According to a book, Scaling Up, written by Verne Harnish, 94% of companies make less than $1 million.
The average revenue of a small business in the United States is slightly greater than $46,000. Many small business owners retain a second job to supplement their income. So the average income of a small business owner is slightly greater than $70,000. The numbers increase as the businesses age.
When we looked at results from the COVID-19 Small Business Economic Impact Survey in the United States for 2020, we found that 43% of businesses who said they were fully operational estimated their yearly sales for 2020 at under $50,000. Data provided by Statista for 2020 showed there were 804,398 businesses less than one-year-old as of March that year.
A report in December 2020 by the Census Bureau showed about 25.3 million non-employer businesses in 2017. More than 90% of this population of businesses are small-to-medium size businesses, otherwise known as SMEs (SalesForce, 2019). Small-to-medium-sized businesses of less than 500 employees exported goods valued at a total of $541 billion in 2017. Small businesses created 9.3 million new private jobs from 2005 to 2019, accounting for 64% of the total jobs created in the U.S.
Small Firms Drive Much Economic Activity
As this final stat shows, small firms are responsible for creating large numbers of jobs. Underlying a conventional view among managers has been the idea that small companies are just like large companies, except small businesses, have lower sales, smaller assets, and fewer employees. The salary of an owner-manager at a small company represents a far larger share of revenues than at a large firm, usually so large a share that there is little left to pay extra managers or reward investors.
For one thing, small businesses are typically concentrated in highly fragmented industries–wholesale, retail, services, manufacturing by labor shops–that have many competitors inclined to cut prices to raise revenues. On one side are relatively few businesses with 10, 20, or more employees. The largest group of small businesses falls in the category of businesses with just one employee, which earns an annual profit on average of less than $10,000.
The median revenue for a one-employee small business is $44,000 annually, while the median revenue for one-employee small businesses was $4.9 million in 2021. If we assume that the average EBITDA margin is 7%, and that the average business has revenues of $1 million a year, the average net profit of small businesses is $70,000 per year. For example, a business that has revenues of $100,000 and expenses of $60,000 is making $40,000 in profits annually. Even with income of $1 million, profit is an average of just $70,000 a year, barely more than an average employees pay.
Most Small Businesses Are Sole Proprietorships
Considering 80% of small businesses have no employees, and that the median company owner has $44,000 in income, that looks like the average one-person company makes just a little more than $3,000 per year. Across the sizes and revenue values of small businesses, the median individual business owner now makes $68,153 per year. The average annual income of a small business that has no employees is $44,000 annually, while those that have 1 to 4 employees make $38,700 annually. The Small Business Administration’s standard of size is based on the average annual revenue and the number of employees.
For instance, according to the Small Business Administrations definition, a roofing contractor is defined as a small business if its annual revenues are $16.5 million or less. The SBAs table of size standards defines a small business based on a firm’s revenues (ranging from $1 million to more than $40 million) and its number of employees (100 to more than 1,500).
A firm should have revenues between or under $750,000 to $35.5 million, and between or under 100 to 1,500 employees, depending on the industry. Those businesses with less than 100 employees account for 98.2 percent, while those with less than 20 employees make up 89 percent of all businesses in the United States.
Small-business statistics indicate that almost half of businesses owned by African-Americans employ just one worker, and 41.2 percent employ two to five workers. An astonishing 15.5 million businesses are nearly seven-in-ten, and their median gross income is just over $7,000. New businesses’ annual revenues vary depending on a number of factors, but estimates are about $50,000, with the majority not turning a profit their first year in business, according to Forbes.
Small Businesses Take Years Before Generating a Profit
Most small-business owners cannot expect a profit in the first year, however: It may take two or three years before they see a profit. Even businesses that do make a profit may miss out on profit in the first year as they reinvest back into the business, hire new employees, or expand the products or services offered. The more money the business needs up front to deliver its products or services, and the higher the payroll, the longer the company takes to turn a profit, according to The Houston Chronicle.
According to the Revenue Growth Research of Bobby Martin, it was found that average startup business revenues were $0. It reached $3 million by the end of the four-year period. Growing a small business north of 20 employees requires an entirely different set of business skills from the startup skill set, and this is the reason so few businesses ever break through the $1 million barriers. The Wells Fargo Small Business Index suggests that the median amount of capital for startups is $10,000, and Kauffman’s firm survey suggests that the median is closer to $80,000.
The Small Business Administration survey shows that 3 percent of small businesses spend over $40,000 a year on just federal taxes — and that does not include accounting fees, legal fees, and other costs. In fact, the Feds 2016 report found that 45 percent of the nation’s one million nonprofit employers had revenues below $25,000 a year. Not surprisingly, when you include side gigs, the proportion of businesses earning less than $25,000 is higher, while in Chart 2, the proportion making over $200,000 is higher.