Small businesses are important to the U.S. economy because 99% of all U.S. firms are small businesses, employing about half of the private workforce. They are responsible for 98% of the good exports, creating jobs and igniting innovation across America.
Small business owners faced immense challenges when the coronavirus pandemic swept across the world. In addition to mask mandates, and shut-downs, many businesses had to quickly pivot and create new operating strategies.
Despite the economic setbacks, entrepreneurs are still driving the economy and the health of their businesses is vital for recovery. We've researched small-business statistics to give you an overview of the business landscape in the U.S as of 2021.
What is considered a small business?
Sole proprietorships, partnerships, LLCs, or corporations can all be considered small businesses.
There are over 31.7 million small businesses in America as of March 2021 compared to about 30.7 million a year earlier according to the SBA. On top of that, some 543,000 new businesses are started each month.
- Firms with fewer than 500 workers accounted for 99.7 percent of those businesses.
- Firms with fewer than 100 workers accounted for 98.2 percent.
- Firms with fewer than 20 workers made up 89.0 percent.
How many people do small businesses employ?
Small businesses employ 58.9 million people. Small business employees make up 47.5% of America’s total employee workforce in 2021.
How many jobs do small businesses create?
Despite a health catastrophe and one of the worst economic downturns in modern history, startup business activity grew in the United States last year—business startups grew from 3.5 million in 2019 to 4.4 million in 2020, a 24 percent increase.
Where are the most businesses started?
SBA data shows the states that created the most small businesses last year. Here are the top-10 best states for starting a business:
- North Carolina
How many small businesses fail?
According to a Fortune study, Nearly 100,000 establishments that temporarily shut down due to the pandemic are now out of business. However, before covid, approximately 80% of small businesses survive the first year according to the SBA’s Office of Advocacy. But that percentage can be a little deceiving. Only about half of small businesses survive passed the five-year mark and only about one in three small businesses survive 10 years.
The health care and social assistance industries tend to have the highest survival rates and the construction and transportation, and warehousing industries tend to have the lowest.
A few positive take aways:
- Women-owned small businesses are surviving and thriving.
More than 11.6 million firms are owned by women, employing nearly 9 million people, and generating $1.7 trillion in sales as of 2019. Women-owned firms (51% or more) account for 39% of all privately held firms and contribute 8% of employment and 4.2% of revenues.
- More minority-owned small businesses
According to the most recent available Census data, there are more than two million Black-owned businesses in America. Of this number, 124,000 are defined as “employer firms,” which means that they have employees in addition to the proprietor.
Hispanic-owned businesses are the fastest-growing segment of the U.S. small business ecosystem . In 2019, there were 4.65 million Hispanic-owned companies – representing 14% of the 33 million total U.S. businesses.
Reasons for small business failure
Here are three of the top reasons small businesses go under.
- Cash flow
Managing c ash flow is critical to running a successful small business and should be evaluated on a quarterly and monthly basis; weekly or daily evaluation is a smart idea.
The description of cash flow is pretty simple: Cash in minus cash out. Investopedia gives a more thorough explanation: cash flow is the net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's liquid assets are increasing. With liquid assets, a company can settle debts, reinvest in its business, pay expenses and provide a buffer against future financial challenges. Negative cash flow indicates that a company's liquid assets are decreasing.
Visit our blog for help analyzing cash flow and steps to help you increase your cash flow if necessary. Tips include invoicing regularly, using a cash flow statement, and implementing late fees. To get started, download a free cash flow statement in Excel.
- Products or services don’t fill a need
Identifying a need in the market is extremely important for a small business. You can have the greatest product with good prices but if no one wants or needs it, you'll crash and burn.
Crafting a good business plan can help in this area. Business plans include industry research and profiles of the consumer most likely to purchase your goods or services. A comprehensive business plan can reveal your shortcomings before you go all the way. If you’re an up-and-coming entrepreneur, don’t skip it. Use this article from the SmartBiz Small Business Blog as a guide: How to Write a Business Plan for Your Small Business (Without Going to Business School).
- Trying to do it all
Entrepreneurs do a lot to get a business up and running. But they aren’t always experts at the many skills required to successfully run a business. Business owners who don’t reach out for help with accounting, digital marketing, human resources, the law, taxes, or other complex areas can be making a big mistake. It’s important to know when you’re stretched thin and need support . Working with outside experts not only gives you peace of mind, you can up your skills in those areas.
What is the most entrepreneurial generation?
According to a study from America’s Small Business Development Center, Millennials, Americans born between 1977 and 1995, are the most entrepreneurial generation. In fact, half of all Millennials plan to start a business in the next three years. More than half said that they would quit their job to start a business if they had the right resources in the next six months. Do you have Millennials on your team? Read 9 Useful Tips When Working with Millennials to help you manage this creative group.
Biggest challenges of running a small business
- Acquiring startup capital
From required business licenses to computers, it takes capital to start up a business. According to the SBA, most microbusinesses cost around $3,000, while most home-based franchises cost $2,000 to $5,000 to start. Our blog post, 8 Ways to Finance a Business, explores the pros and cons of various funding sources including credit cards, crowdfunding, SBA loans, and more. When working on your start up budget, be sure to include all costs. Our article outlines expenses you might miss: Don’t Forget These Sneaky Expenses When Starting Your Business.
- Ongoing financing needs
According to the Federal Reserve’s Small Business Credit Survey, 43% of small businesses submitted an application to a small business lender last year. Unfortunately, only 48% of small businesses have access to all of the financing they need.
Entrepreneurship isn’t for the faint of heart but it can be an incredibly rewarding journey. If you’re considering making the leap to start a business, set yourself up for success and follow these guidelines:
- Keep your credit scores high
- Build a support network
- Set specific goals
- Keep your overhead low
- Avoid distractions