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We love small businesses and we love helping others learn more about how great small businesses really are. Whether you’re considering starting a business yourself or are just curious about the industry, chances are good that there are many small business facts you don’t know about.
We’re going to go over some interesting small business facts that may surprise you. Many of these facts have changed over recent years as small businesses continue to thrive and more people from more diverse backgrounds enter the world of small business.
But before we dive into these small business facts, let’s start by explaining a little bit about what actually is classified as a small business.
A small business is frequently classified as a business with fewer than 500 employees. So while you might think a business with a few hundred employees is fairly large, it could actually be classified as a small business.
The Small Business Administration’s definition of a small business is a bit different because it varies by industry. Sometimes they classify a business by the number of employees but sometimes they classify it by the amount of money in annual receipts. They have a table of size standards you can check for specifics on every industry out there.
Now that we have a better understanding of what exactly a small business is, here are eight small business facts about businesses in the U.S. today.
As of 2018, there were 30.2 million small businesses in the U.S., according to the SBA. That means 99.9% of the businesses in the U.S. are considered small businesses.
Businesses that have 100 employees or fewer are actually the largest employer in that group. So while corporations seem to run the country, with the big-name companies seemingly dominating the business sector, when it comes down to the numbers, small businesses are actually the majority of businesses in the nation.
Of those 30.2 million small businesses, 8 million of them are minority-owned, according to the SBA. There was a 38% jump in minority-owned businesses between 2007 and 2012, which is a huge jump over five years. Those 8 million minority-owned businesses represent 29% of all businesses across industries.
In 2015, those small businesses employed 58.9 million employees in the U.S., which accounts for 47.5% of the private workforce that year, and businesses with fewer than 100 employees actually employee the biggest proportion of those people, according to the SBA.
Though small business is still a thriving industry, the level of self-employment for people under the age of 40 is declining as student debt levels increase.
In 2013 the average student loan debt grew to $29,000—up from $12,000 in 1995. Furthermore, 20% of families carried some sort of student loan debt, versus 12% in 1995. This increasing financial burden is hindering the business prospects of entrepreneurs. Self-employed entrepreneurs who carry student loan debt on average hire just two employees, while those without student loan debt employ nine people on average. Those with debt were also less likely to apply for business loans, according to the SBA.
You’ve likely heard the cautionary tales of businesses that failed soon after they launched. But, it turns out almost four out of five businesses with employees will survive their first year. The percentage of small businesses that fail is about 20% in their first year. It then increases slightly to 30% in year two and 50% by year five. Finally, about 70% of small businesses with employees fail by their 10th year.
The industry with the highest risk of failing is the construction industry, along with the transportation and warehousing industries. On the other hand, health care and social assistance businesses are the most likely to stay in business.
The most common reason that businesses fail is that there’s just no need for them, at least not enough need to keep them running. The second most common reason businesses failed was due to cash flow issues, which again, may come down to them not bringing in enough money due to a lack of demand.
Both of these reasons for failure make it clear why it’s so important to conduct market research when writing a business plan. When researching a potential new business you want to start, make sure that there’s sufficient demand for the business or service you’re hoping to offer.
This means examining your target market, that market’s potential for size and growth, the typical market pricing, barriers to entry, and any direct competitors you might encounter. It doesn’t matter how great of a business idea you have, if people aren’t willing to pay for it, you won’t be able to stay in business for long.
Small businesses helped bring 66% of net new jobs to the market in between 2000 and 2017, according to the SBA. They provide millions of new jobs every year.
“Small businesses are the United States’s economic engine; they are the key to the state’s ability to grow economic output, entrepreneurship, and private sector employment,” Major L. Clark, III, acting chief counsel of the SBA said in a news release.
While small businesses have the word “small” in their name, their impact on the U.S. economy is clearly anything but.
Family-owned businesses are one of the most classic kinds of small businesses out there. You probably know of a few family-owned small businesses that you either have worked with in the past or shopped at.
Of those family businesses, there are a few types of business that are most popular. Management of companies and enterprises is the most common family-owned business, according to the SBA, while real estate and rental and leasing are the second most popular, with accommodations and food services as the third most popular.
If you’re thinking about starting a family business, or maybe you already have one that you’re part of, you might be wondering what your options are for funding your family business. The good news is that family businesses can be great investments for investors or lenders.
As of 2018, just about 50% of small businesses were home-based. Just over 60% of all firms without paid employees were home-based, plus about 23% of small employer firms. These home-based businesses vary across different industries but some of the most popular small home-based businesses are in information; construction; and professional, scientific, and technical services.
Other home-based business ideas can include freelance writing or design, data entry, tutoring, video producing, and more. Millions of people work from home, at least for part of their jobs, and it’s becoming and more common for companies to offer this perk, so it’s no surprise those who start their own small businesses also want to be able to work from home.
The facts we discussed are just some of the many surprising and informative small business facts out there. Remember, the specific numbers around some of these facts are constantly changing as the small business industry changes each year. The number of minority-owned small businesses in the country has been increasing and in the coming years, that trend is likely to continue. The total number of small businesses in the country will also likely change as the economy shifts as well.
There are plenty of things to learn about small business, and hopefully these small business facts will inspire you to learn more about this industry—and support your local small businesses, as well.