Small business owners earn less but get richer: University of Western Sydney study

Does the risk of launching your own business pay off by making you wealthier in the end? In a word, “yes”.

Although 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, a new study shows.

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 has 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.”

The focus on superannuation ­contribution in Australia has been at the forefront of people’s minds since the global financial crisis.

“Super has certainly been on the agenda a lot more,” Dr Sargent said.

“We’re bombarded with it almost nightly. Advertisements about superannuation on TV and other media, and we’ve got to put some of that down to government policy.”

Self-employed business owners have, traditionally, found it harder to raise external finances, as they’ve been seen as significantly riskier by banks.

Often in small businesses, the lines between personal assets and business assets become blurred.

“In other words, we quite often find ourselves funding business opportunities out of our own personal resources,” Dr Sargent said. “But because they’ve outperformed in terms of their asset value, they may have a greater propensity to go out and raise that money.”

* Original Article by Jessica Sier:  http://www.brw.com.au/p/entrepreneurs/small_business_owners_earn_less_wB03cgOYeSwFEIZ7r62zkM