Small businesses struggle to take home even HALF of the national minimum wage

Small businesses struggle to earn even half the national minimum wage in their first year of business, according to new research.

Three-thirds of small business owners take home less than £10,000 in their first year, which falls to 41 per cent of all owners.

A survey conducted by Zempler Bank also revealed that 9 percent of all small business owners do not take a salary at all, growing to 28 percent of business owners in their first year.

The national minimum wage for over-21s increased in April from £10.42 to £11.44, meaning a full-time worker working 40 hours will earn of £23,795.20.

Rich Wagner, chief executive of Zempler Bank said: ‘This number may be shocking to some people, and is a powerful reminder of the sacrifices that many entrepreneurs make.

‘Starting a business is risky and many budding entrepreneurs realize that they won’t become a millionaire overnight.

‘You have a lot of people who will work part time or do it as a passion. Most importantly, people move forward because they want to be flexible and be their own boss.’

Understandably, 28 percent of entrepreneurs say that the recent price pressures on goods and materials have done little to help their day-to-day business.

A quarter of respondents also identified cash flow as a major issue, with less than half (47 percent) of small businesses saying they have less than $1,000 in cash, and 12 percent saying they don’t. they have nothing.

This is Money has highlighted the lack of access to finance with previous Zempler research showing that three quarters of small businesses are financed with personal savings or from friends and family.

‘There’s no big pot of money from a bank or an angel investor that allows you to pay yourself a huge salary while planning a strategy,’ said Wagner.

‘It’s been grafting from day one and getting new customers. It’s hard but we can see that it’s getting easier, financially, and the amazing feeling is that there will be no regrets.’

Milo Pickney, who launched the fragrance company Roller in 2020, said: “I was lucky enough to stay at home during this period. Without the parents who supported me, there is no way I would have been able to work for so long so much.

‘It’s interesting when I talk to investors when they ask how much I get paid and I’m honest about it. The behavior is divided between the admiration of the willingness to work hard, clearly to support the product that I have created instead of temporary profit.

‘Even though some investors look down on you and think you don’t pay yourself well you don’t value your time. Some of us have no choice, especially when R&D can take a long time.’

Small businesses want more tax breaks to encourage business and reduced VAT on fuel to help kick-start growth.

A quarter of respondents also pointed to an improvement in HMRC’s response time.

Wagner said: ‘We’ve seen a lot of policies in recent years that haven’t always helped small businesses – particularly in terms of IR35 reform or income tax cuts.

‘There is a lot of lip service to small businesses, but I would like to see direct support or relief perhaps in the form of tax incentives for business owners or more pension contributions.

‘Also – as This is Money has progressed – faster response times from HMRC will be welcomed for millions of small businesses as well.’

Despite the challenges, a report by Enterprise Nation found that a fifth of small firms expect to grow in the next 12 months, up from 14 percent last year.

Of these, 34 percent expect to increase production by at least a quarter adding more than 40 billion to the economy next year.