A rundown on key facts, numbers and trends regarding entrepreneurship and small business

American Business is Overwhelmingly Small Business

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.

Add in the number of nonemployer businesses – there were 24.8 million in 2016 (latest data) – then the share of U.S. businesses with less than 20 workers increases to 98.0 percent.

C-Corps: Among employer C corporations in 2015, according to the Census Bureau’s Statistics of U.S. Businesses, 84.9 percent had fewer than 20 employees, 96.4 percent fewer than 100, and 99.0 percent had less than 500 workers. If we add in nonemployer corporations, then those with fewer than 20 workers come in at 89.5 percent of all C corporations.

Bulk of Job Creation Comes from Small Business

According to the SBA’s Office of Advocacy:

● “Small businesses accounted for 61.8% of net new jobs from the first quarter of 1993 until the third quarter of 2016.” (See the Office of Advocacy’s “Frequently Asked Questions” publication.)

In addition, in it’s 2018 Small Business Profile of the United States, the SBA’s Office of Advocacy reported:

● “Small businesses created 1.9 million net jobs in 2015.”

● “Firms employing fewer than 20 employees experienced the largest gains, adding 1.1 million net jobs.”

● “The smallest gains were in firms employing 100 to 499 employees, which added 387,874 net jobs.”

Small Business Share of Employment

According to data from the Census Bureau’s Annual Survey of Entrepreneurs:

● Employer firms with fewer than 500 workers employed 46.8 percent of private sector payrolls in 2016.

● Employer firms with fewer than 100 workers employed 33.4 percent.

● Employer firms with less than 20 workers employed 16.8 percent.

The Small Business Share of GDP

A January 2012 report from the SBA’s Office of Advocacy found:

“Small businesses continue to be incubators for innovation and employment growth during the current recovery. Small businesses continue to play a vital role in the economy of the United States. They produced 46 percent of the private nonfarm GDP in 2008 (the most recent year for which the source data are available), compared with 48 percent in 2002.”

Source: “Small Business GDP: Update 2002-2010”

Small Business and Innovation

The SBA’s Office of Advocacy notes:

“Small businesses represent about 96% of employer firms in high-patenting manufacturing industries, a percentage that remained constant from 2007 to 2012. However, during the same time period, small businesses’ share of employment, payroll, and receipts increased. This increase was particularly notable in firms that manufactured computers and peripheral equipment, communications equipment, or semiconductors and other electronic components.”

In addition, a 2008 study by Anthony Breitzman and Diana Hicks for the Office of Advocacy (“An Analysis of Small Business Patents by Industry and Firm Size”) found that “small firms are much more likely to develop emerging technologies than are large firms. This is perhaps intuitively reasonable given theories on small firms effecting technological change, but the quantitative data here support this assertion. Specifically, although small firms account for only 8 percent of patents granted, they account for 24 percent of the patents in the top 100 emerging clusters.”

See the Office of Advocacy’s “Frequently Asked Questions” publication.

See “An Analysis of Small Business Patents by Industry and Firm Size” here.

Small Business and Global Trade

The U.S. Census Bureau noted the following about small and mid-size businesses in the international trade arena in 2015:

• “Small- and medium-sized companies (those employing fewer than 500 workers, including number of employees unknown) comprised 97.6 percent of all identified exporters and 97.2 percent of all identified importers.”

• “Among companies that both exported and imported in 2015, small- and medium-sized companies accounted for 94.3 percent of such companies…”

• SMEs accounted “for 32.9 percent and 32.0 percent of the known export and import value, respectively.”

• Among all U.S. manufacturers: “96.4 percent of manufacturing exporters were small- and medium-sized companies and they contributed 20.3 percent of the sector’s $798 billion in exports. 93.5 percent of manufacturing importers were small- and medium-sized; they accounted for 14.5 percent of the sector’s $826 billion in imports.”

• Among wholesalers: “99.1 percent of exporting wholesalers were small- and medium-sized companies; they accounted for 58.2 percent of the sector’s $297 billion in exports. 99.1 percent of wholesaler importers were small- and medium-sized; they contributed 55.4 percent of the sector’s $662 billion in imports.”

Self-Employed Trending Down

Based on U.S. Bureau of Labor Statistics data, the level of entrepreneurship actually has declined in recent years. That is, the number of self-employed in the U.S. has dropped notably.

• Incorporated self-employed fell from 5.78 million in 2008 to 5.13 million in 2011.

• It climbed back to 5.64 million in 2016. So, after eight years, the number of incorporated self-employed remains well short of the 2008 level.

Unfortunately, the news is even worse when it comes to the larger measure of unincorporated self-employed.

• The number of unincorporated self-employed declined from 10.59 million in 2006 to 9.36 million in 2014.

While incorporated data only go back to 2000, unincorporated self-employed numbers date back decades. The 2014 number actually was the lowest since 1986. The level moved back up to slightly to 9.6 million in 2016.

• During the first six months of 2017, the number of unincorporated self-employed largely was stagnant.

See the Bureau of Labor Statistics “Employment Situation,” Table A-9, historical data.

Millions of Missing Businesses

As noted in SBE Council’s The State of Entrepreneurship and Small Business, we looked at an array of data and trends, and highlighted the fact that, when considering incorporated and unincorporated self-employed, and the number of employer firms, the U.S. is missing some 3.42 million businesses. And that number is probably a bit conservative. In an earlier SBE Council analysis titled Gap Analysis #3: Millions of Missing Businesses, we also considered the broadest measure of the number of businesses taken from IRS tax returns. With diminished growth in this area, there are some 4.8 million missing businesses.

See SBE Council’s The State of Entrepreneurship and Small Business, and titled Gap Analysis #3: Millions of Missing Businesses.

Survival Rate for Small Businesses

According to the SBA’s Office of Advocacy:

“About half of all establishments survive five years or longer… About one-third of establishments survive 10 years or longer.”

The survival rate for new businesses in their first year has improved recently. According to the SBA Office of Advocacy, 79.9% of establishments started in 2014 survived until 2015, the highest share since 2005.

See the Office of Advocacy’s “Frequently Asked Questions” publication here.

On Small Business Financing

According to the SBA’s Office of Advocacy:

• Financing startups: “Startups make heavy use of personal equity and traditional debt, with over half using their own personal savings. Census Bureau data show that employers made greater use of financing than did nonemployers, but also continue to rely on personal savings. Roughly 30% of new nonemployer firms and 7% of employer firms used no startup capital.”

• Business expansion: “Existing businesses use similar financing vehicles as startups to finance expansion. Personal savings are the most common source of expansion finance, followed by reinvestment of business profits.”

See the Office of Advocacy’s Small Business Financing: Frequently Asked Questions

More Details on Small Businesses

According to the SBA’s Office of Advocacy:

• Home-based businesses: “The share of businesses that are home- based has remained relatively constant over the past decade, at about 50% of all firms. More specifically, 60.1% of all firms without paid employees are home-based, as are 23.3% of small employer firms and 0.3% of large employer firms.”

• Franchises: “Overall, 2.9% of firms are franchises. More specifically, 2.3% of nonemployer firms are franchises, as are 5.3% of small employers and 9.6% of large employers.”

• Family-owned businesses: “About one in five firms (19.3%) are family-owned.”

See the Office of Advocacy’s “Frequently Asked Questions” publication here.

Women-Owned Firms

Women’s Business Ownership: Data from the 2012 Survey of Business Owners (See the full report here.)

• In 2012, women were majority owners of 9.9 million businesses which generated $1.4 trillion in sales and employed over 8.4 million individuals.

• In addition, another 2.5 million businesses were equally-owned by women and men, and they accounted for another $1.1 trillion in sales and 6.5 million jobs.

• As majority and joint business owners, women entrepreneurs generated $453 billion in payroll for 14.9 million workers through over 12.3 million businesses.