Thursday, December 25th, 2014
Here is a simple question for the small business owner: What wage does the business need to provide as an annual income?
Or, reframed, how much money needs to be made as a wage after all fixed and variable business costs are deducted? This simple question is a good place to start thinking about the viability of a business model and how a business competes.
In a perfect World I’d suggest that after all fixed and variable costs are accounted for in a business there should be money to pay the owner.
In Australia for 2014 the poverty line for a single person was $400 per week ($20,800 per year) and for a couple with two children the poverty line rises to $841 per week ($43,732). This is 50 per cent of the Median Income.
One third of people below the poverty line take their main income from wages. These are the working poor.
In contrast, the Australian average weekly total earnings for 2014 were $1,516.90 ($78,878 per year). That is to say, if a small business operator wants to assess the income provided by their business venture as a benchmark against wages in Australia then this is probably the number worth aspiring towards. Aside from the classic lifestyle trade-off of self-employment, the goal should be to eventually (touch wood) make the average Australian wage after business costs.