A recent survey of small-business owners has found that nearly 15 percent of small-business owners need to work a second job while running their business to make ends meet.
The survey, commissioned by American Express OPEN, also found that those entrepreneurs surveyed paid themselves an average annual salary of $68,000 in 2013, down $4,000 from $72,000 in 2012.
However, when this is compared to other factors, a second job may not be the necessity that it seems. Firstly, the 2011 average national employee wage was $42,979.61 (latest figures from the Social Security Administration) which means that these OPEN surveyed entrepreneurs are earning on average $25,000 more than the average employee.
Secondly, small business owners may have a skewed perception of how much money they think they need to get by. This year’s Gallup income poll found that, as a whole, Americans believe that a family of four needs roughly $58,000 a year to survive, up from $52,000 in 2007. However, the average figure perceived to be necessary to survive rose for higher-earning suburban-based individuals – like entrepreneurs – at $75,000 a year, compared to only $50,100 that’s annually needed by lower-income workers in rural areas.
Another possible perspective on a second job is that these small business owners wish to maintain the entrepreneurial image of being both better at managing their finances and better at projecting a positive business image than non-entrepreneurs.
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One solution to avoiding that second paycheck is for business owners to work longer hours in their owned business, as the OPEN survey also found that business owners were working around a half hour less per day than they were in 2010.
But before potential small business buyers panic about the financial realities of owning a business, a report from the Economic Policy Institute has found that finances have been better for business owners over employees for quite some time. Between 2002 and 2012 the EPI found that worker wages either stagnated, or worse, declined for the vast majority of employees.
A further harsh statistical truth from the EPI showed that even though productivity grew by 7.7 percent for the bottom 70 percent of American employees between 2007 and 2012, wages fell across the board.
Further clarity in the pay arena will soon come from the Securities and Exchange Commission. Chairman Mary Jo White announced in August that the Commission will put into effect a law on pay comparison that was passed by Congress way back in 2010.
Publicly traded companies will now be required to calculate their employees ‘average’ salary by working out how much all of their employees get paid and then finding a median salary. They must then compare that figure to the CEO’s full salary package and report the difference. This will only affect public traded companies, but any huge pay differentials could see an upturn in employees turning to entrepreneurship.
A way to short-cut the gap between low-paid employee and successful business owner without having to work two jobs is by buying a business. Buying an established business avoids the difficult first five years of the start-ups phase, and that should prevent owners from needing to bolster low salaries with a second income. Buying the right business could mean that the new owner is receiving a decent pay check soon after the purchase is complete.
And smart entrepreneurs will buy a great business at the right price, and then improve upon it to make even more money. They should focus their time on one venture only, building up revenue as quickly as possible.
Finally, wannabe wealthy entrepreneurs without the stomach to work two jobs should take heart. “When we first started, we had no revenue coming in…You pay your employees first and if there’s anything left, then you get that,” said entrepreneur Michael Alter, president of SurePayroll, Inc. in an interview with StartUpNation back in 2007. That early years’ low-pay struggle proved worth it when the online payroll services company was sold for $115 million in 2011.
Sarah Louise Dean is Head of Social Media at Dynamis, the company that owns BusinessesForSale.com and FranchiseSales.com. She champions small businesses in all sectors – striving to make the small business landscape hassle-free and without jargon.