Many different government organizations and trade groups collect information from small businesses regularly. The details that they gather are compiled to prepare small business statistics.
What can you learn from this data? Small business statistics can be used to answer questions such as:
- How many small businesses are there in the United States?
- Which type of small business succeeds?
- What is the number of people they employ?
You may be thinking that while all this information could be interesting, it’s not relevant for your business. After all, your company is only one of the millions in America.
How would small business statistics about other company owners help you in any way?
However, it’s important to learn about how other entrepreneurs are faring. You could use the information to spot trends and identify issues that are relevant to your company.
Here are some small business statistics that you may find thought-provoking:
Small businesses in the U.S.
Small businesses are the backbone of the American economy. Almost every second person who held a job works in one of them.
This chart, made by the U.S. Small Business Administration’s Office of Advocacy, provides data about the number of individuals who worked for small businesses in various industries.
United States Employment by Industry, 2015
Source – SBA
How many small businesses are there?
According to the United States Census Bureau, there were over 30 million small businesses in the U.S. in 2016. However, it’s important to remember that most of these were nonemployer businesses.
Of the total number of 30.4 million small businesses, 24.8 million didn’t have even one employee.
How many employees do small businesses have?
The SBA defines a small business as one that has fewer than 500 employees.
But, what is the average number of workers for each of the 5.6 million employer businesses?
According to the Bureau of Labor Statistics:
⇨ 17.25% of all businesses had less than 500 employees.
⇨ 18.3% had less than 100 workers.
⇨ 17.09% had 19 workers or less.
⇨ Which means that small businesses have 52.64% of the workforce.
What is the number of businesses that close down? How many new companies are launched every year?
Some small business statistics are of particular interest to entrepreneurs. Of these, the number of businesses that close each year generates great interest.
The U.S. Census Bureau’s Business Dynamics Statistics reveal that over the last 25 years, an average of one in every 12 employer firms closes down every year.
The SBA data on the survival rate of new firms also provides some interesting small business statistics:
With so many closures, how can there be about 30 million businesses in operation in the U.S.?
The number of startups is slightly more than the number of closures each year. For example, in 2015, the number of startups launched were 414,000. Business closures in that year totaled 396,000.
Percent of firms that started up and closed each year
Why do small businesses close down?
The reasons for closing down companies can vary. For example, some firms close because the owner decides to retire. However, a far more common reason is that the company can’t meet its sales goals or that it suffers from cash flow problems.
Reasons Owners Close Employer Firms
A quick look at the chart reproduced above reveals a striking fact. The most common reason for business closure is “low sales/low cash flow”.
It’s important to understand that a change in market demand could cause a drop in sales. Customers may no longer need the product that is being sold or the services that are provided. This will lead to flagging sales and cash flow issues.
However, lower sales may have nothing to do with the demand for a company’s product. The business may face competitive pressure. Its customer service record may be poor. If sales decline for an extended period, the company may start running short of cash.
Ultimately, it may not have the funds to buy inventory or pay its creditors. This could lead to the company closing down.
What percentage of the Gross Domestic Product do small businesses contribute? In the U.S? In the world?
Small businesses are an indispensable part of the U.S. economy. They contribute approximately 44% of the nation’s gross domestic product (GDP), which is the total market value of the goods and services produced in the country.
When reviewing America’s small business statistics, some information could be of particular relevance. The contribution of small firms to the economy over the years is of particular interest. That’s because although the dollar value of the GDP accounted for by small businesses is going up, the percentage contribution is going down.
Why is that? This chart provides some clarity on the subject:
Source: SBA, Office of Advocacy
This chart reveals that small business GDP had risen to $5.9 trillion by 2014. That’s an increase of almost 72% over its 1998 level. However, the growth of GDP contribution by large businesses was faster. The inflation-adjusted GDP growth for big companies was 2.5% per year as compared to small businesses’ growth rate of 1.4%.
What about the contribution of small businesses at a global level?
Data by The World Bank reveals that small and medium enterprises (SMEs) account for as much as 60% of national employment and 40% of GDP in emerging economies. About 80% of new job opportunities are created in the SME sector.
Small business optimism in the U.S. is at near-historic highs
The National Federation of Independent Business (NFIB) is a small business association headquartered in Nashville, Tennessee. It has offices in Washington, D.C., and all 50 state capitals. The NFIB has been tracking small business economic activity data since 1973.
Based on the data it collects, the NFIB prepares a monthly Small Business Optimism Index. The components of the Index include “plans to increase employment,” “plans to make capital outlays,” “plans to increase inventories,” amongst others.
The May 2019 NFIB Small Business Optimism Index stands at 105. That’s a marked improvement from the level of 101.2 in January this year.
Why has the Index spiked? According to NFIB President and CEO Juanita D. Duggan
Optimism among small business owners has surged back to historically high levels, thanks to strong hiring, investment, and sales. The small business half of the economy is leading the way, taking advantage of lower taxes and fewer regulations…
Latino-owned businesses – they’re special
Small business statistics about Latino-owned firms make for fascinating reading.
A November 2018 report titled Latino-Owned Businesses – Shining a Light on National Trends points out that Latino-owned businesses contribute more than $700 billion in sales to the U.S. economy.
Here are some more interesting small business statistics about Latino-owned businesses from this report:
⇨ These firms employ more than 2.3 million workers.
⇨ One in four new businesses is Latino-owned.
The report says:
Quite simply, small business growth is tied to the fortunes of Latino-owned businesses.
However, many of these firms face a fund shortage. They tend to rely on informal sources of finance and often avoid taking a loan.
Why is that?
They say that the terms that they are offered are frequently unacceptable.
The shortage of money can put Latino-owned firms at a disadvantage. Perhaps that’s why only 3% of Latino-owned firms grow to $1 million or more in annual sales. The comparable figure for white-owned businesses is 6%.
Financing small businesses
Small business owners can find it difficult to raise cash when they need it.
This can prevent them from taking advantage of new business opportunities and hold back their expansion plans. In a worst-case scenario, a company owner may have to close down because of a lack of funds.
Banks are one of the primary sources of funds for small businesses. A survey conducted by the Federal Deposit Insurance Corporation, a U.S. government corporation that provides deposit insurance to depositors in banks, revealed some critical facts about small business lending by banks.
Here’s a quick summary of the findings of the 2018 FDIC Small Business Lending Survey:
⇨ Many small and large banks lend based on the relationship that they enjoy with their clients. If they know the customer, they are often willing to make exceptions to their underwriting policies.
⇨ Small banks pay personal attention to customers. They are usually involved in local community activities. Large banks, on the other hand, rely on their branch network and on referrals for making new loans.
⇨ Very few banks accept online loan applications. This is true for both large and small banks.
⇨ Small banks are usually faster at making loans.
However, banks only approve a small percentage of loan applications from small business owners. According to the April 2019 Biz2Credit Small Business Lending Index, the approval rates for loan applications made by small businesses to various categories of lenders are:
If you’re looking for a small business loan, your best bet is an alternative or an institutional lender. After all, applying for a loan could mean if you’re part of the successful businesses in next year statistics.
A loan can help your business succeed
As the saying goes, “there is strength in numbers”, and small businesses are no exception.
Even though the spotlight usually shines on big multinational companies, small businesses are more important than many would think. The amount of small businesses in the U.S. and the percentage of the Gross Domestic Product they contribute is very important.
Having a small business is having an opportunity to make a change in the country and the world.
Having a small business is having the power to help other people by employing them.
Join a community of over 3,000 small business owners that are willing to make a change. Subscribe to our newsletter, and you’ll get regular updates on topics ranging from business funding, management issues, technology, and specific tips on maximizing your profits.
At Camino Financial, our motto is “No Business Left Behind”. Which means we will help you have a bigger stronger small business.