How Much Money do Small Business Owners Make?
Many people are curious about what the average small business owner earns. The IRS Statistics of Income provides some data on the average income of sub chapter S corporations and sole proprietorships, which helps to estimate small business owners’ earnings.
In the table below, I show the income and sales of the average sub chapter S Corporation in the latest year the data are available. The figure shows that the average S corp generated about $100,000 income on about $1.5 million in sales in the last year before the Great Recession.
While the income of the average S corp was less than seven percent of its sales, there was wide variation across major industry sectors on this measure. Income only equaled about two percent of sales for sub chapter S corporations in retail, but almost 55 percent in management of companies, and almost 29 percent in mining. Similarly, wide industry differences can be seen in the average income of these businesses, ranging from only a little more than $28,000 in other services to $692,000 in management of companies. In fact, in four industry sectors – utilities, manufacturing, mining and management of companies – the average Sub Chapter S Corporation is making its owner rich by President Obama’s standards, generating more than $250,000 in income in 2007.
Click to see larger imageMore financially successful entrepreneurs tend to form sub chapter S corporations, and less successful ones tend to run sole proprietorships. The IRS Statistics of Income data also show how well the average sole proprietorship performed.
As one would expect, the numbers are much lower than for the average sub chapter S corporation. In 2008, the average nonfarm sole proprietorship had revenues of only $58,256 and net income of only $11,696.
But, as with subchapter S corporations, the the variance across industries in income and revenue is quite large. Because there sole proprietorships are more common than S corps, the IRS provides industry numbers at a much more fine-grained level for sole proprietorships. The IRS figures show that,in 2008, the average revenue of a sole proprietorship ranged from $11,862 for unclassified establishments to $1,073,406 for coal mines, and average net income ranged from -$47,455 for coal mines to $117,685 for dentists’ offices.
Click here for an Excel table that shows average income, sales, and income as a percentage of sales for sole proprietorships in 135 industries in 2008.
About the Author
Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By. 
Regularly Seen on MSNBC's Your Business
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Based on this data, what is the average point in revenue when a sole proprietor upgrades to an S corp?
Also, thanks for the Excel spreadsheet. That is way easier than trying to mine that data out of the IRS data.
wow,the small business can earn so much,I hope I will be part of it with my online movies business:)
Hmm… time to get into mining!
$$$
Scott,
You continue to be a source for dependable data and analysis. I appreciate your focus on the facts rather than wishful thinking.
Keep up the good work.
Thank you Scott.
It would be interesting to see the median numbers instead of just the average. I wonder how much skewing there is.
Excellent information, Imagine the 2009 and 2010 figures will show drastic reductions in income. I figure about 25% down over the last two years.
[...] proprietorships also tend to make much less money than incorporated businesses. In his article, How Much Money do Small Business Owner Make?, Scott Shane, Professor of Entrepreneurial Studies at Case Western Reserve University, analyzes IRS [...]
[...] simply don’t make anywhere near $379,150, let alone $250,000. A Case Western Reserve analysis last November, working from IRS data, put the small business income average at just over [...]
[...] simply don’t make anywhere near $379,150, let alone $250,000. A Case Western Reserve analysis last November, working from IRS data, put the small business income average at just over [...]
[...] simply don’t make anywhere near $379,150, let alone $250,000. A Case Western Reserve analysis last November, working from IRS data, put the small business income average at just over [...]
The statistics are staggering:
“In 2008, the average nonfarm sole proprietorship had revenues of only $58,256 and net income of only $11,696.”
Looks like many businesses are under reporting income or exploding taxable business expenses.
[...] $100,000 after taxes. The average was from the low end of $28,000 per year to $692,000. Read more Here! My example of an extra $20,000 per year with a home business is very accurate then and at the low [...]
Incredible. The figures for sales for my small construction company were spot on at $1,750,000 however my income was twice the average of 5.58 %. The only part he got wrong was that I am a sole proprietor but I earn like an S corporation. And that is for 2011. I guess I must be running a tight ship to make 12%. It just took eight years of hard work to get here.
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[...] These aren’t fat cat bankers. Small businesses employ the most workers in America and make less than $250,000 a year, but suffer at the behest of President Obama’s intransigent liberalism. Government [...]
[...] These aren’t fat cat bankers. Small businesses employ the most workers in America and make less than $250,000 a year, but suffer at the behest of President Obama’s intransigent liberalism. Government [...]