Around 20% of families owned businesses in 2022, according to research from the Federal Reserve. This includes any families where they either reported owning a company of their own or where the family indicated that they were self-employed.
While most people are not small business owners (or large business owners), there are two big reasons why becoming one could be a smart financial move.
Business owners have higher incomes
One big reason to own a business is that when you have a company of your own that's successful, you tend to make more money. In fact, the Federal Reserve reported a mean income of $173,200 for families who own a business without any employees, and a mean income of $617,000 for families who own a business with five or more employees. For families who do not own a business, their mean income is $105,500.
Of course, this does not mean every person who owns a company earns a six-figure income. In fact, many companies are unprofitable and fail. But if you have a solid idea and a solid business plan, becoming an entrepreneur gives you a better chance of striking it rich. Likewise, working for yourself means you have more direct control over your earnings, which can make it easier to earn more money and keep your business bank account in the black.
As a small business owner myself, I know that if I have a lot of expenses coming up, I can choose to hustle and earn more in the course of a month so I can more easily cover those bills. If I worked for a traditional employer and just received a set paycheck for the same amount of work, it would be a lot harder to save up.
There is a downside, though. Business owners report more uncertainty about their earnings than non-business owners do. You won't have that regular paycheck you might currently rely on, so you need to be comfortable doing what it takes to make the business profitable.
Business owners are wealthier
Business owners also have a higher net worth, according to the Federal Reserve. The mean net worth of families who didn't own a business in 2022 was $570,000. By comparison, the mean net worth for those who own a business with no employees was close to $1.1 million. And that excludes the value of the business, so that means company owners have more assets outside of their business as well.
For those who own a business with employees, their net worth is even higher. Business owners with two to five employees had a mean net worth of $1.6 million in 2022, and those who own companies with more than five employees had a $1.4 million mean net worth.
This additional wealth can likely be explained by the fact that business owners have more income to invest, so they can acquire more assets that help them grow richer.
Should you start a business?
If you want a higher income and a higher net worth, you may want to start thinking about joining the 1 in 5 Americans who own businesses. Of course, there are some pros and cons to consider as well, including:
- The tax implications of starting a company: You will have to pay self-employment taxes, which means you'll pay more toward Social Security and Medicare since you won't have an employer to cover those costs. However, you may also have more flexibility in how your income is taxed and in the deductions you can qualify for.
- The lack of job benefits: You'll be responsible for your own health insurance, retirement plan, and other workplace benefits. This can be a big added expense. Plus, you won't get paid time off, so you'll have to plan ahead if you don't want to lose income when you take a vacation or a sick day.
- The flexibility: You can decide what tasks you do versus what you hire employees to handle. You can also set your own work schedule based on how quickly you want to grow your company.
You don't have to jump into opening a company today, but start thinking about whether the lifestyle would work for you -- and what skills or interests you have that you could potentially leverage into a business of your own. Whether it's opening an Etsy shop or doing landscape design or even just going out on your own in the field you already work in, there could be an opportunity that jumps out. For example, if you're currently an accountant with a large firm, maybe you can open your own.
If you can brainstorm a list of two or three business ideas, and you feel ready to take on the responsibilities of entrepreneurship, you may just find that there's something you can focus on that could turn into a viable business opportunity over time.
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