Many Americans dream of owning their own small businesses. They may be attracted by the promise of independence, freedom, and hard work in something that belongs entirely to them. There is also the potential for your business to be hugely successful.
Factors Affecting Small Business Owner Salaries
There are several factors that influence where you might fall on the scale of average salaries for small business owners. Experience is one of the biggest factors. Business owners with less than 20 years of experience tend to earn between $52,000 and $62,000 per year, according to Payscale. However, after 20 years of experience, small business owners tend to earn around $75,000 annually.
Gender: The wage gap that affects most industries also impacts small business owners. Research from FreshBooks showed that self-employed women earn 28% less than their male counterparts. Furthermore, 20% of self-employed women say they believe they need to offer lower prices compared to men in order to gain and retain clients.
How to Determine a Small Business Owner’s Salary
If you are looking for a magic formula to figure out how much salary you should take as a business owner, you’re out of luck. There isn’t one single way to make those decisions. However, it is helpful to know some key numbers to assist you.
Consider the compensation options available. The easiest option from an accounting perspective is to take a fixed salary as the payments are very clear in the records. You can also consider a salary plus bonuses or commission structure. This allows you to have regular payments, but also additional payments if business is good. Some business owners prefer to receive compensation in the form of stock options, which may be less complicated at tax time.
Business Income: The first thing you need to know is what your business can afford to pay you. If your startup is not yet profitable, you may need to dip into your personal savings. Some business owners do not take a salary at all in the early days of their businesses.
Living Expenses: You may want to try to pay yourself based on your living expenses. You can calculate the least amount of money you can take. You can do this by calculating your monthly living expenses and then multiplying it by 12. So, if you typically live on $3,000 a month, you may want to aim for a salary of at least $36,000 annually.
Market Rate: Finally, consider what a similar job in your field might pay. Given your experience and skills, how much could you earn in the open market? Check with the Bureau of Labor Statistics, look at trade magazines or business organizations, and talk to other small business owners to find out what salary might be appropriate for your industry.
Re-evaluating Your Salary
Once you set your salary, make sure to re-evaluate it regularly. If your business is still in its infancy, you may want to reset your salary about every six months.
Once your business becomes more stable, you may want to switch to reviewing your salary annually. As a business owner, your salary will of course depend on your company’s performance. If your business is thriving, your salary will increase. If your business is struggling, you may need to cut back on your salary.
Frequently Asked Questions
How much do small business owners earn in the United States?
The average salary for a small business owner was $63,560 annually in August 2022, with salaries ranging from around $30,000 to about $146,000 per year, according to PayScale.
How
Should I pay myself as a business owner?
You can take a salary as a business owner. You can also take a salary with the option of receiving an annual bonus, giving you more flexibility. You can also pay yourself with stock options. However, taking a standard annual salary is the easiest way to pay yourself from an accounting perspective.
Source: https://www.thebalancemoney.com/average-small-business-owner-salary-in-the-u-s-4176311
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