While it’s not realistic to start a new business with the goal of becoming a millionaire, you should be able to expect a decent living. According to PayScale, most small business owners earn anywhere from $30,000 to $145,000 a year, with the average at $69,748. However, how much you make can depend on factors like industry, location, and years in business. Below we discuss what to expect from your small business income.
Factors That Contribute to Business Owner Income
A business is not something to enter into lightly. It can take time to build up a profit so you can have the freedom of giving yourself a salary, and many factors play into how much you can reasonably expect to pay yourself. Here are a few:
- How long your business has been in operation: It’s standard wisdom that small business owners may spend their first couple of years putting most of their income back into their business. The PayScale data showed that entry-level small business owners earn an average of $39,456, while those with over 20 years’ experience average $79,851.
- Skills: Beyond knowledge of the industry you enter, what you bring to your business determines how much you will make at it. PayScale noted that business owners with skills in sales, project management, and business development earn more. Ironically, those who said their skill lay primarily in customer service earned well below average.
- Industry: Some industries naturally command higher prices, while others have higher profit margins. It takes a combination of both to determine how much you may make.
- Economy: The higher the demand for your product or service and the more people are able to pay for it, the more your business will make. This year, more than ever, we’ve seen the effect of the economy (and other factors beyond our control) on businesses.
- Business expenses: Many businesses simply cost more to run. The clothing store that pays for a premier location and designer clothes will have a smaller profit margin than the independent graphics designer working from home. Figure these into your salary expectations. Learn more in our article on how much it costs to start a small business.
- Competition: The higher the competition for your product or services, the greater your need for advertising and the potentially smaller your customer base. That affects your bottom line, and hence, your salary.
- Franchise or independent: In food and retail, franchises make up 15% of all business units but command over 40% of the profits, according to Work It Daily. This could mean a higher salary for you; however, franchises may come with obligations and rules that could limit your maximum salary.
Average Small Business Owner Salary by Industry
What industry your business is in impacts how much you will make. A florist shop, for example, should not expect to command the same prices as a commercial law firm. Here are some examples of average salaries by occupation to give you an idea of what you can aim for when pursuing a certain type of business.
Industry or occupation alone can’t define how much you as a business owner will make. Profit margins also influence your income. Online businesses have the highest profit margin because of low overhead. The most profitable industries include accounting, legal, cleaning services, storage facilities, and doctors or dentists. Some industries with the lowest profit margins include car dealerships, home improvement stores, travel and accommodations, and health care supply. Real estate was on both lists, which may testify to its volatility.
Average Salary of Small Business Owners by State
The Small Business Administration puts out a thorough study of small businesses by state, including growth, employment, loans, and salary. While the 2019 study has data from 2017 (older than the PayScale study), it does give you a fair idea of ranges and expectations for your state. Below are a few examples from around the nation.
When looking at these figures, also consider the cost of living for your state. A small business owner in Alabama, for example, may make a more comfortable living than one in California, even though her average salary is $8,000 less.
What’s Your Exit Strategy?
Very few people want to work for the rest of their lives, so as you enter into a business, you should have an eye for how you will exit when you are ready. If you do well enough, you may be able to offer a 401(k) for your employees and yourself. However, there are other strategies owners should consider:
- Initial Public Offering (IPO): By taking your company public, you can sell stock shares and retire on your share of the profits, as well as the future income from your own stocks.
- Acquisition or merger: Selling your business to another company.
- Management buyout: Selling your share of the company to others.
- Sell it outright: Rather than going out of business or selling to another company, you find a new owner to buy the business outright. There are places where you can sell your business as a whole.
- Liquidation: Simply going out of business and selling all your stock and supplies.
- “Drain it”: This strategy implies taking maximum profits while you own the business and saving them for retirement.
According to the Bureau of Labor Statistics, the average wage in the US is $53,490, so owning a small business can be more profitable than working for someone else. There are a lot of things to consider, however, when choosing to start a business: your skills and experience, the industry and competition, and even where you live.
Whatever your salary as a business owner, be sure to reevaluate it annually or as circumstances change. You are your own boss, so don’t be afraid to ask yourself for a raise if the time is right!
Ready to start your own business? Learn more in our How to Start a Business: The Complete Guide.