What is an Average Business Owner’s Salary and How Does it Fluctuate?
Do you have a small business? Are you paying yourself as much as you should be? How much do other business owners make? Does a business owner’s salary fluctuate?
Let’s talk about the average business owner’s salary, how it fluctuates, and how to pay yourself.
What Is an Average Small Business Owner’s Salary
According to PayScale, the average small business owner’s salary is $71,627. A variety of factors can impact that number. Many small business owners won’t earn that much money until they have at least three years of experience.
When you look at the average range of business owner salaries, you get a better idea of what you might expect. Salaries can range from $30k-$151k.
Factors That Affect a Business Owner’s Salary
Man factors can impact a business owner’s salary. A few of the most common include:
- Incorporated vs. unincorporated – Incorporated business owners make more money
- Location/state – Business owners in richer states have higher salaries
- Gender – Men earn more than women ($42,575 to $96,111 for men compared to $31,380 to $71,140 for women/)
- Business type/Industry – For example, software developers ($106,710/) average far more than floral designers ($27,610/)
- Experience – Business owners with less than 5 years of experience average $49,000, while those with at least 20 years experience average $99,000 per year.
How Does it Fluctuate
Many factors can influence how much a business owner’s salary fluctuates. Business income can fluctuate based on factors like seasonal sales or severe weather. Business expenses could be affected by things like variable utility bills or an increased cost of goods.
Depending on how a business owner draws their salary, it may fluctuate significantly based on the business’s income and expenses.
How Much Should You Pay Yourself
Business owners can have a hard time deciding how much to pay themselves. You don’t want to take too much money away from your growing business. However, you also need to pay your personal expenses.
Unfortunately, it usually isn’t as easy as taking a simple percentage of your business’s profits.
Let’s look at a simple breakdown of the steps you should take to decide how much to pay yourself.
Determine Your Net Monthly Income
To figure out your business’s net monthly income, you need to subtract expenses from profit. If you fail to factor in expenses before taking a salary, your business could easily accrue significant debt.
When determining your business’s expenses, don’t forget to account for loan repayments.
Figure Out How Much to Save for Taxes
Unfortunately, taxes are as inescapable as death. It’s always a good idea to talk to an accountant about how much to save for taxes. However, a good starting point is to save 30% of your business’s gross income. That’s how much income your business makes before expenses.
Next, subtract your business’s tax savings from the net monthly income. That’s how much money you have access to for a potential salary. However, you aren’t ready to take a salary yet.
Create a Business Savings Account
Your business will have more expenses down the road. Rather than accumulating more debt each time you hit a new expense, you should have savings set aside. The more you can set aside for future business expenses, the better.
Factor in Your Personal Needs
You have personal expenses you need to manage. How much money do you need to pull from your business to handle your personal expenses? There’s no point in setting aside thousands of dollars for business savings if you can’t pay your mortgage.
Finesse the Numbers
It’s possible that you won’t have enough for your personal needs after you factor in business taxes, expenses, and savings. Here’s where you’ll have to get creative.
You can’t change how much money you set aside for taxes. However, maybe there are ways to decrease other expenses, increase income, decrease your personal need, or reduce savings.
How to Pay Yourself When Your Business Income Fluctuates
Paying yourself a salary can be even more difficult when your business’s profits fluctuate from month to month.
Some business owners will draw a monthly salary based on the average income of the previous 12 months. However, that can cause problems if you have a very slow month.
A safer way to go is to plan your personal budget based on the lowest month of the previous 12. You are less likely to have problems this way.
How Long Does It Take for a Business to Make a Profit
On average, it takes at least 3 years for a new business to make a profit. Can you access another source of income (like from a spouse/) to cover your personal expenses during that time? Can you get enough business loans to cover both business and personal expenses for 3 years?
Beyond that, only around half of all businesses survive for at least 5 years.
The unfortunate thing about starting a new business is that it’s a huge, expensive risk. However, It’s an exciting risk with the potential for great profits. If your business is your passion, you should still go for it.
Do You Need Financing for Your Small Business
Running a small business can be expensive. If you aren’t making much of a salary yet, maybe a business loan will help.
First Union Lending should be your first stop for small business loans. We offer 9 different business loan types to choose from. That means you’re sure to find the best one to meet your needs.
Getting started with First Union is simple. Just call 863-825-5626 or click here. One of our lending specialist will talk you through your loan options and help you pick the right one.
No need to worry about your credit score – applying for our business loan won’t affect it. Also, you could get money as soon as the same day you apply.
Give your small business (and maybe your salary/) a boost by contacting First Union Lending today.