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You’ve probably heard it said that “small business is the backbone of America.” But what does that saying mean in practice? How many small businesses are there in this country, and how many people do they employ?
Even if you’re a small business owner yourself, it can be hard to understand just how important small businesses are and how much they contribute to the economy—especially since the press focuses much more on the country’s biggest companies.
For better insight, we’ve gathered some questions you might be asking about small business employment and growth, and then compiled the statistics to answer.
From salaries to number of employees to jobs created, we’ve spliced and diced the data to help you gain a more holistic understanding of small businesses in America.
Q: First of all, how many small businesses are there in the U.S.?
A: There are 30.2 million small businesses in this country, which comprise a whopping 99.9% of all United States businesses.1
As a note, we pulled this statistic from the SBA Office of Advocacy, which defines a small business as a firm with fewer than 500 employees. These standards encompass many startups (including highly valued startups), law firms, hedge funds, and other firms that you may not think of when someone uses the term “small business.”
Q: How many people do small businesses employ in the U.S.?
A: Small businesses employ 58.9 million people, which makes up 47.5% of the country’s total employee workforce.
Q: In which states do small businesses employ the most people?
A: Small businesses employ the most people in Montana and Wyoming.2 They employ 67.6% and 62.3% of the state employee workforce, respectively.
Q: In which states do small businesses employ the least amount of people?
A: Small businesses employ the fewest employees in Nevada and Florida. Small businesses in these states employ 40.8% and 43.3% of the states’ total workforces, respectively.
Q: Which industries encompass the most small businesses?
A: According to the SBA, the industry of “Other Services, Except Public Administration” has the largest number of small businesses with 4,375,795 firms.
After “other services,” the next three industries with the most small businesses are professional, scientific, and technical services (at 4,207,592 firms) ; construction (3,098,210 firms); and real estate, rental and leasing (2,925,953 firms).
Q: How educated are small business owners?
A: A study by the 2016 Kauffman Index shows that most small business owners have a college degree—38.71% of the test subjects, to be exact. After that, 26.51% of the subjects have “some college” education. High school graduates make up 26.05% of the group, and individuals with no high school diploma make up 8.73%.3
As a note, researchers for the Kauffman Index used a representative sample of approximately 900,000 responses to collect data. They define “Main Street small businesses” as businesses that are more than 5 years old, with fewer than 50 employees. This is different from the SBA Office of Advocacy’s definition of small business.
Q: How many jobs do small businesses create?
A: In a year-long measurement completed in the third quarter of 2016, a net 1.9 million jobs were created by small businesses.
Q: Do small businesses really create that many jobs?
To get more granular about it, job creation mainly comes from new small businesses. New businesses account for nearly all net new job creation, and almost 20% of gross job creation.4 Comparatively, small businesses that are 5 years or older don’t have a significant impact on job growth.
Q: How much do small businesses pay their employees?
A: Hard to say, as employee compensation varies significantly by state and business. As of 2012, though, the states with small businesses that pay the highest average salaries are the District of Columbia ($62,929), Massachusetts ($49,444), New York ($48,790), Connecticut ($48,711), and Alaska ($47,973).
Q: How many small businesses are created per year?
A: In a year-long measurement, 240,000 businesses were created in the third quarter of 2016.
Q: Is there currently a net gain or loss in the number of small businesses in the U.S.?
A: There’s currently a net gain in the number of small businesses—that gain is 25,000 small businesses as of the third quarter of 2016, to be exact. This number fluctuates with the economic environment.
Q: How many people become unemployed each year due to exits?
A: The SBA Office of Advocacy defines an “exit” as when a business goes from one or more employees to none, and remains that way for at least one year. In the third quarter of 2016, 749,000 jobs were lost due to small business exits.
Q: Where are the most businesses started?
A: That depends on which areas of the country you’re looking at. The Kauffman Index compiled the top five rankings5 for business creation in metropolitan areas, the 25 biggest states, and the 25 smallest states:
The Top 5 Metropolitan Areas:
The Top 5 States of the 25 Largest States:
The Top 5 States of the 25 Smallest States:
Q: How many small businesses employ people?
A: 6.04 million small businesses have employees, meaning 20% of all small businesses have at least one paid employee. Small businesses comprise 99.7% of all firms with paid employees.6
Q: What percentage of small businesses are owned by minorities?
A: Here are the percentages of small business owners by race, as of the most recent Kauffman Index:
For context, here’s how those numbers have changed since 1996:
Q: What about the gender breakdown?
A: Great question! As of 2015, the percentages of small business owners by gender as of 2015 are:
The percentage of female small business owners has increased by 1.48% since 1996—so there’s a lot more room to grow.
Q: Which is the most entrepreneurial generation?
A: Despite all the buzz, millennials (those aged 20-38 at the time of this survey) actually aren’t the most entrepreneurial generation—at least not when it comes to small business.
Here’s what the age breakdown of small business-ownership actually looks like, according to our trusty Kauffman Index:
Older Gen-Xers and baby boomers take the win here, followed by younger Gen-Xers and, finally, millennial business owners.
Q: Why are so many of your statistics from 2015?
A: Another great question, and we’re glad you asked. Much of the data we have about small business and small business employees is pulled from U.S. Census data, and the last survey on small business was completed in 2015.
These data points are intended to give you greater insight into the role that small business plays in the U.S. economy. Remember, though, that statistics should often be taken with a grain of salt. No matter which statistic you’re reviewing, understand which source the data is pulled from, when the data was compiled, as well as their definition of a small business, as this changes depending on who puts together the study. If you’re curious about a statistic we didn’t provide here, reach out and we’ll do our best to find it for you.
No matter how you splice the numbers, however, it remains clear that small business is integral to a vital economy. Small firms greatly outnumber large ones, in addition to providing a healthy amount of employment. Does that make small business the backbone of America? We hope you can now decide that for yourself.