Do Small Business Owners Make a Large Salary?
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.
Average Salaries of Small Business Owners
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.
What Challenges Do Small Businesses Face?
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:
- Over 40% of businesses fail due to their product or service not being original or not serving customers’ needs.
- Almost 20% of businesses fail because they cannot compete with similar businesses.
- Over 20% of businesses fail due to poor management.
- Almost 20% of businesses fail because they lack a business model and plan.
- Almost 15% of businesses fail due to bad marketing.
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.
