What is a small business?
The United States Census Bureau reports that most U.S. businesses have fewer than five employees. But do these qualify as “small businesses”? It’s a bit nuanced.
The definition of a small business revolves around the size of the company (number of employees) and/or its yearly earnings. These parameters vary across industries and aren’t uniform. Revenue thresholds can span from $1 million to $40 million, while employee limits can vary from 100 to over 1,500. The U.S. Small Business Administration (SBA) determines these standards.
The SBA maintains a Small Business Size Standards Table, detailing these criteria by industry, offering national guidelines. For instance, soybean farmers can earn up to $2 million annually, while retail bakeries must have fewer than 500 employees to be considered small businesses.
Though these specifics apply to the U.S., globally, many simply define small businesses as those with fewer than 250 employees.
Whether a business has 15 employees or 750, small businesses remain pivotal in the global economy and significantly contribute to U.S. financial growth. Managing a small business is demanding, yet it comes with distinctive advantages.
Are there benefits to being a small business?
Certainly! The definition of a business’s size directly impacts its eligibility for federal assistance. There are several key advantages that small businesses can leverage:
- Small Business Loans: The SBA can serve as a co-signer for small businesses seeking loans. Additionally, other banks offer small business loans, some with more favorable interest rates.
- Government Contracts: Access to federal contracts enables small businesses to compete on par with larger counterparts.
- Grants: Small businesses qualify for numerous grants aimed at fostering research and innovation. Since grants don’t require repayment, they provide substantial capital.
- Adaptability: With fewer employees comes streamlined internal processes, allowing small businesses to pivot swiftly and meet customers’ evolving needs.
- Uniqueness: Small businesses hold a special allure, drawing support from consumers seeking unique experiences. They often offer more personalized interactions compared to larger brands.
- Happiness: An impressive 74.86% of small business owners report being content with their work.
Small Business Employment Statistics
1. 99.9% of businesses across the US are small businesses
While big corporations often steal the limelight, the U.S. Small Business Administration reveals a different truth: the overwhelming majority of businesses in the U.S. are small enterprises. Surprisingly, there are a staggering 33.2 million small businesses spread across America.
2. Just 16% of small businesses have 1-19 employees
Although the majority of small businesses operate without any employees, 16% of them have a staff ranging from one to 19 individuals. Out of the 33.2 million small businesses, only 650,003 fall within the bracket of having 20 to 499 employees.
3. Nearly half of all U.S. employees are employed by a small business
Despite more than 80% of small businesses functioning without any employees, they collectively support a staggering 61.7 million workers. This vast number encompasses a substantial 46.4% of all employees in the United States, signifying a sizable workforce in contrast to the minority—less than 20%—of small businesses that maintain employees. This showcases the pivotal and impactful role small businesses assume in fostering employment opportunities, underlining their colossal significance not only in job creation but also in sustaining the broader societal framework of the nation.
4. Over 8 out of 10 small businesses have no employees
Out of the 33.2 million small businesses mentioned earlier, a striking 27.1 million are managed solely by a single owner and operate without any employees.
Small Business Job Creation
5. Small businesses have added over 12.9 million jobs in the last 25 years
While the typical small business is managed by a single founder, these enterprises remain significant sources of employment in the U.S. Within the last 25 years, small businesses have created nearly 13 million net new jobs. To put it in context, that amounts to approximately two-thirds of the total jobs contributed to the economy.
6. The professional and business services industry created over 1.1 million new jobs in the last year alone
Most of the recent job growth stems from the professional and business services sectors, contributing to over one million new positions in the past year. Conversely, reflecting the aftermath of the pandemic, the leisure and hospitality industries faced substantial job losses.
Overall, the job market has steadily rebounded over the last year, witnessing a surge in employment by 5.8 million—exceeding February 2020 levels by 240,000 positions.
7. The industry with the highest projected job growth is home health and personal care
Although the education and health services sector presently boasts the most job openings, the home health and personal care industry is poised for remarkable growth. Projections indicate a staggering surge of 924% in the coming decade. This forecasted expansion in the home health and personal care domains aligns with the escalating demand attributed to the disproportionate increase in the aging population compared to younger generations.
8. The industry with the most job openings in the education and health services industry
The demand for professionals in the education and health services sector isn’t a hidden fact, partly stemming from limited supply. Presently, this industry records the highest number of job openings. For individuals, it signifies a promising field offering job stability. Yet, for businesses, it implies a need to heavily invest in attracting and retaining staff in these industries.
9. The leisure and hospitality industry saw the biggest loss of jobs in 2022
From February 2020, the Leisure and Hospitality sector suffered a loss of 633,000 jobs. Yet, the industry stands on the brink of a significant rebound post-pandemic. Travel has not only resumed but has also witnessed a considerable surge in demand, spurred by the lifting of stay-at-home orders and the relaxation of international travel restrictions.
10. D.C. and New York have the highest unemployment rates in the nation
As per the latest data, the District of Columbia, the nation’s capital, holds the highest unemployment rate in the country at 5.1%. Following closely behind is New York at 4.7%. On the opposite side of the spectrum, Minnesota boasts the lowest unemployment rate, standing at a mere 1.9%.
11. Unemployment rates remain least affected in largely rural states
Even as D.C. and New York witnessed significant spikes in unemployment rates, Arkansas, Nebraska, and Oklahoma maintained relatively stable rates, closely aligning with the previous year’s figures. This trend might suggest a potential correlation between rural states, population density, and unemployment rates. States with higher population densities tend to exhibit greater potential for elevated unemployment rates.
12. Only 14% of jobs lost during the pandemic will be recovered in 2023
In the upcoming year, employment in the U.S. is forecasted to grow by 1.3 million jobs. However, this follows significant job losses caused by the pandemic. According to the Bureau of Labor Statistics, the U.S. faced a loss of 9.6 million jobs due to COVID-19 between May 2020 and September 2022. Consequently, the projected job growth for 2023 represents only a fraction of the pandemic-related losses. This underscores that although the nation is on the path to recovery, it still has a considerable distance to cover.
13. The fastest-growing industries are healthcare and social assistance
The healthcare and social assistance sectors not only demonstrate the highest survival rate among all industries but also stand out as the fastest-growing industry.
14. By 2031, only 87% of jobs lost during covid will be recovered
Estimates indicate that the U.S. will require slightly over a decade to completely recover from the job losses incurred during the pandemic. Based on available employment forecasts, a growth of 8.3 million jobs is anticipated by 2031. However, this figure represents only 87% of the 9.6 million jobs lost during the pandemic.
15. The industry that will add the most jobs is individual and family services
The individual and family services sector is anticipated to experience the most substantial growth, estimated to contribute over one million jobs between 2019 and 2029. Following closely behind is the computer systems and design industry, forecasted to add more than 574,000 jobs over the next decade, marking the second-highest job growth in the country.
Small Business Salaries & Wages
16. The average salary of a small business owner is just 3% above the annual mean wage in the U.S.
While business owners and entrepreneurs might constitute some of the wealthiest individuals globally, the average salary for a small business owner sits merely 3% above the national average mean wage of $58,260 at $60,151. It’s important to note that the average income for business owners varies significantly. On the lower end, small business owners typically earn an average salary of $29,000, while at the higher end, they can earn as much as $128,000, based on pay rate data sourced from Payscale.
17. Hourly earnings have increased over 5% over the last year
In the past year, hourly earnings have risen by 5.2%, while the average weekly hours dropped slightly by 0.1 hours to 34.5 hours in August. However, the annual inflation rate in the U.S. over the last 12 months stands at 7.7%. This discrepancy indicates that the growth in annual earnings does not match the escalating inflation rate.
Small Business Ownership Statistics
18. More small businesses are owned by males than females
While the gender gap is gradually reducing, women currently own only 43.2% of small businesses. Racial minorities hold ownership of 19.4% of small businesses, with Hispanics accounting for 13.8% of this subset. Veterans, on the other hand, are one of the least represented groups, owning merely 6.4% of small businesses in the U.S.
19. Millennials own just 7% of small businesses in the U.S.
Although the millennial generation is often seen as notably entrepreneurial, they only own about seven percent of small businesses. Gen Z follows closely behind, accounting for just one percent of small business ownership. Meanwhile, the majority of small businesses are owned by Boomers and Gen X, showcasing a clear “generation gap” in business ownership. Given that the reported average age to start a business is around 35 years old, it’s plausible that the younger generation might need a bit more time for their aspirations of business ownership to align with reality.
Online & E-Commerce Business Statistics
20. Nearly 1 out of 3 businesses still don’t have a website
Despite living in an era where building and maintaining websites has become simpler and more cost-effective, thanks to code-free website builders and extensive online resources, only 71% of businesses possess a website. Surprisingly, nearly one-third of businesses opt to remain website-free, with 20% utilizing social media as a substitute for creating a website. However, this approach might not be widely recommended, considering that millions rely on Google to explore businesses, whether for choosing a place to dine or purchasing an automobile.
21. Over 25% of business is conducted online
Still uncertain about the necessity of having a business website? Consider this: in 2021, there were 230.5 million e-commerce shoppers, accounting for over a quarter of all business transactions conducted online. With movement restrictions during the pandemic, consumers increasingly turned to the Internet for shopping, not just for items like apparel and footwear but also for groceries, alcohol, prescription medications, counseling, and various other goods and services.
22. Over three-quarters of shoppers visit a business’s website before their physical location
Operating in person doesn’t negate the need for brick-and-mortar businesses to have a website. Surprisingly, 76% of online shoppers reportedly browse a business’s website before actually visiting their physical store or location. This shift reflects the web as consumers’ primary destination. This trend benefits brick-and-mortar establishments, indicating that they need not rely solely on foot traffic or word of mouth to attract customers or clients to their doors.
Small Business Costs
23. Labor remains the number one cost for businesses at 70% of spending
Labor is the largest expense for most businesses, making up 70% of their spending and holding a considerable share of their budget. Because of this, it’s typical for businesses to prioritize cost-saving methods concerning labor expenses. These strategies could include layoffs, outsourcing tasks to more affordable staff in other countries, or introducing software that streamlines operations, thus decreasing the necessity for a larger workforce.
24. Inventory is the second biggest cost for small businesses
After labor, inventory stands as the next significant cost for businesses, typically comprising 17 to 25% of their budget on average. While inventory is expected to translate into revenue eventually, it poses a considerable initial expense for small businesses operating on constrained budgets. Consequently, the popularity of drop shipping is on the rise, along with smaller minimum quantity orders. These strategies aim to minimize the initial investment and storage space needed, not to mention reducing the risks associated with damage or spoilage of inventory.
25. Over half of all small businesses reportedly cut spending
Businesses are contending with a surge in inflation and increasing payroll costs, resulting in an overall uptick in operational expenses. This surge spans multiple facets, including heightened expenses related to human capital, materials, shipping, property taxes, building upkeep, and utilities. As a result, 57% of businesses undertook cost-cutting measures in the past year.
In response, businesses explored diverse strategies to reduce costs and minimize overhead. Some shifted entirely to remote work setups, cutting expenses associated with office space and in-office perks such as complimentary snacks and beverages. Others pursued more economical manufacturing contracts or suppliers, while an alternative tactic involved leveraging artificial intelligence to reduce downtime and boost productivity.
26. Advertising accounts for just 1% of a business’s revenue on average
While there’s often talk of colossal advertising budgets and campaign expenditures, advertising accounts for merely one percent of the average business’s revenue. Currently, one of the most widely used advertising channels, utilized by 55% of businesses, is social media. This popularity is likely attributed to the value of a pay-per-click-based ad platform, where advertisers incur costs only when users engage with their ad. Additionally, the ease of use across these platforms and their wide accessibility make them appealing to businesses of all sizes and financial capacities.
Small Business Survival Statistics
27. Over 180,000 more small businesses opened than closed in the last year
Between March 2020 and March 2021, around 1.1 million new small businesses emerged, as per data from the U.S. Small Business Administration (SBA). This accounts for 180,528 more small businesses opening within this period than those that closed. This rise signifies a positive trend in business ownership and reflects a shift toward entrepreneurship following the pandemic’s widespread job losses.
28. 1 in 5 businesses fail within the first year
You’ve probably come across the statistic that portrays half of all businesses failing. However, this stat doesn’t reveal the full story. To gain a comprehensive understanding, consider that 20% of businesses fail in their first year, followed by 30% in the second year, and finally reaching 50% by the fifth year. This emphasizes the pivotal importance of the initial five years for new ventures.
29. Nearly half of businesses fail due to a lack of market demand
Among the businesses that fail within the initial five years, 42% do so due to a lack of market demand, as per data. This underscores the crucial importance of validating market demand before diving into a new venture. Moreover, it might indicate a gap in marketing strategies where there could be existing demand, yet a lack of awareness resulting in minimal interest or demand for the business, its services, and/or products.
30. The professional, scientific, and technical services industry has the highest failure rate
When it comes to failure rates by industry, the professional, scientific, and technical services sector exhibits the highest rate at 19.4% in the initial year. This high rate could be attributed to the industry’s dynamic and continually progressing nature. Its constant evolution not only affects the adoption rates of new products and services but also presents a moving target for businesses to navigate.
31. Running out of capital is the second most common reason small businesses fail
Following a lack of market demand, the subsequent leading cause of small business failure stands as running out of capital, accounting for 38% of cases. Initiating and managing a small business undoubtedly incurs significant expenses. Hence, business owners must accumulate sufficient capital to cover operational costs during the initial years until the business stabilizes and begins to generate profits rather than operating at a loss.
32. The industry with the highest survival rate is the healthcare and social assistance industries
The healthcare and social assistance industries exhibit the highest survival rates among sectors. Unlike the scientific and technical services industry, there’s typically a consistent demand for businesses operating within the healthcare sector. Despite ongoing evolution, the demand for healthcare services remains unwavering.
Conclusion: What do these statistics mean for small businesses?
Reviewing business statistics can provide small businesses with crucial insights. Data not only illuminates the broader business environment but also assists in forecasting future trends based on data patterns. While each business may interpret and apply data uniquely, this diversity in approach can offer a competitive edge to certain small businesses compared to those that do not actively analyze data.
The future of small businesses
Where is the future of small businesses headed? Small business statistics indicate the necessity for firms to adapt to the constantly evolving landscape, with technology playing a pivotal role in maintaining competitiveness.
For the 83% of small businesses planning to invest in technology soon, consider opting for an all-in-one solution for enhanced efficiency. Juggling between multiple tools consumes both time and resources that could be better allocated elsewhere.
Connected inventory performance solutions like Cin7 Core and Cin7 Omni serve as cloud-based inventory management software designed to provide growing product businesses with an automated, real-time overview of their entire inventory life cycle. By integrating with various applications, these solutions enable the consolidation, streamlining, automation, and scalability of inventory management—all from a single platform.
FAQ
What are the benefits of being a small business?
While small businesses encounter numerous challenges, they also possess several advantages over large corporations. Some of these key benefits include:
- Independence in your business and lifestyle
- Creative freedom
- Pride in your business
- Professional learning opportunities
- Close customer relationships
How many small businesses are there?
As of 2023, the United States is home to 33,185,559 small businesses.
How many businesses fail?
Typically, around 20% of businesses fail within their initial year. This failure rate climbs to 30% after the second year and reaches 50% by the fifth year. By the 10-year mark, it further rises to 65%.
How long does it take for a business to be profitable?
Around 40% of small businesses eventually turn profitable, often taking around two to three years. In the initial years, many business owners face losses or barely manage to break even.
What are the most used software types in business?
Typically, small businesses utilize anywhere between 25 and 50 SaaS tools. Surprisingly, about 80% of them feel they aren’t maximizing the full potential of these tools. Some of the most common tools employed by small businesses include:
- Accounting software
- Time tracking tools
- Project management systems
- Inventory management software
- Customer relationship management systems
- Communication tools
- Transactional/point-of-sale software
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