As business owners, we’re like to compare ourselves to other small business owners. Business owners often wonder how much do small business owners make? The small business owners’ average income is less than we think.
Brad Nakase, Attorney
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In one month, Ian is opening his first small business, an organic foods store. He is convinced that his offering of fresh fruit, vegetables, grains, and smoothies will set him apart from the competition. He dreams of being the next big businessman, making millions of dollars every year. In fact, he has already picked out a beach house in Florida. Ian discusses his plans with his friend Peter, who is also a small business owner. Peter gently advises Ian not to have such high expectations. He explains that most small business owners make a modest salary, and that he himself makes only $70,000 per year. Ian is shocked. He had expected to make at least $250,000 a year as a small business owner. He realizes that he might need to adjust his expectations.
It is common dream among entrepreneurs: start your own business and watch the cash roll in. However, this is not normally the case.
Starting a small business is a big risk, especially for those individuals who quit their previous jobs to pursue their passion. Running one of these businesses is also a lot of work, and at least at the beginning, it may seem like there is little reward. Often, entrepreneurs do not take a steady paycheck while giving all of their effort and time toward the business. It is a lot of sacrifice for a big gamble. This is especially true when one learns that only half of all small business begun today will exist five years from now. When there is so much on the line, it is understandable why small business owners may be hesitant to pay themselves a salary at the beginning.
To get a sense of what salary the average small businessperson can expect to make, it is necessary to take a look at American small businesses as a whole.
In the United States, there are almost 30 million small businesses. In this context, a small business is defined as a company employing 250 people or fewer. However, most small businesses have fewer than 100 employees. The importance of these small businesses to the American economy cannot be understated. Small businesses are responsible for employing 60 million people, approximately half of the country’s workforce.
Of America’s 30 million companies, about 300,000 are involved in the export business. The top five small business types include retail, business services, residential and community services, construction, and food services. When surveyed, 78% of small business owners claimed that their business was profitable, and a similar number reported being happy or very happy with their performance.
We can assume that this satisfaction also extends to the business owners’ salaries. But do they make the large salary that aspiring entrepreneurs dream of? To get a clear view of what to expect as an entrepreneur, it is helpful to explore what the average small business owner realistically makes in terms of salary.
To get a sense of small business owners’ average salary, we can examine data offered by the leading job search sites. ZipRecruiter reports that the average small business owner makes just over $62,000 a year. Glassdoor reports a similar number, coming in at $63,500. Payscale suggests a slightly higher salary at $70,000 a year. SmallBizGenius confirms that these numbers are accurate, claiming that 86% of small business owners make less than $100,000 a year.
For those entrepreneurs hoping to strike it rich and make in the $250,000 range, these numbers can be sobering. The small business owners that make $250,000 a year or more tend to be manufacturing executives and those who run holding companies. There are even fewer individuals who make in the million-dollar range. In fact, less than 10% of small business owners make a million dollars per year.
While the thought of making millions of dollars is a tempting one, the reality is that running a small business takes a lot of hard work and money, and the monetary rewards are likely not as great as imagined. The reality is that almost 65% of entrepreneurs start their business with $10,000. Twenty-five percent start out with no financing at all. And 82% of small businesses fail because of cash flow problems.
These figures prove just how financially difficult it is to start an average small business. The entrepreneur making over $250,000 per year is much rarer than the entrepreneur struggling to keep their business afloat.
Money is certainly a major challenge that small businesses face. However, there are other issues that can cause a small business to struggle or fail. One should consider the following statistics:
Confronting the reality of small business ownership can be sobering for many people. However, just because a business owner may not crack $250,000 does not mean that the journey is not rewarding. In fact, 84% of small business owners feel positively about the future. They enjoy meeting the challenges of owning a small business and love what they do. Money, after all, is not everything.
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