Would you work for less than a dollar an hour? Even a Chinese factory worker makes twice that. But that’s what you’re signing up for if you want to start your own business.
I recently read an article about a study by JPMorgan Chase where they studied the cash flow of small businesses. On average, businesses bring in $381 each day and pay out $374. That’s a difference of just $7. Or about $2,500 per year. Assuming a business owner works about 60 hours per week, 50 weeks a year (that’s three thousand hours), the hourly rate comes to 83¢ per hour.
Hopefully, part of the daily cash outflow of a business is the owner’s salary. But if the average daily income is $381, that’s a total annual gross income of only $137,160, how much are small business owners making?
Can this be right? According to the article, JPMorgan uses “data from the bank to analyze the economy.” There are three possible ways this data could be bogus:
- JPMorgan just has lousy customers.
- Successful small businesses don’t need to report their daily income and expenses to JPMorgan or any other bank.
- Small businesses are under-reporting their income (or over-reporting their expenses).
Even if the data doesn’t “feel” quite right to me, there are three morals to this story:
- It’s a perilous landscape out there for small businesses.
- If you have a secure job, you’d be wise to think twice about striking out on your own (the E-myth). Considering the risk small business owners take, the returns are not very attractive.
- It doesn’t pay to be average.