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How much money do small businesses really make? What about solopreneurs and gig workers? Do many small businesses rake in millions of dollars a year? Do small business owners live the American Dream? Vacation at luxury resorts? Fly off to exotic locations in their private jet while their legions of employees keep everything running smoothly back home? Or do they struggle to make ends meet? Where does the myth end and reality begin?
The answer depends on many variables, but for the most part, businesses can be divided into two broad categories:
On one hand, there are the relatively small number of businesses who have 10 or 20 or more employees. Some of these – a very, very few – have concepts, business models and leadership that venture capitalist and private equity firms believe could evolve into high-growth, high-profit companies. Although they are a tiny minority of small businesses, they are the ones that make the news when they grow from scrappy startups into the Googles and Apple Computer companies of the world.
On the other hand, there are the rest of the small businesses in the country. These are the everyday businesses that don’t interest VCs and other investors who look for big paydays.
Everyday Small Businesses
Everyday small businesses are the kinds of businesses that aren’t likely to revolutionize their industries. They are the gig workers, solo businesses, and business owners with just a handful of employees. They are the software developers, electrical contractors, freelance writers, salvage companies, bagel store owners, consultants, automotive parts dealers, pet store owners, Internet publishers, accountants, small manufacturers, and other companies that provide needed products and services that aren’t revolutionary in concept. They are the small businesses in your town or at the local strip mall. They are the businesses in the local industrial park or office building downtown. And they are the homebased businesses in your neighborhood or maybe your own basement. They generate income, but not big bucks. Some are side gigs or part-time operations. Most are full-time businesses.
For the most part, these small businesses have few employees. According to the latest US Census Bureau statistics, there were about 7.6 million employer firms (ie, businesses with employees) operating in the United States in 2017. Of those businesses, 89% have less than 20 employees.
In fact, the majority of US small businesses are very small. According to the most recent statistics from the US Small Business Administrations Office of Advocacy, 81% of small businesses are classified as nonemployers because they have no employees.They are self-employed individuals who pay taxes, but are not counted in the monthly jobs reports that are based on payroll data because they do not have a payroll.
These very small businesses are businesses we know well at BusinessKnowHow.com. They are our audience.*
Periodically we run surveys to determine the characteristics and the interests of the businesspeople who visit our site so we can continue to provide the type of small business information they will find useful in their business. In almost all the surveys we conduct, we include questions asking survey takers about business ownership and gross annual sales.
Typical Small Business Annual Sales
So, how much money do these small businesses really make? Here are the annual sales of our survey responders from the US. Information from our survey in August 2019 shows that on the average, 66% of our survey takers make under $100,000 a year from their businesses. That number climbs to as high as 81% for people who only work part-time in their businesses.
Over the years, our surveys have shown that businesses with annual sales of $100,000 and over tend to correlate with the age of the business and whether the business has employees. Generally speaking, full-time business owners with employees are at the helm of businesses bringing in significant sales.
The graphs below are from the results of our 2018 survey. They represent all small business owners who responded to the survey, not just the solo entrepreneurs. They show two views of annual sales. The first includes both part-time and full-time businesses. The second graph omits the annual sales of those who responded that they worked part-time in their business (ie, its full-time business owners). Not surprisingly the percentage of businesses earning less than $25,000 is higher when part-time businesses are included, and the percent of businesses making more than $200,000 is higher in the graph that excludes part-time businesses.
As you look at the figures below, remember that annual sales does not equal profit. It does not take into account any of the businesses’ expenses.
Small Business Annual Sales 2018
Full-time and Part-Time
Small Business Annual Sales 2018
Multi-Year Look At Sales
How does this year’s sales compare to sales reported by our survey takers in previous years? Well there are some variations, as this multi-year comparison shows. But overall, a little less than half of the small businesses who visit our site report earnings of under $50,000.
Annual Sales Comparison by Year
While this graph isn’t broken down by length of time in business or whether the businesses are part-time or full-time, in general, the lowest earners tend to be startups and part-time businesses.
US Census Bureau Statistics
How does the information we gathered stack up against Census Bureau statistics? Because we used different income ranges than the Census Bureau does and didn’t sort our data by nonemployers vs employers, there’s no way to draw direct comparisons. But the Census data does show that few small businesses have high sales. According to the 2016 US Census statistics, the average annual sales for the nation’s 24.8 million nonemployers is only $46,978. In fact, a 2016 Federal Reserve Banks report found that 45% of the nonemployers had revenues of less than $25,000 a year.
Small Business Owner Household Income
What about profit on those sales? We’ve never asked survey takers to indicate their profits, but we did ask survey takers to indicate what their household income is. The household income would include the owner’s salary, profits from the business (in most small businesses, the profits pass through to the owners), as well as any non-business income the business owner or their spouse brings in.
Of the business owners in the US who responded to that question, 31% had household incomes of $100,000 or more., and 35% had household incomes between $50,000 and $99,999.
By way of comparison, Payscale reports that in 2018 the median salary of small business owner/operators is $59,889.
*BusinessKnowHow.com reaches millions of individual small business owners and professionals worldwide. Homebased businesses accounted for 66% of the businesses who responded to our 2018 survey. A little over 48% percent indicated they are one-person businesses.
**Our survey data was filtered to display only the responses from US business owners.
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Copyright 2019 Attard Communications, Inc. All Rights Reserved. May not be reprinted or redistributed without written permission.
About the author:
Janet Attard is the founder of the award-winning Business Know-How small business web site and information resource. Janet is also the author of The Home Office And Small Business Answer Book and of Business Know-How: An Operational Guide For Home-Based and Micro-Sized Businesses with Limited Budgets. Follow Janet on Twitter and on LinkedIn