Do some business owners earn less than minimum wage?

“Roughly seven in ten people who depend mainly on self-employment report taxable incomes below the national median wage,” says University of Otago economist Dr Murat Ungor, reported in an RNZ article last month.

But these statistics gained from Inland Revenue (IRD) data usually represent businesses operating as sole traders or ‘the unincorporated self-employed’. They will often reflect taxable income that has been declared after deducting such items as vehicle expenses, home office costs, depreciation, subcontractor payments, and prior losses. Dr Ungor also pointed out that the data could be skewed by the number of people in the early stages of business ownership, where initial revenues can be swallowed up by start-up costs and revenue is still building.

At the top of the income scale

If you have set up an incorporated company and are thus reporting business income to the IRD, rather than personal income, the data suggests you are actually more likely to be at the top end of the income scale. Philip Morrison of Franchise Accountants says that around 90% of the franchisees they represent are incorporated companies, with risk reduction the biggest factor most business owners cite for setting up as a company. Ring-fencing the activities of your company from your private life is important – especially if you own your own home or have family members to protect from risk.

Philip points out that many of the sole traders he deals with are in smaller ‘lifestyle’ type businesses. People are often operating these businesses part-time by choice; they tend to have lower risk associated with the business activities and may not even be GST-registered. They have no ambition to grow the business large enough to employ others or to fill their own lives with the work of the business – in effect, they are often using the business to provide supplementary income to help maintain their chosen lifestyle.

Due diligence is essential

But some business owners may be expecting a larger income from their businesses than is realistically possible. 

If you are buying into a franchise (or any business), the best advice is to do thorough due diligence. Philip notes a clear correlation between the amount of due diligence his own clients have undertaken before purchasing, and the subsequent resilience and sustainability of the business. 

The more you find out about a business before you buy, and the more independent advice you get about that information, the more likely you are to understand how well the business can ride out the economic and competitive storms ahead, and whether the business seller is accurately presenting the business’s potential to provide you with the income you expect.

Don’t over-extend financially

Daniel Cloete, Westpac’s National Franchising Manager, points out that it is also important to undertake the same due diligence with the funding for your new business. Daniel references a recent Newsroom article which highlights the problems faced by the owners of four BFT gyms in Auckland which went into liquidation between July 2025 and Febraury 2026. The article quotes one former BFT franchisee as saying that the profit and loss statement they were provided did not align with reality, with suggested finance routes that had high interest and personal guarantees attached. 

Daniel warns that established finance providers and advisors are noting more instances of “sometimes totally unsustainable” funding being offered to business buyers, with business loans not subject to the same stringent protections that consumer loans are afforded by the CCCFA (Credit Contracts and Consumer Finance Act).

One of the quickest ways to find a business income eroded below sustainable levels is when the owner has over-extended their finances to buy the business. If one financial advisor tells you that you can’t afford a business, be wary of another that doesn’t seem to see any problems – the reality is that you may need to look at a less expensive business for now or wait until your own finances are in a better position. 

Pay your taxes

And finally, there has been a recent spate of news articles focused on liquidations and business closures due to owners who have allowed themselves to fall into arrears with taxes. Penalty interest for those who ignore tax debt can be extremely high and your overall debt will soon accumulate. It is very difficult to trade your way out of tax debt and the IRD recommends contacting them immediately if you think you will not be able to make a payment – an early payment plan may be your only chance to keep your own income viable and prevent business closure.