusted buying decisions are lowering many businesses’ sales and profits.

“There are more sleepless nights at the moment. However, inflation impacts our clients, it also impacts us,” Glynn said.

Increased resource costs

According to the Bureau of Labor Statistics, inflation increased by 7.1 percent between November 2021 and November 2022. Wood manufacturing, truck transportation, gasoline and oil extraction are some of the industries that inflation has affected most. Businesses that rely on these industries are finding it more challenging to maintain their bottom line from previous years.

“You could increase your prices to maintain a profit margin, but that brings the potential of losing customers to the competition,” Glynn said.

Higher employee wages

Many employees are also asking for raises to help them afford increased prices. A survey by Robert Half reported that 62 percent of employees planned to ask for a raise in 2022. Among these employees, 30 percent cited a higher cost of living as the reason for their request. Business owners looking to accommodate these requests often need to dip into their own paychecks to help keep their employees on board.

“I tend to treat my salary like a modifiable expense that takes second place to my employees and our company,” said Clews. “I try to stage my salaries in percentage increments.”

Key Takeaway

Inflation rates pose several challenges for business owners, including lower consumer spending, increased resource costs and higher employee wages.

Tips for increasing cash flow to secure an owner’s salary

If your business has had trouble keeping up with inflation, here are seven ways you can increase your business’ cash flow to accommodate higher costs.

1. Find investors

If your business is fairly new or launching a new idea, investors can help fund your business and close the gap between profits and expenses. This way, you don’t have to sacrifice any, or as much of, your salary.

“There are tons of investors looking for up-and-coming companies to invest in, and if you have a good idea, this can be a way to generate a quick infusion of money to your cash flow reserves,” said Clews. “It might just be the extra funding you need to make it through some rough economic circumstances we find ourselves in.”

2. Offer discounts for early payments

Offering discounts when your business is trying to increase its cash flow might seem counterintuitive. However, early payment discounts can incentivize your customers to prioritize sending payments to your business.

“Everyone enjoys an incentive, so if you give consumers a discount for paying their bills early, you’re benefiting both parties, and it’s a win-win,” said Cody Crawford, co-founder of Low Offset. “Naturally, getting the money early benefits your cash flow. The discount doesn’t have to be substantial, but customers will appreciate a small amount of savings if it’s for little to no effort.”

3. Reduce nonessential expenses

Take a look at all your business expenses and determine if there are any costs you can reduce or eliminate. For example, there might be some subscriptions you can cancel and replace with as-needed services. Canceling a subscription might require you to do some additional manual work, but the money you save can add up quickly. Reducing your staff can also help free up some additional funds, though this should be your absolute last resort.


If you absolutely need to lay off employees, make sure your cuts are decisive and don’t leave you in need of a second reduction in force. Multiple rounds of layoffs can decimate employee morale and prompt your best employees to begin looking for a new job.

4. Increase product prices

While increasing your product prices carries risk, doing so strategically is among the most direct ways to generate some additional cash for your business. After all, with the costs of everything increasing, from groceries to energy, customers may already expect to pay more.

If you decide to raise your prices, try not to implement massive increases — only modest bumps. You might also want to avoid adjusting the prices of products that typically attract new customers. Instead, try raising the prices of some of your most popular products, the ones for which customers might be willing to pay a little extra.

5.Review supplier relationships

Just as inflation is affecting consumers and business owners, it’s also affecting vendors and suppliers. With vendors and manufacturers raising their prices to combat inflation, you should take a close look at the ones you work with. From there, research other suppliers and see if they can provide similar products at lower prices. You should also revisit and negotiate your supplier contracts to make sure you’re getting the best deals possible.

6. Apply for a business loan

A business loan can help you purchase equipment, inventory and other goods that can improve your operations. These items could be more expensive if you wait until your business can afford them. After all, if inflation rates continue to rise into the future, the money circulating today will be worth more than the cash of tomorrow’s world.

Choosing the right business loan can give you more money to allocate toward your salary. To start the borrowing process, you should review your business’ finances and determine whether you can afford to take on debt. If you can, then create a plan for paying off the loan and start applying.

Did You Know?

f you need funding, consider our reviews of the best business loan providers. You can also start with our SBG Funding review, our best pick for a lender with flexible terms.

7. Focus on your marketing plan

As you make adjustments to maintain and improve your business’ financial standing, be sure not to neglect your marketing strategy. Sure, you might need to make some financial adjustments to your marketing budget, but that shouldn’t mean abruptly ending your campaigns. Attracting more customers to your business is still one of the best ways to secure the extra funding you need.

Getting ahead of inflation

Combating inflation can be difficult as a business owner. You might even be willing to sacrifice your pay to ensure your business’ financial success. However, finding a more sustainable approach to funding your business is key to its longevity. With the tips above, you can mitigate the effects of inflation more easily and support both yourself and your business during tough times.

Image Credit: ijeab / Getty Images
Shayna Waltower
Shayna Waltower
Contributing Writer
Shayna is a freelance content writer and producer who enjoys helping businesses communicate their specialties and brand values to current and prospective customers. She has been passionate about writing since she received her first journal when she was five years old. She’s worked for TV news stations, live production companies, and radio broadcasts outside the writing world.