Top Financial Planning Challenges for Startup Employees

graphic of coins

By Russell Holcombe, MTx, CFP®

Working for a startup can be an amazing opportunity. Being at the cutting edge of innovation, startups shape our future — and you were there when it was nothing more than an idea sketched on a whiteboard! The opportunities to be in the mix, solve some of the most vexing problems of our day, learn, fail, and try again make it so much more exciting and fun (albeit more stressful) than a corporate 9-to-5. Not to mention the possibility of owning a piece of a massively successful company. 

However, because nearly 90% of startups fail, (1) it makes sense that startup employees would face a unique set of financial planning challenges to navigate. At Holcombe Financial, we specialize in the complexities of financial planning for startup employees, and our goal is to help them grow and protect their wealth.

Low Initial Salary

Starting a company backed by private equity/venture capital is no easy feat. Even once it’s up and running, the time frame to liquidity is usually 3-5 years away—if there is any liquidity at all. Working for a startup means risking a lot, but the journey is not without reward.

Employees joining a startup must often weigh the pros and cons. Possible pros include exciting, cutting-edge work, equity in a company that increases with company growth, and large financial payouts upon sale, while the cons can look like a lower starting salary, limited employee benefits, and delayed income due to equity holding requirements.

This delayed income can be a challenge since equity compensation (stock options, restricted stock, etc.) can’t be used to pay current bills. Employees must survive financially until the company (hopefully) makes it big, which could be several years away. It’s a balancing act between staying afloat in your current under-market salary and maintaining hope that your company will be one of the exceptions. This challenge is why it is more important than ever to engage financial planning help early, and why many have relied on Holcombe Financial to help them during this time. 

And then, the announcement comes. 

Navigating a Liquidity Event

A liquidity event can come in many forms—an acquisition, merger, or initial public offering (IPO) —each of which allows founders and employees to cash out some or all of their stock. This is a great time to be an early-stage employee; it’s quite literally the moment you’ve been waiting for! But it also comes with its own set of challenges. The acquiring company needs you to stay so it is not unusual for employment contacts and contingent stock/cash awards to accompany the congratulatory letter. 

As liquidity events can be very complicated, financial planning is critical to ensure a successful result for your family. Several questions need to be answered:

  • Should I stay? 
  • How should I plan for taxes? 
  • What do I do with the cash?

Managing Newfound Wealth

That last question above usually creates more anxiety than any other. Now that you’ve made it through the low initial salary and you’ve successfully navigated the liquidity event, you have newfound wealth to manage. You may suddenly find yourself making anywhere from $500,000 to $10 million, jumping from the bottom tax bracket to the very top seemingly overnight. This is an exciting time, to say the least, but it’s also nerve-racking. Every thought about what to do next is accompanied by the fear of making a mistake. 

In addition, the financial factory just became your new best friend, especially if the liquidity event made headlines. The phone calls and emails from a multitude of financial services companies pour in the second the transaction is announced, and people previously oblivious to your existence now have a “vested” interest in helping you make the best financial decisions (and those decisions usually involve saying yes to what they’re selling).

This higher level of wealth can be a challenge to manage; not because you’re not capable, but because you may not know the right questions to ask or strategies to use to make the most of your wealth. Whatever the situation, newfound wealth is best handled in a newfound way—by consulting with a professional.

My advice? Patience. Wait a few months to make investment decisions, buy the home of your dreams, fund 529 plans, etc. Nothing is on fire. Time creates clarity, clearing the murky waters muddled by the excitement and anxiety of the event. So take time to think, and ask people you trust and respect for some objective advice and referrals before you decide the next steps of your financial plan.

How We Can Help

Working for a startup company is inherently risky. We at Holcombe Financial can help you navigate the financial planning challenges unique to the startup world, so you can have peace of mind no matter which stage your company is in. Schedule a no-obligation introductory meeting to see how we can help by calling us at (404) 257-3317 or emailing

About Russell

Russell (Rusty) Holcombe is the CEO and strategist at Holcombe Financial, a financial advisory firm serving entrepreneurs and corporate executives and managers. With over 25 years of experience, Rusty spends his days leading Holcombe Financial (a firm his father founded) and providing financial services that help his clients grow and protect their wealth so they can experience financial independence. Rusty is the author of You Should Only Have to Get Rich Once, which has won multiple awards, and created Holcombe Financial’s proprietary financial planning software, which helps clients make smarter financial decisions.

Rusty earned a bachelor’s degree in business administration with a focus in finance and real estate from Southern Methodist University and a master’s degree in taxation from Georgia State University. He is also a CERTIFIED FINANCIAL PLANNER™ professional. In his free time, Rusty and his wife, Regina, tend to their personal farm and grow their own food. You can often find him pursuing his hobby of long-distance running. To learn more about Rusty, connect with him on LinkedIn.



  • Share this story!