Micro-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 operation, according to a new study.

Three-quarters of micro-business owners take home less than £10,000 in their first year, a figure that drops to 41 per cent of all owners.

Zempler Bank’s research also revealed that 9 percent of all micro-business owners do not receive any salary, a figure that rises to 28 percent for first-year business owners.

The national minimum wage for over-21s rose in April from £10.42 to £11.44, meaning a person in a full-time permanent role working 40 hours will earn a gross annual salary of £23,795.20.

Rich Wagner, CEO of Zempler Bank, said: “This figure may come as a surprise to some people and is a stark reminder of the sacrifices many small business owners make.

‘Starting a business involves risks and most budding entrepreneurs realize that they won’t become millionaires overnight.

“There are a lot of people who work part-time or do it out of passion. And most importantly, there are people who become independent because they want flexibility and to be their own boss.”

Understandably, 28 percent of business owners say recent inflationary pressures on the cost of materials and supplies have done little to help the day-to-day running of their businesses.

A quarter of respondents also identified cash flow as a major issue: almost half (47 per cent) of micro-businesses said they have less than £1,000 in savings and 12 per cent said they have none.

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

“There’s no amount of money from a bank or an angel investor that will pay you a big salary while you’re building a strategy,” Wagner said.

“It’s hard work from day one and you have to find new clients. It’s difficult, but we see it getting easier, financially, and the overwhelming feedback is that there are no regrets.”

Milo Pickney, who launched sustainable deodorant company Rollr in 2020, said: “I’ve been lucky enough to be living at home during this period. Without the support of my 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 me how much I get paid and I’m honest about it. The reaction is split between admiration for the determination to work so hard, clearly backing the product I’ve created rather than short-term profits.

“Whereas some investors look down on you and think you don’t value your own time if you don’t pay yourself well. Some of us don’t have that choice, especially when R&D can take so long.”

Small businesses are calling for more tax breaks to encourage entrepreneurship and lower VAT on fuel to help boost growth.

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

Wagner said: ‘We’ve seen a number of policies in recent years that haven’t always helped small businesses, particularly around the reform of IR35 or the reduction of tax relief on dividends.

‘There’s a lot of talk about supporting small businesses, but I’d like to see more direct support or relief, perhaps in the form of tax incentives for business owners or more generous pension relief.

‘Furthermore, as argued in the This is Money campaign, faster response times from HMRC would also be welcome for millions of small businesses.’

Despite the challenges, a report by Enterprise Nation found that a fifth of small businesses expect to grow in the next 12 months, up from 14 per cent a year ago.

Of these, 34 per cent expect to increase their turnover by at least a quarter, adding more than £40bn to the economy over the next year.