Small Business Statistics 2013

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					Small businesses comprise what share of       What is a small business?                        What is small businesses’ share of net
the U.S. economy?                             The Office of Advocacy defines a small           new jobs?
Small businesses make up:                     business as an independent business              Small firms accounted for 64 percent of
   99.7 percent of U.S. employer firms,       having fewer than 500 employees. For             the net new jobs created between 1993
   64 percent of net new private-sector       the small business definition by indus-          and 2011 (or 11.8 million of the 18.5
      jobs,                                   try used in government programs and              million net new jobs). Since the latest
   49.2 percent of private-sector             contracting, see            recession, from mid-2009 to 2011, small
      employment,                             small-business-size-standards.                   firms, led by the larger ones in the cat-
   42.9 percent of private-sector payroll,                                                     egory (20-499 employees), accounted for
   46 percent of private-sector output,       What percent of small businesses                 67 percent of the net new jobs.
   43 percent of high-tech employment,        operate as . . . ?                               Source: Bureau of Labor Statistics, BED. For
   98 percent of firms exporting goods,       The many kinds of small businesses are           the latest employment statistics, see Advo-
      and                                     shown in table 1. The definitions overlap        cacy’s quarterly reports,
   33 percent of exporting value.                                                              cacy/10871.
                                              so the shares total more than 100.
Source: U.S. Census Bureau, SUSB, CPS;
International Trade Administration; Bureau                                                     How can small businesses’ share of
of Labor Statistics, BED; Advocacy-funded      Table 1: Small Business Shares                  net new jobs be larger than their share
research, Small Business GDP: Update 2002-          Kind of Business        Share (percent)    of employment, yet their share of
2010,                                                         employment remains steady?
                                                Home-based business             52.0
                                                                                               As firms grow, they change employment
How many small businesses are there?            Franchise                        2.0
                                                                                               size classes. So as small firms grow,
In 2010 there were 27.9 million small           Sole proprietor                 73.2           their growth counts toward small firm
businesses, and 18,500 firms with 500           Corporation                     19.5           job gains; but if they pass the 500-em-
employees or more. Over three-quarters          Employer business               21.5           ployee mark, their employment is classi-
of small businesses were nonemploy-                                                            fied as large firm employment.
                                                Nonemployer (business
ers; this number has trended up over the        without employees)
past decade, while employers have been                                                         Do the unemployed become self-employed?
relatively flat (figure 1).                    Source: U.S. Census Bureau, SBO, SUSB.
                                                                                               When finding work is difficult, start-
                                                                                               ing a business can be just as difficult
    Figure 1: Number of Businesses (millions)                                                  if not more so. But in March 2011, a
                                                                                               significant number of the self-employed,
     Employers                                                         Nonemployers            5.5 percent or about 900,000, had been
                                                                                       23      unemployed in the previous year. This
                                                                                               figure was up from March 2006 and
                                                                                       21      March 2001, when it was 3.6 and 3.1
   6.5                                                                                         percent, respectively.
                                                                                               Which businesses create more jobs—
   5.5     Employer                                                                    17      startups or existing businesses?
                                                                                               In the last two decades about 60 percent
                                                                                       15      of the private sector’s net new jobs have
   4.5                                                                                         been created by existing establishments
                                Nonemployers (right scale)                             13      and about 40 percent from the churn
                                                                                               of startups minus closures. While firm
   3.5                                                                                 11      births account for many new jobs, job
      1985          1990          1995         2000           2005           2010              losses from firm closures are equally
                                                                                               important in accounting for net effects to
                                                                                               employment levels.
     Source: U.S. Census Bureau, SUSB and Nonemployer Sta s cs.
                                                                                               Source: Bureau of Labor Statistics, BED.

Page 1                                       Frequently Asked Questions about Small Business                                September 2012
 Figure 2: Mean Employment Level for Firm                                      Figure 3: Number and Size of Establishment Births
 Birth Year, 1995–2010 (millions)
                                                                               Employment per                                      Establishment
   3.07 2.96                                                                   establishment                                       starts (thousands)
             2.77 2.61
                       2.48 2.36                                                     8                                                              250
                                 2.15                                                7                                       Births (right scale)
                                                     1.94 1.82                                                                                      200
                                                                                     5                                                              150
                                                                                     3                 Average employment                           100
                                                                                     2                 (left scale)
     0      1       2      3      4    5



                                                                                       1998    2000   2002   2004    2006   2008     2010       2012


                          Years in existence
  Source: U.S . Census Bureau, BDS.                                             Source: Bureau of Labor Statistics, BED.

What happens to the jobs created by             How many businesses do veterans own?                   example, they were 2 percent for those
startups?                                       Veteran-owned businesses numbered 3.7                  25 and under and 23 percent for those 65
The total employment from a group of            million in 2007, with average receipts of              and over in 2010.
startups is highest at birth and declines       $450,000 (table 2).                                    Source: Office of Advocacy calculations using
as the firms age. Put another way, em-          Source: U.S. Census Bureau, SBO.                       U.S. Census Bureau, CPS data.
ployment gains from growing business-
es are less than employment declines            Is youth entrepreneurship increasing?                  What are the home-based business
from shrinking and closing businesses                                                                  trends?
(figure 2).                                     Self-employment among younger age
                                                groups has been dropping. From 2005 to                 The share of firms that primarily oper-
                                                2010, self-employment among indi-                      ate out of the home was unchanged from
What is the status of the startup market?                                                              2002 to 2007 at 52 percent (the latest
                                                viduals age 25 and under decreased 19
While the number of new employer                percent (compared to a 7 percent drop                  figure available). Employers had a lower
businesses has recovered from the reces-        in the overall population). In contrast,               share than nonemployers, 24 percent vs.
sionary dip, the average employment of          self-employment among those age 65                     63 percent, respectively, in 2007. Of the
these businesses has been declining over        and over increased 24 percent over this                major industries, construction had the
the past decade (figure 3).                     period as their population grew. Self-                 highest share of home-based businesses,
                                                employment rates increase with age; for                70 percent. (Being home-based is not
How many businesses do women own?                                                                      synonymous with working at home.) It is
While women-owned firms have in-                 Table 2: Number of Firms and                          interesting to note that retail trade went
creased as a share of total businesses           Receipts by Demographic, 2007                         from 49 percent home-based in 2002 to
over the years, their size still remains                                                               44 percent in 2007 while the share of
smaller than national averages. The 7.8             Business Owner          Firms
                                                                                         Receipts      Internet retail sales went from 1 percent
million women-owned firms averaged                                                        per firm     to 3 percent of total retail sales.
                                                     Demographic          (millions)
$130,000 in receipts in 2007 (table 2).                                                  ($1,000)
                                                                                                       Source: U.S. Census Bureau, SBO and Quar-
                                                   All businesses             27.1            1,070    terly E-Commerce Report.
How many businesses do minorities own?             Male                       13.9              570
Asian-owned businesses numbered 1.6                Female                      7.8              130    How does franchise survival compare
million in 2007 and have average receipts          Equally male/
                                                                               4.6             240     with independent business survival?
of $290,000. African-American-owned                female
                                                                                                       Survival among independent businesses
businesses numbered 1.9 million in 2007            African-American            1.9              50
                                                                                                       and franchises appears to be similar, as
and have average receipts of $50,000.              Asian                       1.6             290     they have similar age distributions. Of
Hispanic-American-owned businesses                 Hispanic                    2.3             120     course each potential business owner
numbered 2.3 million in 2007 and have              Native American/
                                                                               0.3             120     debating an independent business or
average receipts of $120,000. Native               Pacific Islander
                                                                                                       franchise arrangement will have unique
American/Islander-owned businesses                 Veteran                     3.7            450
                                                                                                       factors to weigh, such as their manage-
numbered 0.3 million in 2007 and have              Publicly held               0.8         23,860
                                                                                                       rial talent and sales abilities.
average receipts of $120,000 (table 2).          Source: U.S. Census Bureau, SBO.

Page 2                                         Frequently Asked Questions about Small Business                                        September 2012
  Figure 4: Startups and Closures                                              Figure 5: Cumulative Survival Rates for
  (thousands of establishments, seasonally adjusted)
                                                                               Establishments by Birth Year
                                                                                Percent of
1,000                                                                           establishments
                Deaths     Births
                                                                                  100                                               1995
  600                                                                                                                               2005
  400                                                                              40
         1999     2001      2003     2005      2007     2009     2011                0
                                                                                           0       2     4       6        8    10   12     14
    Source: Bureau of Labor Statistics, BED.                                                                  Years in existence
                                                                               Source: Bureau of Labor Statistics, BED.

 Table 3: Employer Firm Births and Deaths*                                                              How are small businesses financed?
                                                                                                        Small businesses are financed through
                         1999-2000               2004-2005        2007-2008          2008-2009
                                                                                                        owner savings; loans from family,
  Births                  574,300                 644,122          597,074               518,500        friends, and commercial lenders; bonds;
  Deaths                  542,831                 565,745          641,400               680,716        stocks; ownership stakes; and other
                                                                                                        arrangements. For detailed financing
 *Figures are March to March.                                                                           information, see Advocacy’s Frequently
 Source: U.S. Census Bureau, SUSB.                                                                      Asked Questions about Small Business
Source: Advocacy research, Do Business Defi-        What is the survival rate for new
nition Decisions Distort Small Business Re-         businesses?                                         How are credit conditions for small
search Results?                                                            firms?
research/rs330tot.pdf. Note that about half of      About half of all new establishments
the franchises in the data were nonemployers,       survive five years or more and about                For up-to-date statistics, see Advocacy’s
which may not be the stereotypical franchise        one-third survive 10 years or more.                 quarterly reports,
that individuals imagine.                           As one would expect, the probability                advocacy/10871.
                                                    of survival increases with a firm’s age.
How many businesses open and close                  Survival rates have changed little over             What is small businesses’ share of
each year?                                          time (figure 5).                                    federal government procurement?
About 10-12 percent of firms with em-                                                                   In fiscal year 2011, 21.7 percent of fed-
ployees open each year and about 10-12              How do small and large businesses                   eral government small-business–eligible
percent close (table 3). Employer firm              compare on innovation?                              purchases went to small businesses.
births were down and deaths were up in              Of high patenting firms (15 or more in              The Department of Defense accounted
the most recent available data because              a four-year period), small businesses               for the majority of small business pro-
of the downturn. But establishment birth            produced 16 times more patents per                  curement.
figures from 2011 show gains (figure 4).            employee than large patenting firms.                Source: Small Business Goaling Report, 2012,
Nonemployer firms have turnover rates               Research also shows that increasing the   
three times as high as employer firms,              number of employees correlates with                 FPDSNG_SB_Goaling_FY_2010.pdf.
mostly because it is easier for nonem-              increased innovation while increasing
ployers to start and stop, as they tend to          sales does not.                                     How are business churn and the economy
be smaller than employer firms. Busi-                                                                   related?
ness bankruptcies numbered 48,000 in                Source: Advocacy-funded research, An Analysis
                                                    of Small Business Patents by Industry and Firm      Business churn (the sum of the firm
2011, a decline of the about 60,000 over            Size,         birth and death rates) tends to follow
the previous two years. Note that not all           rs335tot.pdf; Innovation in Small Businesses:       the change in GDP with a six-quarter
firm deaths are business bankruptcies,              Drivers of Change and Value Use, www.sba.           lag (figure 6). Recently, churn has been
and many business owners file personal              gov/sites/default/files/rs342tot_0.pdf.
                                                                                                        down, which may be a response to the
bankruptcy instead of business bank-                                                                    general decline in output.

Page 3                                             Frequently Asked Questions about Small Business                                   September 2012
What are the effective tax rates for small
                                                     Do you have any newer data?                       Abbreviations & Sources
                                                     For updates of many quarterly small
The average effective tax rate for busi-             business indicators, see             BED Business Employment Dynam-
nesses organized as sole proprietorships             advocacy/10871. For more details and                   ics. U.S. Department of Labor,
was 13.3 percent in 2004, with small                 information, visit Advocacy’s general                  Bureau of Labor Statistics,
S corporations facing the highest rates              website, Two           
(table 4). (An effective tax rate is usu-            of the most comprehensive pages are               BDS Business Dynamics Statistics.
ally defined as the amount of tax paid as            the Data Resources page and the Firm                   U.S. Department of Commerce,
a fraction of net income or profit.)                 Size Data page. Both are accessible                    Census Bureau, www.census.
                                                     from Two                     gov/ces/dataproducts/bds.
                                                     other often visited pages are the Banking         CPS Current Population Survey. U.S.
 Table 4: Effective Tax Rates, 2004                  Study (                           Census Bureau, and U.S. Depart-
     Legal form of          Effective tax rate       7540/173967) and the State Small                       ment of Labor, Bureau of Labor
  business ownership            (percent)            Business Profiles (                   Statistics,
  Non-farm sole                                      cacy/848). Additional questions may be            SBO Survey of Business Owners. U.S.
  proprietorship                                     emailed to                           Census Bureau, www.census.
  Partnership                      23.6                                                                     gov/econ/sbo.
  S corporation                    26.9                                                                SUSB Statistics of U.S. Businesses,
  C corporation                    17.5                                                                     U.S. Census Bureau, www.cen-
 Source: Advocacy-funded research, Effective                                                      
 Federal Income Tax Rates Faced By Small
 Businesses in the United States, www.sba.

What legal form of organization are small               About the Office of Advocacy
Sole proprietors and partnerships con-                  The SBA’s Office of Advocacy was created by Congress in 1976. Part of the
stituted 94 percent of nonemployers in                  office’s mission includes conducting policy studies and economic research
2010 and of the corporations, most were                 on issues of concern to small businesses. The office also publishes data on
likely S corporations which are taxed at                small firm characteristics and contributions. For further data and research
personal rates. Twenty-two percent of                   information, visit the Office of Advocacy’s website at
small employers were C corporations in                  advocacy/847.
2009, with 71 percent taxed at personal
rates and 7 percent nonprofits (figure 7).

 Figure 6: Business Churn versus Output (percent)                             Figure 7: Legal Form of Organization of Small Business
  Churn                                                       Real GDP                                             Other, 0%     proprietorship
  7.0                                                               9                            C corporation                        16%
                                    Real GDP (annualized change)                                     22%                                     Partnership
                                                     (right scale) 6                                                                            11%
                                                                                                                        S corporation
  6.5                                                                   3                                                    44%
                                                                                          Nonprofit, 7%
  6.0                                                                                                             Small Employer Firms
          Business churn rate                                           -3                  Corporations
          (births plus deaths),                                                 Partnership     7%
  5.5                                                                   -6         7%
          lagged six quarters (left scale)
                                                                        -9                               Sole
  5.0                                             -12                                                    86%             Nonemployers
           1996 1998 2000 2002 2004 2006 2008 2010
  Source: Bureau of Labor Statistics, BED (churn); Bureau of Economic
  Analysis (GDP).                                                               Source: U.S. Census Bureau, SUSB and Nonemployer Statistics.

Page 4                                              Frequently Asked Questions about Small Business                                    September 2012

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About Jason is the Co-Founder and CEO of, the premier online destination to start and grow small businesses. Before starting Docstoc, he was a partner in a venture consulting firm in Los Angeles where he worked with dozens of startups. He holds have a BA from UCSB and his JD/MBA from Pepperdine University, where he was the Student Body President of both Universities.