Micro businesses struggle to earn even half the national minimum wage
- Three quarters of micro business owners raise less than £10,000 in their first year
New research shows that small businesses struggle to earn even half the national minimum wage in their first year of business.
Three quarters of micro business owners make less than £10,000 in their first year, compared to 41 per cent of all owners.
Zempler Bank’s research also found that 9 percent of micro-business owners receive no salary at all. For business owners, this figure rises to 28 percent in the first year.
Sacrificing salary: Most micro business owners get less than £10,000 in their first year
The national minimum wage for people aged 21 and over increased from £10.42 to £11.44 in April. This means that someone in a full-time permanent job working 40 hours a week would earn a gross annual salary of £23,795.20.
Rich Wagner, CEO of Zempler Bank, said: “This figure may come as a shock to some people and is a stark reminder of the sacrifices many small business owners are making.
‘Starting a business involves risks and most aspiring entrepreneurs realize that they won’t become millionaires overnight.
‘You have a lot of people who work part-time or do it as a passion. It is crucial that people start working independently because they want that flexibility and want to be their own boss.’
Understandably, 28 percent of business owners say recent inflation on the cost of materials and supplies has done little to help their day-to-day operations.
A quarter of respondents said cash flow was a major issue. Just under half (47 percent) of micro businesses said they had less than £1,000 in savings, and 12 percent said they had nothing at all.
This is Money has highlighted the lack of access to finance, with previous research by Zempler showing that three-quarters of small businesses are financed with their own savings or by friends and family.
“There’s no big pot of money from a bank or an investor that you can use to pay yourself a big salary while you work out a strategy,” Wagner said.
It is hard, but we see that it is getting easier financially, and the overwhelming feedback is that we have no regrets.
Zempler CEO Rich Wagner
“It’s been hard work from day one and finding new customers. It’s tough, but we’re seeing it get easier financially and the overwhelming feedback is that there are no regrets.”
Milo Pickney, who founded sustainable deodorant company Rollr in 2020, said: ‘I’ve been lucky enough to live at home during this time. Without my supportive parents, I wouldn’t have been able to work for so long for so little.
‘It’s interesting when I talk to investors and they ask how much I get paid and I’m honest about it. The reaction is mixed between admiration for the determination to work so hard, clearly supporting the product I’ve created rather than short-term profits.
“Whereas some investors look down on you and think that you don’t value your own time if you don’t pay yourself well. Some of us don’t have that option, especially when R&D can take so long.”
Small businesses want more tax breaks to encourage entrepreneurship and a reduction in VAT on fuel to boost growth.
A quarter of respondents also said HMRC’s response time had improved.
Wagner said: ‘We have seen a number of policy measures in recent years that have not always been favourable to small businesses, particularly around the reform of IR35 or the reduction in dividend tax relief.
‘There is a lot of talk about small businesses, but I would like to see more direct support or relief, for example in the form of tax breaks for business owners or more relief for pensions.
‘Moreover – as This is Money has highlighted – millions of small businesses would also welcome faster response times from the Tax and Customs Administration.’
Despite the challenges, a report from Enterprise Nation found that a fifth of small businesses expect to grow in the next 12 months, up from 14 percent a year ago.
Of these, 34 percent expect turnover to grow by at least a quarter and contribute more than £40 billion to the economy in the coming year.
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