The Average Trades Business Nets Its Owner $16,839 a Year

A word on scope

This analysis draws on primary public data: the IRS Statistics of Income, Nonfarm Sole Proprietorship Statistics for tax year 2023 (Table 1, net income by industrial sector), and the IRS Federal Tax Gap estimates for underreporting by information-reporting category. Both describe Schedule C sole proprietors — small, unincorporated, owner-operated firms.

Because that population skews small and excludes incorporated multi-crew operators, the dollar figures below are used as a floor and a ranking, not as the economics of a two-million-dollar target. The directional conclusions are sturdy; any single figure is a signpost, not a survey of acquisition-scale businesses. Full sourcing is at the end.

What does the average trades business actually pay its owner?

Less than a living wage, in the categories most often marketed to first-time buyers. Construction — the "recession-proof, can't-be-offshored" trades — nets the average sole proprietor $16,839 a year. Full-service restaurants net $3,995. These are not gross receipts; they are the owner's take-home, the number that is supposed to justify quitting a salaried job.

The order and the magnitude are the point: the trades that dominate acquisition podcasts pay their typical owner a fraction of a professional wage.

Why is that number lower than it looks?

Because of exactly what it measures. Three qualifiers move the figure, and all three point the same direction. First, it covers sole proprietors — the one-person shop that never incorporated, not the S-corp with several crews and a dispatcher. Second, it is a mean taken across every filer, including the owners who lost money in the year, so the median owner standing in the middle of the distribution takes home less than $16,839, not more. Third, the population skews small: a long tail of side gigs, seasonal work, and single-truck operators.

So the figure is not what a buyer would earn acquiring an established HVAC company. It is a floor that describes the base of the market — and it establishes that the bulk of American "businesses" pay their owner below a living wage, with the marketed dream built on the thin sliver that does not.

Isn't the real income higher because the trades run on cash?

Yes, and that cash does not help a buyer. Income that no third party reports to the IRS — precisely what a sole proprietor's business income is — is underreported by more than half, per federal tax-gap estimates, against about one percent for W-2 wages, which an employer reports independently. Grossing the long tail up by the IRS's own underreporting rate lifts the average tradesman from roughly $17K to maybe $30K — still below the salaried job it was meant to replace, and without changing the shape of the curve.

More important, unreported income is uncollectable by an acquirer. A bank will not lend against money that never touched a return, and a future buyer will not pay for it either; it is undocumented at the exact moment it needs to be documented. A seller who volunteers that the real income is higher than reported has also disclosed that the books are unreliable — which argues for discounting the stated number, not inflating it.

Why does the average understate what a real acquisition earns?

Because a healthy target's earnings are usually buried, not absent. When a business reports $16,839, one of two things is true. Either it genuinely earns that — in which case the buyer is financing a job, and a job should not be bought at a multiple — or it earns considerably more, and $16,839 is what remains after the owner ran personal costs through it: the vehicle, the phone, a family member on payroll, travel booked as business. In the second case the real earnings are recoverable, and the buyer's task is to locate and substantiate them for a lender.

The gap between those two readings is where deals unravel. A seller reports $16,839; a broker recasts it to $180,000 of SDE by adding back the vehicle, the owner's salary, a spouse's pay, and assorted personal items; the buyer models on $180K; the lender then pulls the actual returns, strips the add-backs that will not hold, and underwrites $120K. A deal that penciled at 3× on the broker's number does not pencil at all on the lender's. No one lied — four parties read one set of numbers four ways, and none reconciled what was real before arguing what it was worth.

How wide is the spread across industries?

Wide enough that a category average is nearly meaningless on its own. In the same IRS data, owner margins run from under 2% across food and hospitality to nearly 40% in professional services, with retail, construction, and health care scattered between — a roughly twenty-fold spread in how much of each revenue dollar reaches the owner. "Small business" is not one asset class; it is one of the widest distributions in the economy compressed into two reassuring words.

That spread is why the marketed deal — a business doing $1M of SDE, retiring owner, seller note, recurring revenue, a multiple that clears an SBA loan — is not representative. Such deals exist and change lives, but they are the top of the curve being advertised as the category. The sleight of hand is showing the outcome at the far right tail and calling it the average.

What separates a business from a job with a loan on it?

A disciplined pre-LOI read, done before a buyer grows attached rather than after. Six checks distinguish a transferable business from a financed job:

1. Recast the owner's pay first. Charge a market-rate manager, on paper, for everything the owner does. What remains after that wage is the real starting line; many "$150K businesses" are $60K businesses once the owner stops working for free.
2. Make three numbers agree. Tax returns, the P&L, and bank deposits across three years, side by side. If a seller cannot produce all three, that is itself the answer.
3. Underwrite the lender's number, not the broker's. Model on the earnings that survive an SBA desk — after meals, auto, personal phone, and family payroll are stripped — not the figure printed in the CIM.
4. Stress the debt before signing. The business should cover its loan payment at 1.25× coverage after the owner is paid, in a weak year rather than the seller's best twelve months.
5. Test customer loyalty. A single client at a quarter of revenue, tied to the departing owner, is a concentration risk to be priced, not revenue to be capitalized.
6. Benchmark the category's real margin. A thin margin is normal in food service and alarming in a trade that should run fat; without the industry benchmark, a buyer prices a weak business like a healthy one, or walks from a healthy one that only looks weak.

The return in this market lives in one skill: distinguishing a real business from an expensive job before signing, not after. The IRS data does not argue against buying — it argues for reading the number correctly before anyone assigns it a price.

Sources & method

The figures come from primary public sources describing small sole proprietors — directionally solid, used as a floor and a ranking rather than deal-level precise:

• IRS Statistics of Income, Nonfarm Sole Proprietorship Statistics, Tax Year 2023 (Table 1, net income by industrial sector) — average owner net income by category and the cross-industry margin spread. These returns skew small and describe unincorporated owner-operators, not acquisition-scale S-corps.
• IRS Federal Tax Gap estimates — net misreporting rates by information-reporting category, used for the underreporting figures (more than half for sole-proprietor business income; about one percent for W-2 wages).