Small Business Statistics
Small businesses play a vital role in the economic landscape, contributing to innovation, job creation, and overall economic growth in America.
Defined as independently owned and operated enterprises that have a limited number of employees and generate modest revenue, small businesses encompass a diverse range of industries and serve as the backbone of local communities.
Take a look at these compelling small business statistics that shed light on their significance and impact on the nation’s economy.
1. Since 1982, the number of small businesses in the United States has doubled.
While small businesses have always been an important part of the U.S. economy, recent decades have seen a huge increase in these numbers. This is in part attributed to the rise of the internet, which makes many services and e-commerce easier to provide and encourages the opening of new businesses. Through tools like social media, entrepreneurs are able to operate nationwide businesses from their own homes. Corporate downsizing has also contributed to this increase.
Source: Small Business Association
2. 43.5% of US economic activity is a result of small businesses.
When it comes to the gross domestic product (GDP), or the total value of all products and services produced in the United States, small businesses make a large impact. Just under half of the GDP is linked to small businesses. In the country with the largest GDP across the globe, this is no small feat.
3. It takes an average of 4 days to start a business in the United States.
The process to start your own business can vary in length depending on things like the business model and structure chosen and the location of the business. But the United States boasts the shortest average time to open a business at just 4 days; the UK follows closely at 5 days. Other countries can take weeks or even months to reach the same goal.
Source: The World Bank
4. California has the most small businesses of any state, followed by Texas.
California boasts over 4 million small businesses just in the state. The large population makes this number possible, along with the large tourism industry and high earnings. Texas comes in just behind California, with about 2.5 million small businesses throughout the state. Florida and New York are the next highest.
Source: Office of Advocacy
5. Half of all small businesses are operated out of the owner’s home.
Many small businesses represent industries that support working from home as an option. Whether this is someone making a product in their own home or providing services over the Internet, it is quite common for a business to have no formal office space outside of the home. When there are no employees in the business, this number is even higher at 61%.
6. The average small business requires about $10,000 as startup capital.
While this statistic varies based on things like location, industry, and the owners themselves, it provides a good baseline to consider when starting a business. Early costs like investments in stock or licensure and ensuring that entrepreneurs can be paid account for some of these costs. However, 12% of small businesses with employees have no startup capital at all, and one-third of those with no employees do the same. Often, a micro business is a good way to avoid needing capital.
7. 86.4% of non-employer firms are sole proprietorships.
A sole proprietorship, in which a business and its owner are considered the same legal entity, is the most common form of business throughout the county. While they can technically have employees, they often do not and represent 86.4% of businesses without employees. The owner is considered self-employed and not an employee of the business. For businesses with employees, sole proprietorships represent 14.1% of the population.
8. Small businesses are responsible for 65.9% of net new job creation.
Between 2000 and 2017, large businesses created 4.4 million jobs, while small enterprises created 8.4 million. These numbers refer to net new job creation, meaning jobs that did not exist previously and provide a full-time wage to employees. Small businesses represent 65.9% of all net new job creation in the United States over this period of time.
Source: Small Business Administration
9. 45% of small businesses are woman-owned.
As of 2012, there were nearly 10 million firms owned exclusively by women and another 2.5 million owned by women and men, with women having at least an equal share. These over 12 million businesses account for 45% of classifiable firms being women-owned businesses. The same measure shows men own 66% of businesses.
Source: Small Business Administration
10. Home-based small business owners claim $9.5 billion in home office deductions each tax year.
Any business owner knows that deductions are a critical part of filing taxes and ensuring you are paying appropriately. When you run a business out of your home, there are a number of deductions that become available, including writing off a portion of your home itself. Other common deductions include internet and phone bills used as a part of your work. In total, these deductions allowed for $9.5 billion in tax deductions for business owners in 2014.
Source: Eye on Housing
11. 9% of small businesses made over $1 million in 2018.
While the majority of new small businesses don’t go on to become huge enterprises, some ventures do result in financial success beyond our expectations. In 2018, 9% of small businesses generated over $1 million in revenue. In the same year, 37% of businesses expected to bring in $50,000, which is a more common baseline.
Source: U.S. Census Bureau
12. Each year, 1 in every 12 small businesses will close.
Small businesses close for a variety of reasons, with the most common reason being a lack of funding and management troubles. While not every business can survive, 11 out of 12 do persist from year to year, with the others closing and contributing to the overall small business failure rate. Many owners cite trouble getting small business loans or access to lenders as a concern or worry about relying on credit cards to fund their business before it is profitable.
13. 19.6% of small businesses are owned by minorities.
As of 2019, demographics show that about 1.1 million firms were owned by non-white individuals, accounting for just under 20% of all small businesses. This lags behind the overall share of the population represented by racial minorities. For firms with employees, 6.2% were Hispanic-owned, 2.4% were owned by African Americans, 10.4% were Asian-owned, 0.5% were American Indian or Alaska Native-owned, and 0.1% were Native Hawaiian or other Pacific Islander-owned.
Source: Small Business Administration
14. 28% of small businesses with employees are owned by a family.
For all businesses with employees, about 28% were considered family-owned in 2019. These businesses had an average of 10 employees, compared to 8 per firm in non-family-owned counterparts. Certain industries are also more likely to be family-owned, including management companies at 46% and agriculture, forestry, fishing, and hunting at 44%. The lowest category was healthcare.
Source: United States Census Bureau
What is considered a small business?
The Office of Advocacy uses a general guideline to define a small business as any company with less than 500 employees that is an independent operation. These can be any structure, including a corporation or a sole proprietorship. However, some industries use more specific size and revenue standards to define small businesses.
What is the success rate of small businesses?
From 1994 to 2020, the two-year survival rate for small businesses was 67.7%. Over a ten-year period, this shrunk to 33.7%. This represents the percentage of businesses that remained operational over a period of time, regardless of their level of profits or losses. These numbers have remained consistent since the 1990s, per the Bureau of Labor Statistics.
What percentage of small businesses are profitable?
About 40% of small companies will become profitable at some point during operation, often by the fifth year. Of the remaining businesses, 30% will lose money, and 30% will break even. Most small businesses are not profitable in the first year.
Are 99.9% of businesses small businesses?
Yes, according to the Small Business Association, 99.9% of American businesses can be classified as small businesses. This totals over 33 million small businesses throughout the country.
What are the three primary reasons for the failure of small businesses?
The Small Business Association cites three reasons for the failure of small businesses in most cases. The biggest challenges that respondents cited were difficulty complying with government regulations, inadequate access to business financing and capital, and shortcomings in the management of the business.
What is the average number of employees at a small business?
The vast majority (88%) of small businesses have no employees and are run by a single individual or partners. The average number of employees in a small business is about 10, according to the SBA.
What generation owns the most small businesses?
The majority of small business owners (51%) are considered baby boomers, while millennials own just 7% of SMBs in the United States, according to Forbes. Gen Z, who is just coming into the workforce after finishing their Bachelor’s degrees, represents just 1% of businesses.
From their significant contribution to job creation and innovation to their role in fostering local economies, small businesses continue to drive the nation’s economic growth. While they face various challenges and uncertainties, the resilience and spirit of entrepreneurship displayed by small business owners remain unwavering.
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