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How Much Money do Small Business Owners Make?

Posted By Scott Shane On November 15, 2010 @ 11:30 am In Economy | 22 Comments

Many people are curious about what the average small business owner earns. The IRS Statistics of Income [1] 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.

S-Corp Income and SalesClick to see larger image [2]

More 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 [3] that shows average income, sales, and income as a percentage of sales for sole proprietorships in 135 industries in 2008.


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URLs in this post:

[1] Statistics of Income: http://www.irs.gov/taxstats/index.html

[2] Image: http://smallbiztrends.com/wp-content/uploads/2010/11/scorp-651.jpg

[3] Click here for an Excel table: http://smallbiztrends.com/wp-content/uploads/2010/11/2008-Sole-proprietors.xlsx