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How much money do small businesses really make? Are most small businesses raking in millions of dollars a year? Do small business owners really get to live 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? 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 Google's and Apple Computer companies of the world.
On the other, there are millions of other small businesses in the country. These are the everyday businesses that don't interest VCs and other investors who look for big paydays. They have fewer than 20 employees, and for the most part have fewer than 10 employees.
These everyday businesses are software developers, electrical contractors, freelance writers, salvage companies, bagel store owners, consultants, automotive parts dealers, pet store owners, Internet publishers, accountants, small manufacturers, and well, the list goes on. They are the small businesses in your town or at the local strip mall. They are the homebased businesses in your neighborhood or maybe your own basement. And they are the businesses in the local industrial park or office building downtown. They generate income, but not big bucks.
For the most part, these small businesses have few employees. According to US Census Bureau statistics, while there are more than 27 million businesses operating in the United States, only 655,587 of them employ 20 or more employees.
In fact, the majority of US small businesses are very small. A whopping 21 million are "nonemployers." In other words, 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.
Another 3.7 million have 1 to 4 employees.
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 a questions asking survey takers about business ownership and gross annual sales. In some of our surveys in years past, we also included a question about household income.**
Typical Small Business Annual Sales
So, how much money do these small businesses really make? Here are the annual sales of our survey responders this year. 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.
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 about half of the small businesses who visit our site report earnings of under $50,000.
While we haven't broken down the data on these charts 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.
Small Business Owner Household Income
What about profit on those sales? We've never asked survey takers to indicate their profits, but we have asked what their household income was on several surveys in the past. The household income would include profits from the business owner's 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. For 2010 (the last year we asked survey takers what their household income was) the results are as follows:
Again, while there were some household income differences from year to year, there isn't a lot of difference in the percentages of people at the various income levels, as you can see from this Small Business Household Income Chart showing the survey results from several different years.
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 US Census Revised 2008 Nonemployer Statistics Table, the average annual sales for the nation's 21 million nonemployers is only $43,645. For the 3.7 million small businesses with 1 to 4 employees, the Census Bureau figures show average annual sales in 2007 were $387,200.
*BusinessKnowHow.com has a worldwide audience of 4 million individual small business owners and professionals. About half of those individuals are based in the United States. A little over 60 percent of the US-based businesses who visit BusinessKnowHow.com are homebased. About 43 percent are one-person businesses.
**Our survey data was filtered to display only the responses from US business owners.
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