It depends on what the goals are and what level of revenue you are generating. Small business can also become large businesses.
First I would have you calculate your worth per hour in your current field.
Let’s use the classic example of a laundry mat. A laundry mat may generate a 50% profit. On average it is 30% to 40%. They have low overhead and maintenance costs but expensive utility bills. Thought to be resistant to poor economic conditions. You would need to watch out for competitors moving in to the area. The population of the area may reduce or move. More to consider…..
The purchase of a laundry mat can occur with owner financing, business loan, or other funding. Business loans can have large interest rates eating away the profit you may obtain. Some would argue to get business partner funding or owner funding. Owner funding usually requires some 10% of the cost down with payments over 4 years to pay off the business. Why would someone sell you a profitable business? Probably the best reasons would be retirement or divorce or relocation. Anyone saying something different probably has a failing business. I will go over a best case deal next.
Example:
A. A writer making 30k per year or 14.42 per hour.
B. A manager of a store making 80k per year or 38.46 per hour.
C. A executive earning 400k per year or 192.30 per hour.
Laundry mat for sale for 200k. Net income after expenses is 50k per year. Business has been there for 10 years. No competitors nearby and none planned. Owner is getting a divorce and has to split assets. Owner is willing to provide financing over 4 years with 10k down. Takes 12 hours per week to manage or 624 hours a year.
Year 1 to 4: make 50k pay owner 50k net = break even no profit
Year 5 plus: you net 50k profit per year or 80.13 per hour. Yearly yield is 25% per year on 200k investment.
Neither person A or B or C could quit their day job in the first 4 years. After 4 years A and B could quit their day job.
You were not paid for 4 years. Had you invested the 10k in a fund gaining 12% per year you would have had $15735.
Let’s say you immediately increase prices at the laundry mat and find ways to make more with soap or vending. Profit is now 100k per year.
Year 1 to 4: 50k profit per year or 80.13 per hour.
Person A could quit their day job.
Year 5 plus: 100k profit per year or 160.26 per hour. Yearly yield is 50% per year on 200k investment.
Person A and B could quit their day job. Person C would probably not quit the day job but would be able to save money more quickly. A 50% yield per year is impressive.
If you make the small business full time hours it would be owning 3 laundry mats. That would be 300k per year working 1872 hours per year or 160.26 per hour. That would be 36 hour weeks.
Person A and B should quit their day job if they would like. Person C would probably not quit their day job and hire someone to manage the businesses.
Person C hires a manager at 80k per year or 38.46 per hour. 300k profit becomes 220k profit or 37% yield on 600k investment. This still is better than the SP500 average.
Person A ends up with 10 laundry mats making 1000000 per year hires 3 managers netting them 760k per year in profit or 38% yield per year. Person A spends 2 hours a day managing the total business (payroll/billing/taxes/etc) that is $1041.10 per hour. This is how large companies benefit the owner and how paying people to work is the largest expense. This is also an example of scaling a business. Certainly this could have many problems that may result. Perhaps a manager steals from you or you have trouble hiring someone or a fire burns down the location etc.
Alternative scenario:
Person C does not buy a small business and purchases Apple stock 100 shares at $100 per share. Then spends 1 hour or less per day monitoring it. Over 10 years the stock grows in value with dividends and stock splits. Shares are purchased back by the company. The stock split twice and is currently priced at $400 per share. Person C has 400 shares now. The initial 10k became 160k plus dividends. That is 160% yield per year over those 10 years plus dividends. This is also over $438 per hour. It is not unheard of to find multibagger stocks. Of course this could also go wrong and the company goes bankrupt and lose all of it. You have to know when a stock is undervalued and has growth potential.
In summary you should understand what you are getting into and have a mentor or coach to help you setup a business if you would like to go that route. Depending on your personal goals it may or may not benefit you to start owning small businesses.
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