Average Salary of a Small Business Owner [Income, Profit]

Small and Medium Enterprises (SMEs) are growing at an accelerating rate across the globe. First-time owners and business enthusiasts are eagerly investing in their dream projects. Small businesses play a significant role in the creation of job positions. Small companies help local economies develop by bringing growth and innovation to the community where they are located. They also contribute to economic prosperity by employing people who would otherwise be unemployed by larger corporations. But how much does a small business owner, on average, earn? It is not possible to discern a definite number as it is going to vary depending on the following multifactorial factors:

• Geographical factors
• Sociocultural factors
• Gender
• Experience
• Industry

What is a Small Business, and What is a Small Business Owner's Average Salary?

The meaning of a small corporation varies across the globe. For comparison, in the European Union, any company with less than 50 workers is considered a small enterprise. Companies with less than 15 workers are considered small companies in Australia. These small businesses, for the most part, hire a small number of people. According to the most recent US Census Bureau figures, there were approximately 7.6 million employer companies (i.e. businesses with employees) operating in the US in 2017. About 89% of such companies hire less than 20 people.

The global analysis of data about business turnovers from SMEs reveals varied conclusions. Let's scratch the surface and look deeper.

1. Geographical Factors

The average income of small and medium enterprise owners (SME) varies considerably from region to region. One's a place of origin, and its business climate factors matter substantially in this context. Geography is a pivotal factor in assessing business growth and profits. A booming economy, coupled with accessible government services, is good news to a young entrepreneur.

Knowing how much to pay oneself cannot be easy. According to Payscale's 2017 report, the salary acquired by a small business owner in India stands at Rs.5,71,900. This amount includes the bonuses, commission, and profit-sharing amount, and the range stands at Rs.4,30,039 to Rs.6,79,299.

2. Sociocultural Factors

The average salary acquired by a small business owner will also differ due to factors such as race and ethnicity. The income for small business owners will not be uniform owing to these factors as well. Structural obstacles are a hindrance to entrepreneurs from disadvantaged groups. Anyone who acts as a gatekeeper will restrict the flow of cash required for the subsistence of a country's denizens. We are talking about the practical realities of the world where most successful entrepreneurs belong to culturally dominant groups.

Compared to this, other small businesses such as those owned by Black people fail to gain the traction required for visibility. The United States's Black-White age gap reveals the difference in income between these two groups. The pandemic has pushed entrepreneurs, especially those belonging to the marginalised communities, to the periphery. A series of studies conducted in May 2020 reveals the following about Black-owned small businesses:

• Around 58% of Black firms were at risk of financial hardship before the pandemic, compared to about 27% of white-owned companies.
• From February to April 2020, the pandemic led to the loss of 41% of Black-owned US companies leading them to closure.
• More than 50% of the owners of surviving Black businesses surveyed in May indicated that they were very or highly concerned about their viability.

Therefore, it is difficult to reach a conjecture about the average salary acquired by a small business owner without considering the interactions between geographical and racial elements.

Small business owners seldom earn as much money as CEOs of big corporations. They typically earn less than Rs.6,00,000 a year, but even more shocking is the fact that 30.7% do not take any salary at all.

3. Gender

According to reports by the Wall Street Journal, female business entrepreneurs get lower salaries than their male counterparts. According to a report by J. Thelander Consulting, a San Francisco-based company that studies compensation data, the average female small business entrepreneur acquires an annual salary of Rs.4,79,444, in comparison to the Rs.6,32,659 that her male counterpart acquires. Men have historically dominated the industry. Many of the biggest startups today have been created and are run by men. Yet, some women have ushered in transformations in the business scenario.

In Southeast Asia, many women have broken through challenges and overcame barriers to success in the tech industry. Thus, the removal of obstacles for women-owned enterprises' success is an economic imperative that will promote innovation and increase efficiency, making inroads for employment, building wealth, and increasing the economy.

4. Experience

The average income of small business enterprises depends primarily on the experience gained over the years. Activities such as managing day-to-day errands, supervising and training employees, promoting products, and serving customers help determine a modest wage for oneself. According to Payscale, on average, a new entrepreneur taking up a small business with less than five years of experience acquires around Rs.6.5 lakhs. (this amount includes the bonuses, tips, and additional overtime pay).

A small business entrepreneur with 5-10 years of experience acquires around Rs.7 Lakhs per year. A small business person with 10-20 years of experience earns around Rs.9.6 lakhs annually and owners with 20+ years of experience acquire around Rs.12-14 lakhs every year.

5. Industry

Knowing what's going on in the world of small business will help you handle the risks and opportunities better. Therefore, it is never a bad option to equip oneself with data regarding the average income of business owners in different industries. The salary varies from organisation to organisation. According to the data published by the Bureau of Labor Statistics, the average annual wages of the sectors are as follows:

• Floral designers acquire Rs.3 lakhs annually
• Independent artists, writers, and high-stage performers acquire Rs.4-5 lakhs annually
• Graphic designers acquire Rs.4,53,280 annually
• Software developers and application developers acquire Rs.7,06,710 annually
• Lawyers acquire Rs.6,41,890 annually
• Carpenters acquire Rs.3,49,630 annually
• Web developers and designers acquire Rs.5,74,110 annually
• Interior designers acquire Rs.6,58,210 annually
• Photographers acquire Rs.4,41,940 annually
• Event planners acquire Rs.8,52,630 annually

Conclusion

It is no child's play to start a business in today's competitive climate. A host of variables interact with each other to make the environment potent for success. It has been found that several business founders take no salary in the first years of running a company, while others take so much that they have trouble managing the company. The precise essence of your organisation will decide the timetable for profitability. It will take years for those that need a major startup investment to become profitable.

The chances are that we will not arrive at a definite response regarding a small business owner's salary. No two firms are alike. Your revenue can rely on additional variables, such as the amount of marketing you do, customer service, and more. For some business owners, the greater the revenues of your corporation, the higher your income. Right away, several fast-growing enterprises with little overhead would be profitable.

Also Read:

1) Who is the target audience for a small business?
2) How Many Hours Do Small Business Owners & Entrepreneurs Work?
3) How Much Should A Small Business Budget For Marketing?
4) OkCredit: Simple, Paperless & Secure solution for businesses

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FAQs

Q. What are the legal aspects to look out for to manage a small business?

Ans. You would need licenses, permits, zoning laws, etc., to start/manage a business. These legal aspects, however, differ from state to state. Check with the local laws and regulations before starting.

Q. What do business owners need to succeed?

Ans. A business owner needs four primary things:

• Valid and sound management practices
• In-depth industry experience
• Technical support
• Good planning strategies

Q. How to set wage levels for employees?

Ans. The wage levels for employees are evaluated according to the employee's position, importance, and skills. Consult the trade association and accountant to know more about the wage laws and policies.