How Much Profit Does the Average Small Business Owner Make a Year in 2022? | The Kickass Entrepreneur (2022)

I knew I wanted to own my own business from when I was 13 years old. In fact, I started my first business, which was an “advertising business,” at the age of 15.

I put “advertising business” in quotes because it wasn’t much of a business. I suspect the total revenue from my first venture didn’t amount to more than a few thousand dollars, but I was hooked, nonetheless.

The Average Small Business Profit, and The Average Net Income For Small Businesses in 2022

There’s something that has always appealed to me about being my own boss and forging my own destiny. In my mind, I’ve always equated it with the thought of traveling or driving quickly on a motorcycle on a quiet highway with the song “Born to Be Wild” playing in the background. Not to forget the fact that I won’t won’t be working 9 to 5, trying to climb the corporate ladder.

I’ve since gone on to start a number of businesses over the years, all with varying degrees of success.

Ironically, if you had asked me why I wanted to start my own business when I was younger, my answer back then would likely have been the same answer as I would give today:

The freedom to choose my destiny and reap the rewards of my hard work.

Ultimately, and in the end, profit follows … Or does it?

What Profit Margins Does a Small Business Make?

There appears to be a wide disconnect between what a small business owner actually makes, and what the general public believes a small business owner makes. The company Reason-Rupe did a poll in 2013 and asked over 1,000 people what they thought the profit margin was for a small business. The results are surprising.

The general public believes that a small business makes up to 36% profit margin when in actuality, the number isn’t even remotely close to 36%.

I’m sure you’ve heard the statistic that over 50% of new businesses fail within the first 5 years of starting. Inside that terrible statistic, there are a number of questions, like why did the company fail and why did the small business ever got started in the first place.

My plan isn’t to tackle the answers to the two above questions, as I’ve addressed those in other blog posts, like here. But if the general public believes there’s such a high-profit margin, do individuals enter small business thinking that it’s easy and filled with wealth and riches.

Is the typical entrepreneur completely disillusioned enough into believing that they’ll make a 36% profit margin when they enter the business, only to realize that it’s a lot harder and not nearly as profitable as they first imagined?

I suspect so, and the high business failure rate would likely support that.

How Much Profit Does the Average Small Business Owner Make a Year in 2022? | The Kickass Entrepreneur (1)

So if the typical small business owner doesn’t make a 36% profit margin, then how much do they make? Unfortunately, not enough! And worse, most small business owners don’t know how to generate profits in their business (small plug – I created a 90-minute course – How to Turn Your Small Business Into a Profit Machine in 60 Days.

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For starters, the small business comprises a very large percentage of the overall workforce in North America. You should take into account that there are a lot of them working in the education niche providing variousessay writing services, tutoring, assignments, homework providers, etc.

According to a study by the US Small Business Administration, in 2015 US, small businesses employed 58.9 million people or 47.5% of the private workforce. For clarification purposes, a small business is defined as a company with 100 or fewer employees.

From a different SBA survey, 80% of the 28.1 million small businesses in the United States do not have employees.

What Is the Average Revenue of a Small Business?

The average revenue for tech startups may be a bit different. In astudy of 234 tech startups, ProjectionHub found that the average revenue for a tech startup was approximately $500,000 annually in the first 2 years in business.

The average small business revenue with no employees is $44,000 per year, and the average revenue of a small business with employees is $4.9 million in 2021.

I extracted the data into the following chart:

How Much Profit Does the Average Small Business Owner Make a Year in 2022? | The Kickass Entrepreneur (2)

The above, average small business revenue, addresses the revenue question. The next question is what is the average profit margin.

How Much Profit Does the Average Small Business Owner Make a Year in 2022? | The Kickass Entrepreneur (3)

From an article titled SME Operating Performance on the Government of Canada website, margins for a small business operating between 2004 and 2012 were 7%.

You will notice a big variance from the chart in the small business net profit margin ranging from as low as 1.5% to as high as 7%. The information obviously varies from year to year based on economic conditions, but a 7% net profit operating margin is a high watermark.

That number, 7%, isn’t very good.

For clarification purposes, the number is how much revenue a company keeps as profit after deducting all costs of doing business, taxes included.

Using a 7% profit margin, which appears to be at the high end, here’s what the average profit looks like for the North American business:

How Much Profit Does the Average Small Business Make a Year?

Given that 80% of the small businesses don’t have any employees, and the average business owner has $44,000 in revenues, it looks like the average 1-person business makes slightly over $3,000 a year.

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Even if I were to double the 7% number, we’re still only looking at $6,000 a year in profits, which isn’t exactly a banner number. That is not the average small business profit since that only addresses a one-person company.

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If you take the weighted average of all of the businesses in each size category, you’re looking at slightly over $50,000 per year. Of course, I’ve made some assumptions, the most important assumption being that the average small business profit margin is 7%.

How Much Profit Does the Average Small Business Owner Make a Year in 2022? | The Kickass Entrepreneur (4)

You will notice that the profit level really only becomes somewhat significant when the business has between 20 to 99 employees, at which point, the average profit margin is $498,680.

Growing a small business to the north of 20 employees requires a very different entrepreneurial skillset than the startup skillset, which is why so few businesses ever surpass the $1 million mark.

Even at $1 million in revenue, the profits on average are only $70,000 a year, which is barely above the average employee’s salary level. According to the book, Scaling Up by Verne Harnish, 94% of businesses have less than $1 million in revenues.

Amount of Profit Based on the Number of Employees

Using the above information, and extracting data from another study done by both the US Small Business Association and the Government of Canada, here is the percent of businesses that fall into each category:

How Much Profit Does the Average Small Business Owner Make a Year in 2022? | The Kickass Entrepreneur (5)

The bottom line (no pun intended) is that the average small business profit for the typical business owner is barely making enough profit to make it worth running a business. They would be better off just getting a job.

To Summarize, and answer the question, what type of profit does the average small business make a year, or, how much do small business owners make, broken down into the categories, you’re looking at:

  • 1 employee = $3,800 profit/year
  • 2 to 4 employees = $27,090 profit/year
  • 5 to 9 employees = $76,600 profit/year
  • 10 to 19 employees = $151,480 profit/year
  • 20 to 99 employees = $459,680 profit/year
  • 100 to 499 employees = $2,854,250 profit/year

If you’re thinking of starting a small business because you’re hoping to hit the “get rich quick jackpot”, you might want to consider a different profession like seo consulting.

The largest cohort of small businesses fall into the one-employee category, and they make less than $10,000, on average, profit per year.

The bigger bucks start once you make it into the 20 to 99 employee camp, where those small business owners make approx. $500,000 a year.

I see two primary small business challenges:

Challenge 1: taking the leap from a single sole-proprietor shop to a larger scale

Challenge 2: improving profit margins

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These two challenges are unique, of course, and need to be tackled separately. The scaling challenge is far more complex than improving profit margins. Or put another way, improving profit margins is easier to fix than improving revenues.

Given the Stress and Lack of Profits, Is It Worth Running a Small Business?

And that’s the holy grail of questions.

Why run a small business when the chances of success are so slim?

Why run a small business when most business owners would be better off just getting a job?

And these questions bring me back to what I wrote about at the beginning of this post:

There’s something that has always appealed to me about being my own boss and forging my own destiny. In my mind, I’ve always equated it with the thought of driving quickly on a motorcycle on a quiet highway with the song “Born to Be Wild” playing in the background.

  • The freedom of choice.
  • The freedom to forge one’s destiny.
  • The chance of making it big.
  • The appeal of large profits and wealth – you might be interested in this related article: How to Become a Decamillionaire, Grow your Net Worth to $10 Million, and Join the 1% Club

In the end, is it all worth it?

Absolutely. And I would do it all over again if I could.

Regarding the question of how much do small business owners make, the answer is unfortunately not enough. Now, the next question is:

How Much Does a Successful Business Owner Make?

The bigger profits start once you pass the $5 to $7 million dollar revenue mark with a 15% and greater EBITDA profit margin. PayScale’s 2017 data shows that the total earnings of a small business can range from $30,000 – $182,000 per year.

That would net a minimum of $750,000 into the small business owner’s pocket (not including taxes). If your small business can consistently make that a year, for many years, and can manage to save and invest at least 50% a year, then you can create massive wealth.

However, the average income may also vary depending on the region, type of industry, and experience of the business owner.

How Many Employees Does a Small Business Have on Average

The number of employees on average is roughly 18 based on the weighted average from the numbers in the Excel table below.

How Much Profit Does the Average Small Business Owner Make a Year in 2022? | The Kickass Entrepreneur (6)

More and more small businesses are being established in the U.S. alone each year. In 2019, the number of small businesses in the U.S. was 30.7 million, which makes for 99.9% of businesses in the United States.

Since we have already talked about the average, if we consider the statistics as a whole, there are 59.9 million people employed in small businesses. This makes 47.3% of the workforce in the U.S.

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This shows that small businesses are not really small as they have taken over most of the business world in the United States alone.

What is the Average Net Income for Small Businesses?

If we consider that the average EBITDA profit margin is 7%, and the average business has revenue of $1 million per year, then the average net income for small businesses is $70,000 per year.

Even Though the average income by the state may vary due to geographical differences, educational differences, and experience, the average income is somewhere around what I had mentioned above.

Factors like the season, trends, and lack of material can majorly affect the sales, resulting in the fluctuation of the Net Income of a business. With these factors in mind, small businesses have a huge responsibility to find alternatives so they can keep their sales going.

The Takeaway

Growing your small business can take time and you won’t always make quick money, but it’s certainly worth it. The reason why 42% of the small businesses fail is because of the lack of market demand. So, make sure to do your research properly and be consistent with what you do.

So, if you want to be your own boss, start right now with all the necessary information. It will slowly but surely give the results you need.

Good luck with your small business and wealth-creating journey.

If you enjoyed this post, you might also enjoy this one: Profit Isn’t a Disease. It’s the By-Product of a Well-Run Company. If You’re Not Yet Profitable, Fix It or Get a Job.

And this one: How Do You Know When It’s Time to Sell Your Business? It’s Not All About the Money.

You should also consider subscribing to my blog. I publish one article a week on small business and wealth creation. You can subscribehere.

Also, I published a book during the summer of 2018, “The Kickass Entrepreneur’s Guide to Investing, Three Simple Steps to Create Massive Wealth with Your Business’s Profits.” It wasnumber 1on Amazon in both the business and non-fiction sections. You can get a free copyhere.

How Much Profit Does the Average Small Business Owner Make a Year in 2022? | The Kickass Entrepreneur (7)

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  • How to Create Profit as a Small Business
  • Turn Your Small Business Into a Profit Machine in 60 Days
  • 19 Easy Ways to Increase Profit Margins for Your Small Business
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FAQs

What is the average profit for a small business? ›

According to the Corporate Finance Institute, the average net profit for small businesses is 10%, while 20% is considered good. But your mileage may vary depending on a variety of factors.

What is the most profitable business to start in 2022? ›

What's the Most Profitable Business to Start in 2022?
  1. 22 Profitable Businesses to Start in 2022. ...
  2. Ecommerce Business. ...
  3. Dropshipping Business. ...
  4. Vacation or Home Rental. ...
  5. Online Courses. ...
  6. Bookkeeping or Accounting Services. ...
  7. Graphic Design Business. ...
  8. Digital Agency.
15 Aug 2022

How much does the owner of a small business make? ›

How much do small business owners make in the USA? The average small business owner's salary was $63,560 per year in August 2022, and the salary ranged from about $30,000 to about $146,000 per year, according to PayScale.

What is a good annual revenue for a small business? ›

The average small business revenue with no employees is $44,000 per year, and the average revenue of a small business with employees is $4.9 million in 2021.

Is 20% profit good for a business? ›

Net profit margins vary by industry but according to the Corporate Finance Institute, 20% is considered good, 10% average or standard, and 5% is considered low or poor. Good profit margins allow companies to cover their costs and generate a return on their investment.

How long until a business is profitable? ›

Three to four years is the standard estimation for how long it takes a business to be profitable. Most of your earning in the first year of the business will be used for paying expenses and reinvestment.

What kind of small business is most profitable? ›

Most profitable small businesses
  1. Food trucks. ...
  2. Car wash services. ...
  3. Auto repair. ...
  4. Personal trainers. ...
  5. Newborn and post-pregnancy services.
3 May 2022

What type of small business makes the most money? ›

Check out this list of the most profitable small businesses.
  1. Business Consulting. If you're an expert in your industry and have been working at it for years, you should consider consulting. ...
  2. IT Support, Technology Consulting, and Repair. ...
  3. Cleaning Services. ...
  4. Accounting and Tax Preparation. ...
  5. Auto Repair. ...
  6. Real Estate.

What type of business makes the most profit? ›

Industries with the Highest Profit Margin in the US in 2022
  • Trusts & Estates in the US. Profit Margin 2022: 54.6% ...
  • Tax Preparation Software Developers. Profit Margin 2022: 54.3% ...
  • Maids, Nannies & Gardeners in the US. Profit Margin 2022: 51.7% ...
  • Land Leasing in the US.

How should you pay yourself as a business owner? ›

There are two main ways to pay yourself as a business owner:
  1. Salary: You pay yourself a regular salary just as you would an employee of the company, withholding taxes from your paycheck. ...
  2. Owner's draw: You draw money (in cash or in kind) from the profits of your business on an as-needed basis.
12 Jul 2021

How much do small business owners make a month? ›

How Much Do Business Owner Jobs Pay per Month?
Annual SalaryMonthly Pay
Top Earners$90,000$7,500
75th Percentile$52,000$4,333
Average$49,585$4,132
25th Percentile$25,500$2,125

How much profit should a business make? ›

Your net profit percentage goals should be a minimum of 15-20%. Obviously the higher the better - and if you can get your net profit to 30-40% you'll have on your hands a truly enduring business. There's an old saying - sales is vanity, profit is sanity.

How often do small businesses fail? ›

Data from the BLS shows that approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first 10 years. Only 25% of new businesses make it to 15 years or more.

Is running a small business worth it? ›

Starting your own business has several financial benefits over working for a wage or salary. First, you're building an enterprise that has the potential for growth – and your wallet grows as your company does. Second, your business itself is a valuable asset. As your business grows, it's worth more and more.

How much money does a business owner make a year? ›

Business Owner average salary by State
RankStateAvg. Salary
10Michigan$82,706
11South Dakota$94,551
12Connecticut$99,694
13California$102,886
47 more rows

What is average profit? ›

The profit earned by a business during previous accounting periods on an average basis is termed as the Average Profit. It takes into account the average profits for the past few years and fixes the value of goodwill as to many year's purchase of this amount.

What small business has the highest profit margin? ›

11 most profitable small businesses
  • Tutoring services.
  • Home improvement.
  • Personal training.
  • Kids' activities.
  • Virtual assistant services.
  • Social media management.
  • Dog-walking services.
  • Property management.
7 Mar 2021

What industry has the highest profit margin? ›

Industries With the Highest Profit Margins

Software (entertainment): 29.04% Transportation: 28.90% Tobacco: 20.58% Software (System and Application): 19.66%

How long does it take for a small business to succeed? ›

Most small businesses take at least 2 to 3 years to be profitable and become truly successful once they've hit the 7 to 10 year mark. Most small businesses take years to be successful, despite the overnight success of companies like Facebook.

How long do small businesses last? ›

RESEARCH Longevity

51 percent of small businesses are 10 years old or less, and 32 percent of small businesses are 5 years old or less.

What is the best age to start a business? ›

The optimum age to start a business is 28 years old, according to a global survey of Millennials and Gen Zers. The recent survey of more than 25,000 people, aged 18 to 40, across 35 countries from Herbalife Nutrition, found half believing their age would help their chances of success.

What businesses will thrive in 2022? ›

Industries to consider for business ideas in 2022
  • Sustainability. ...
  • Pet services. ...
  • Fitness. ...
  • Digital events and conferences. ...
  • Home improvement. ...
  • Freelancer support.
11 Oct 2021

What is the hottest business to start? ›

Here is the list f selected hot business opportunities with good profit potential:
  • Start a Blog. You can choose to start a blog of your own on a niche topic. ...
  • Web Designing. ...
  • Freelance Bookkeeping. ...
  • Graphic Designing Services. ...
  • Freelance Writing. ...
  • Online SEO Consultancy. ...
  • E-commerce Business. ...
  • Smartphone Repair Services.

Is 2022 a good time to start a business? ›

A year later, this trend has continued, and it's not slowing down any time soon. In November 2021, Americans filed 432,034 business applications. The message here is clear: if you've ever wanted to be your boss, 2022 is a great time to build your business. Of course, starting a new business venture isn't easy.

What businesses will always be in demand? ›

  • Food. Food is required for life and this means demand will always be high. ...
  • Pharmaceutical. The pharmaceutical industry has experienced impressive growth globally. ...
  • Healthcare. ...
  • Education. ...
  • Sin Industry. ...
  • 6. Entertainment and Media. ...
  • Professional Services.

What is the cheapest most profitable business to start? ›

The Best Low-Cost Business Ideas with High Profit Margins
  • Blogging. Starting your own blog is one of the best online business ideas around. ...
  • Affiliate Marketing. ...
  • Dropshipping. ...
  • Selling Online Courses. ...
  • Amazon FBA. ...
  • Become a Social Media Influencer. ...
  • Podcasting. ...
  • Airbnb.
5 days ago

Which business is most profitable in future? ›

Here is the list of future business ideas in India for 2022 which have bright future for 2025, 2030 and 2050 and beyond.
  • 1) Outsourcing business. ...
  • 2) Internet of things (IoT) industry. ...
  • 3) Rise of co-working space. ...
  • 4) 3D printing. ...
  • 5) Consumer goods and services business. ...
  • 6) Business in real estate. ...
  • 7) Healthcare industry.
1 Oct 2022

What are the best businesses to buy right now? ›

Most Profitable Small Businesses
  • Real Estate Sales and Management.
  • Accounting.
  • Copywriting.
  • Personal Training and Fitness.
  • Cleaning Services.
  • Storage Facilities.
  • Party and Event Services.

What are the most profitable industries in 2022? ›

Most Profitable Industries in the US in 2022
  • Commercial Banking in the US. ...
  • Life Insurance & Annuities in the US. ...
  • Portfolio Management in the US. ...
  • Trusts & Estates in the US. ...
  • Software Publishing in the US. ...
  • Property, Casualty and Direct Insurance in the US. ...
  • Private Equity, Hedge Funds & Investment Vehicles in the US.

What is a good profit margin for a business? ›

As a rule of thumb, 5% is a low margin, 10% is a healthy margin, and 20% is a high margin.

How much do small business owners make a month? ›

How Much Do Business Owner Jobs Pay per Month?
Annual SalaryMonthly Pay
Top Earners$90,000$7,500
75th Percentile$52,000$4,333
Average$49,585$4,132
25th Percentile$25,500$2,125

How much can a small business make before paying taxes? ›

If you operate your business as a pass-through, meaning the income is taxed as part of your personal income, then the tax-free threshold (also called the standard itemized deduction) for 2021 income is $12,550 for individuals and $25,100 for married couples filing jointly.

How do you calculate small business profit? ›

Profit is simply total revenue minus total expenses. It tells you how much your business earned after costs.

What is average profit? ›

The profit earned by a business during previous accounting periods on an average basis is termed as the Average Profit. It takes into account the average profits for the past few years and fixes the value of goodwill as to many year's purchase of this amount.

What small business has the highest profit margin? ›

11 most profitable small businesses
  • Tutoring services.
  • Home improvement.
  • Personal training.
  • Kids' activities.
  • Virtual assistant services.
  • Social media management.
  • Dog-walking services.
  • Property management.
7 Mar 2021

What is a bad profit margin? ›

What is a negative profit margin? A negative profit margin is when your production costs are more than your total revenue for a specific period. This means that you're spending more money than you're making, which is not a sustainable business model.

How should you pay yourself as a business owner? ›

There are two main ways to pay yourself as a business owner:
  1. Salary: You pay yourself a regular salary just as you would an employee of the company, withholding taxes from your paycheck. ...
  2. Owner's draw: You draw money (in cash or in kind) from the profits of your business on an as-needed basis.
12 Jul 2021

Is owning a small business worth it? ›

Starting your own business has several financial benefits over working for a wage or salary. First, you're building an enterprise that has the potential for growth – and your wallet grows as your company does. Second, your business itself is a valuable asset. As your business grows, it's worth more and more.

Do you make more money owning your own business? ›

In the short term, the answer will always be the employee makes more money. As a business owner, you walk away from a comfortable salary and invest a sizable amount of your capital into a business.

What is the small business tax rate for 2022? ›

The SBA states that small businesses of all types pay an estimated average federal tax rate of 19.8%. The average for sole proprietorships is 13.3%, small partnerships 23.6%, and small S corporations 26.9%.

Do you have to pay taxes your first year in business? ›

Income Tax

Most businesses must file and pay federal taxes on any income earned or received during the year. Partnerships, however, file an annual information return but don't pay income taxes.

Will I get a tax refund if my business loses money? ›

Yes! At least, a business loss will never prevent you from getting a refund if you're entitled to one already. And because a business loss can lower your other income, it might even increase your chances of getting one.

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