Here’s a question I’m genuinely curious about, because I’ve looked and I can’t find any data to prove or disprove it.
Do people who work for/own small business make more money than those who work for large corporations?
Again, I don’t have the answer. All I have is personal experience with a bunch of different people I know that leads me to believe small businesses are the way to go if you want to be wealthy.
Let’s start with my family. My mother has four siblings (my aunts and uncles). Three of the four are married, and in each of these three cases the husband is the main breadwinner. One of them is a small business owner who has owned and sold many different businesses over the years, while the other two work in small businesses as the right hand man to the owner.
While I have no idea how much money any of my family makes, I think it’s safe to say that each of these three families falls into the upper-middle class and could be considered “wealthy”, depending on your definition of the word.
The fourth of my mother’s siblings has done a mixture of owning small businesses to working for companies of many different sizes. Again I don’t know the details of this person’s finances, but I’d say he’s been at least comfortably middle class, with better years reaching upper-middle.
As a side note, I find it very interesting that my mom’s siblings are all in small businesses. My grandpa worked for IBM his whole life, so it’s not like they were raised to work in that environment. Oh, and my mom is a teacher at a private elementary school, so I don’t know how to classify her job. It’s a small school, but it’s not really a business. Let’s just say she’s “not wealthy” and move on.
Outside of my family, I see other success stories from people with small businesses. One of the nicest homes I’ve ever stepped foot in is owned by a couple with a husband who owns his own company and a wife who is one of the most senior people at a small business. I’m sure there are more examples that I’m forgetting, but there seems to be a common theme:
People I know that own small businesses or work senior jobs at them are usually fairly “wealthy”.
And What About Large Corporation Employees?
I know a lot more people who work for large corporations, simply because I myself work at a very large company. Therefore, everyone I know at work falls into this distinction.
People at work don’t tell me their income, but I have a pretty good idea of what people make based on what I make. And I can tell you that in general, most of the people I work with are making less money than the people I know that own or work for small businesses.
Sure, there are exceptions. The people who have been around for 25 years and the director level people are probably banking some serious cash. But the majority of the people I work with are regular employees like me who aren’t making tons of money. And let’s not forget about all the contractors (which make up about 75% of our workers), who are mostly making significantly less than the employees.
I Need Some Data!!!!!
Based on what I know from my tiny little world, it seems like working for a small company is a great way to make good money. With less people in a small company, it’s more likely that you can advance to a senior position if you’re good at your job. But there’s also a bigger risk that the company will fold, and the benefits are usually not as generous. There’s definitely a give and take, but again, there’s seems to be a theme with the small business people.
However, I realize my tiny little world is not the whole world. I’d love to hear some of your opinions on the matter. Or better yet, if you know of any research of studies done about income differences between people who work at large companies compared to small businesses, post it in the comments and I’ll update this post to include it here.
Is working for or owning a small business the key to being wealthy? Give me your thoughts in the comments.
Kevin McKee is an entrepreneur, IT guru, and personal finance leader. In addition to his writing, Kevin is the head of IT at Buildingstars, Co-Founder of Padmission, and organizer of Laravel STL. He is also the creator of www.contributetoopensource.com. When he’s not working, Kevin enjoys podcasting about movies and spending time with his wife and four children.
Millionaire Next Door (http://www.amazon.com/Millionaire-Next-Door-Thomas-Stanley/dp/0671015206) is what you’re looking for.
I think this is a great question.
I also work for a large corporation and most people salaried people here do very well and could be considered upper-middle class. I wouldn’t consider anyone wealthy until they reach executive status where their benefits include long term performance bonuses in the form of stock options and short term cash bonuses.
That said, I think a good question to ask those who work for small businesses is do they have partial ownership in the company. I wonder if that is a perk that draws people in.
That is a good question and I am interested to hear what you find out. I grew up in a family where my dad worked for a large corporation and was not an executive. I never considered him wealthy until recently when he started letting me know about his finances.
I think the trick is, my parents never spent much money on things they didn’t really think they needed and never took on much debt. Pretty sure they both learned this from their parents who lived through the depression.
Of course my dad was also lucky to hold employment at one company his entire working life. He started an IRA as soon as he was lega;;y allowed to. So that savings coupled with some stock options that worked out and a pension he is pretty wealthy now.
I wonder this too, because anecdotally I’m inclined to agree with you… at least the wealthiest person in my own extended family (by far) has owned his own business (fairly small regional chain of food stores) for a long time. And I always get this feeling from other people I know as well, but I’d be curious to see data. And good point that there are downsides… my mom worked for a small business for a while and enjoyed it, but it went under when the recession hit.
I feel the small business owner is the one who financially does the best, when the business is successful. They put in many hours of hard work and are ultimately responsible for it all. I have always worked for small business (solo dental practices), some employers were good with the finances, others were not (living way beyond their means). Under both circumstances as an employee you are not guaranteed anything, fair wage, health insurance, pension plan, vacation pay, etc.. It is all at their descretion and any thing can be revoked at any time. The employee is subject to what the employer’s values and what they value, some are generous and others are not. They want to make a profit and benefit from it. Not much different form a larger corporation, just much more personal.
I know a few small business owners (family and friends) and they are upper-middle class too, but their wealth isn’t advertised.
I think those that work for small businesses don’t get paid near as much unless they are partial owners too.
I work at a fairly large corporation, the director level make good money, and VP level make a lot of money!
Tough call, but I know the VPs make as much as the small business owners that I know. So I guess it depends on how high you get in the corporate structure.
You can make big bucks working as a lawyer for a big name firm. You will make less if you work for a less prestigious firm. Some industries pay better than others, for example oil-related engineering jobs generally pay better than other engineering jobs.
Highly wealthy people seem to get that way by starting successful businesses. Of course they are small businesses at first. But I’ve seen many small business owners make it to the upper middle class area of money. You have to factor in that most small businesses fail.
If you want to make lot of money you have to take a lot of risk, I’d say. And that would be in starting a business of your own and working your tail off for it. Just working for a small business doesn’t guarantee anything from what I’ve been able to tell.
First, second what JP suggested. Millionaire Next Door covered this angle fairly well.
Second, agree w/ MR on the Director and VP level making pretty good salaries w/ bonuses and stock options. But, most of them work crazy hours (just like business owners). In this globalized world, many VPs will also be expected to travel extensively.
I think it is, but huge risk as well.
Apart from you are risking your own money, it is heath insurance, income. If your wife/partner works and have meaningful income – it might be a way to go.
Being wealth does not mean to have a nice home. Some people do not do it deliberately, as it will drain your savings and investments.
What is fair to say for many small business owners it is essential to be presentable, hence they do have nice cars, houses – as quite often they have to involve /invite potential clients into their private /personal lives.
I am surprised that contractors do make less significant money. Quite often it is completely opposite, as COmpany saves money on not providing them heal insurance, no pension plans, less job security.
These tends to be ofset by more generous paycheck. Working for a smaller company could be a better choice, but for the exactly the same reason – smaller company offers less stability, lessinvestment in professional development. So they pay more for the experience gathered in bigger companies ; -)
If you would define what it being wealthy and upper class in monetary terms.
It’s a risk/reward tradeoff. It’s interesting how you see people on the news these days who are out of work saying “I’m ready to work.” My response is “if you’re ready to work, GO WORK!” People think they cannot work if they are not given a job by a large corporation. Go cut someone’s lawn or find a way to make money off your hobby. Easier said than done but people should do something other than sending in resumes.
I’m sure the data would show that small business owners and employees in small businesses are more wealthy and have more time freedom than employees of large corporations. The benefits of large corporations are not always that great either.
A lot of it will depend on the business and the industry.
Creating a small business and growing it has created total financial freedom for me. There is more risk for sure, but if you are looking at the numbers and do things smartly you have a better chance of succeeding. I have seen a lot of people risk it all on things that just did not work out, but I have also seen people risk it all and come out on top. I am not one to risk it all, everything I did with my business was slow and calculated, sure I could have grown my business faster and probable made more money but I felt more comfortable being cautious.
If they are a small business that has been around forever, they are most likely not going anywhere but they are also not going. So you will have good job security but less likely to make a lot of money.
One of the big advantages with having a small business is that you can turn personal expenses into deductable business expenses fairly easily.
I would assume that it probably varies within small businesses too, right? If we’re talking someone that owns a corner convenience store, I can’t imagine they’re raking in a ton of money. But if we’re taking a small business that sells upscale goods, I would assume there’s much more potential there.
Exactly!! I had this same thought: a small business with a high barrier to entry, such as opening your own dental practice (barrier to entry: becoming a dentist) or opening your own engineering firm (barrier to entry: getting a P.E. license) would, I assume, have higher profits (on average) than a small business with a low barrier to entry (like owning a Quik-E-Mart).
Small business is always the best option. As a small business owner, you probably do not need to have a large budget for marketing and promotional campaigns. You have probably found some strategies that work for your every time and you can stick to it 🙂
My dad has been a small business owner for twenty years. There have been times when his annual salary was less than minimum wage, and times when he’s made a killing. His overall wealth has remained healthy, but that’s also because of his good financial management over the years.
I’ve had friends my age own small businesses, and some months they were paying their managers more than themselves. I think a lot of it is a matter of being able to ride the storm.
I personally prefer the working environment of a small business, and can see how it would be much easier to make it to upper management (if you were so inclined) than working for a large corporation. I also hear that corporations are top heavy in their wealth distribution these days, at least according to those occupiers. 😉
I think there are opertunities either way. Upper-middle starts around $90K in many parts of the country. I prefer salaried work to owning a small buisness because there is so much less risk that way. Then again, I have no desire to be really wealthy either.
Also remember small business owners need to put in a lot of work for that reward (if they ever get it). I know a small business owner making around $80-$100K, but works his ass off for it and also has to reinvest a good deal of it. I don’t work that hard for my salary.
Many people working for small businesses are not owners or partners… cashiers and what not probably don’t make anymore than if they were working at Target.
I know someone who started a small business and worked there for 4 years before he sold it and left the company. The first two years, he earned $0. The second two years, he earned $100K. His not-PF-savvy friends thought it sounded like he made a lot of money, but his AVERAGE salary over those 4 years was $50K, plus a ton of risk.
I am a small business owner and I definitely think it depends completely on the industry and if what you provide or sell is a necessity or considered an ‘extra’ luxury or service. My business would be one that provides an ‘extra’ service, and we definitely took a hit during the downturn.
Yes, you can write some business expenses off, but you also don’t have the security of unemployment should you have to shut down. Lots of small businesses have limited benefits, and in some cases business ownesr have paid less into social security (versus an employee) so they can’t rely on that income as much during retirement years.
As a small business owner, you bear the risk financially, which is scary. Like myself, I’m sure many small business owners pay themselves last, once all the employees have been paid and after the taxes, rent, and other bills.
Business owners really never get a day off–even on their off days, they’re always thinking and planning their next move and mulling over the pros and cons and any potential risks.
I think the potential is there to make a good living if you’re in the right industry and the right factors are in place, but small business owners definitely are not always making a great living. It’s a lot of sacrifice, a lot of stress, and a lot of work, with no guarantees.
My wife and I own a small business and the biggest benefit over working for someone else is the tax flexibility. We pay more in taxes but we are able to put a lot more aside for retirement. If you setup a Safe Harbor 401k you have to give a little more to your employees to qualify but then you can also put close to 50k pre-tax into your retirement each year. It was even better when there were no employees and we were paying into a SEP IRA. If you keep your personal expenses low you can be making 100k but only paying taxes on half and your retirement account grows like it’s on steroids.
Dear Friends:
Yes if u own a small business is a great idea if your business doing good then u can make allot of money but u gonna lose some of the benefits that bigger corporations offer to there employee ( like heath benefit& 401K+ no vacation pay& retirement ) so u can gain some and lose some things you know. If u are a active person love to work 7 days a week then own small business is a great choice for you, if you more of a person that like to relax and live a happy life then working a corporation is a good choice for u….