Does running your own business payoff? The answer is yes, and no.
In a recent BRW Magazine article, University Of Western Sydney researchers revealed that even though small business owners still don’t earn as much as the typical wage earner, they’re becoming richer and smarter with their money as they tend to accumulate more assets.
Australian business owners report a lower level of weekly income. In 2010, they took home an average weekly income of $1975 compared with those on a wage who took home $2173.
But a new University of Western Sydney study shows business owners outstripped their more secure counterparts by accumulating assets worth more than $1 million ($1.095 million in 2010), whereas wage earners accumulated only two-thirds ($673,000) of this amount.
“As a small business owner, you sometimes sacrifice some income in favour of reinvesting that,” Mark Sargent from Newcastle University said. “There’s evidence the typical model, where you take the risk and get greater returns, actually is the case.”
Using data from the Australian Bureau of Statistics and HILDA (Household, Income and Labour Dynamics in Australia), the study found there are more than 2.1 million owner-operators of small businesses in Australia and the proportion of superannuation investment by both wage earners and small business owners has increased markedly.
The value of superannuation holdings in the sample group shows contributions from salary and wage earnings households between 2003 and 2010 rose 60 per cent whereas the contributions from unincorporated small businesses nearly doubled to 112 per cent.
“The magnitude of the change was quite surprising,” Dr Sargent said.
“Traditionally, people have started their own businesses with a view of one day selling their business and using the proceeds to fund their retirement.
“What we have now begun to detect is that more business people are dramatically building up their superannuation funds. This is a far more protected and secure environment for wealth creation.”
This is both good and bad news for small business owners.
First the good news: At least business owners are rewarded with capital appreciation of their assets. It is assumed the capital growth difference with their salaried peers actually compensates for the lower income and would the greater access to business deductions.
The bad news: The risk borne by small business owners is usually very high, with many primary residences collateralised for business bank loans and the on-going risk of default and bankruptcy especially in times of economic and geopolitical turmoil. An employee might lose a job, a business owner his/her job AND his/her house!
The great news: Some small business owners succeed at making a higher income and create greater capital appreciation than their peers. This small, elite group of business owners learns powerful strategies that are tried and tested. If you would like to join them, contact us. We’ll let you know if you qualify to join them.