Small Business Growth Statistics That May Surprise You

Business news usually focuses on large corporations. Pick up the Wall Street Journal and you’ll read about quarterly earnings, high-profile leadership scandals, or how politics are affecting big corporation’s bottom line.

Those headlines grab attention but if you look into the numbers, it’s the little guys who truly drive the economy. In fact, small businesses are known as the backbone of the American economy. We’ve rounded up statistics showing the impact of hard working entrepreneurs across the U.S.

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What is considered a small business?

Sole proprietorships, partnerships, LLCs, or corporations can all be considered small businesses.

According to data from the Census Bureau’s Annual Survey of Entrepreneurs, there were 5.6 million employer firms in the United States in 2016.

  • 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.

How many jobs do small businesses create?

The SBA’s Small Business Profile shows that small businesses added 1.9 million net new jobs in the U.S. during 2018. Read more from the SBA office of Advocacy here.

Where are the most businesses started?

The Policygenius blog looked through 2018 SBA data and put together a list of states that created the most small businesses last year. Read the full article for additional details about job creation, number of businesses, and more.

10. Colorado

9. New Jersey

8. North Carolina

7. Pennsylvania

6. Illinois

5. Georgia

4. New York

3. Texas

2. Florida

1. California

How many small businesses fail?

You may have heard dismal numbers regarding small business failure but approximately 80% of small businesses survive the first year according to the SBA’s Office of Advocacy in 2018. 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. It’s a commonly repeated belief that restaurants are more likely to fail than any other industry but that is unsubstantiated.

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A few positive take aways:

  • Women-owned small businesses are surviving and thriving.
  • An American Express study show that female entrepreneurship grew by 114% between 1997 and 2017. Women now own more than 11.6 million firms in the U.S. employing nearly 9 million people.

At SmartBiz Loans, we believe that women-owned businesses need – and deserve – low-cost SBA loans to grow and strengthen their businesses. We’re proud that more than 30% of the 7(a) SBA loans we’ve facilitated were granted to women-owned businesses, a number
significantly higher than the national average of 14% for SBA lenders.

We’ve had the pleasure of interviewing many women who have started companies on the SmartBiz Small Business Blog. Read how businesses like The Growth CMO, Wonder Years, and Incipio Workforce Solutions are being led by hardworking female entrepreneurs and thriving.

More Minority-owned small businesses

According to a study by the Minority Business Development Agency, the number of minority-owned firms in the US increased by 38% between 2007 and 2016. For National Black Business Month the SmartBiz team put together an infographic with more interesting statistics: August is Black Business Month. SmartBiz Loans facilitates 5.4% of our SBA 7(a) loans to businesses owned by Black or African-Americans, vs. the national average of 3% for SBA 7(a).

Also encouraging is that the number of Hispanic-owned businesses in the U.S. is growing. About 4.4 million Latino-owned businesses in the U.S. contribute more than $700 billion to the economy annually, according to the U.S. Hispanic Chamber of Commerce.

Reasons for small business failure

Here are three of the top reasons small businesses go under.

Cash flow

Managing cash 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.

The SmartBiz team understands how important cash flow is to the survival of a small business. 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.

Final thoughts

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
  • Delegate
  • Keep your overhead low
  • Avoid distractions

 

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