Running a small business takes passion, gumption, and determination. But, becoming a small business owner isn’t a fast track to getting rich. So, how much do small business owners make?
- There is no standard small business owner wage; income varies widely based on multiple factors like industry, location, and experience.
- Average small business owner income is about $77,823 per year; total earnings range roughly $35,000 to $178,000.
- Industry strongly affects pay - examples: software developers average $144,570, floral designers about $37,700.
- Location matters; state and city cost of living change wage potential, e.g., management mean wages differ by state.
- Personal income depends on profits and pay method; owners may take a draw or salary and often limit pay to 50% of profits.
How much does a small business owner make a year?
Incomes vary because of factors like industry, geographic location, and experience. Being a small business owner is no different. There is no way to predict your personal income because there is no standard small business owner wage.
You might be wondering, how much does the average business owner make? According to PayScale, the average small business owner income is $77,823 per year. But, total earnings can range from $35,000 – $178,000 per year.
Looking at a nationwide average can be misleading since each state (and even city) has a different cost of living. Your small business owner income isn’t in black and white. Take a look at the factors that affect your income.
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Subscribe to Email ListSBO earning potential factor #1: Industry
Your income might depend on what industry your small business is in. Some occupations and industries pay more than others. To help determine how much small business owners make, take a look at other business owners in your niche. Don’t look at business owners in different industries and expect your income to match.
For example, software developers (computer and mathematical occupations) earn a mean annual income of $144,570 while floral designers earn $37,700 per year on average. For more wage information by industry and occupation, visit the Bureau of Labor Statistics website.
SBO earning potential factor #2: Locality
Again, your income can vary based on where your business is located. Some areas have a higher cost of living than others. And, there is more demand for certain products and services in some areas than others.
The BLS puts together a State Occupational Employment and Wage Estimates guide that breaks down wage information by industry, occupation, and state.
For example, the annual mean wage for management occupations is $118,670 in Alabama and $182,530 in New York.
You can use the BLS resource to compare wages for different jobs. Because city size correlates to prices, you might make more in some areas than others.
SBO earning potential factor #3: Profits
Your income can change depending on whether you receive an owner’s draw vs. salary from your business. A draw is a portion of your business’s profits while a salary is a fixed amount you pay yourself regularly.
Unless you receive a salary, your income depends on your profits. If your business’s profits are low, you might take home less of a paycheck than when profits are high. When you are just starting out, your business might not even earn a profit until at least after year one. In this case, you might decide to take home only as much money as you need to cover your expenses.
Instead of cutting yourself a big check, consider whether it will affect your business’s health or not. You might choose to invest money back into your business instead of taking it as income.
According to the SBA, most small business owners limit their salaries to 50% of their profits. That means if your business earns $100,000, your income should not exceed $50,000. For some business owners, the higher your company’s profits, the higher your personal income.
Use resources to determine small business owner income
Although you might be eager to answer, how much do small business owners make?, there isn’t one definite answer. If you are thinking about starting a business, use resources to help you make educated guesses on how much you will earn. But remember, no two businesses are the same.
Your income might depend on additional factors like the amount of marketing you do, customer service, and more.
If you are a veteran small business owner trying to figure out whether you should be earning more or less, you could talk with an accountant to review your financial numbers. They can help you budget expenses.
Tracking your business’s profits doesn’t have to be difficult. Use Patriot’s online accounting software to record expenses and income. We offer free, USA-based support. Try it for free today!
This article has been updated from its original publication date of December 14, 2017.
This is not intended as legal advice; for more information, please click here.
