Did you know that 99.7 percent of all commerce in the United States is conducted by small businesses, according to the federal Small Business Administration (SBA)? This agency defines small businesses as those with fewer than 500 employees and estimates that 28.8 million enterprises of this kind are based in the U.S. If you’re thinking of joining the fray, exploring relevant small business statistics can provide you with an understanding of the economic climate for independent companies and prepare you for what to expect as a business owner. Here are the small business numbers you need to know in 2018.
Prevalence and Economic Impact of Small Businesses
With about 56.8 million employees, small businesses are major contributors to the nation’s workforce. Between 2009 and 2013, the SBA estimates that small businesses accounted for 60 percent of all new jobs created. In the first nine months of 2014 alone, small businesses created 1.4 million new jobs. More than half a million of those were created by companies with fewer than 50 employees.
The Bureau of Labor Statistics (BLS) estimates that 404,000 new small businesses are created each year, while 392,000 cease operations annually.
The Cost of Doing Business
So, how much money do you need to start a small business? While this number varies widely by industry and type of company, the Wells Fargo Small Business Index estimates that the average amount of seed money a new small business needs is $10,000. In fact, Intuit reports that 64 percent of small businesses start with less than $10,000 and are typically funded by their owners or owners’ personal savings.
PayScale reports that small business owners earn a median income of $59,000 annually, although 30 percent say they don’t take a salary.
Small Business Owners: Who Are They?
SBA data indicates that 9.9 million women-owned enterprises make up 36 percent of small businesses, representing 8.4 million created jobs and $1.4 trillion in annual revenue. The most common small businesses started by women include personal care and services, child care centers, professional services such as graphic design or virtual assisting, direct sales and real estate. Womenable reports that Georgia, Florida and Texas are the states with the fastest growth in small businesses owned by women.
Women-owned businesses are dramatically underrepresented in high-patenting industries, representing just 10 percent of companies in this sector. This is also true for all minority-owned businesses, which represent just 13 percent of companies in high-patenting industries.
Of the almost 30 million U.S. small businesses, an estimated 8 million are minority-owned. Of these:
- 41.25 percent are Hispanic-owned
- 32.5 percent are African-American-owned
- 27.75 percent are Asian-owned
- 3.4 percent are owned by American Indians or Alaska Natives
Forty-five percent of minority-owned businesses have fewer than 20 employees. Among minority-owned businesses, gas stations are most likely to hire workers, and petroleum wholesalers have the highest annual revenue ($37.3 million).
Veterans own 2.5 million small businesses, a number that rose 3 percent in the five-year period from 2007 to 2012. They employ 5 million people, more than 75 percent of whom work at businesses with fewer than 500 employees. The most common types of veteran-owned businesses are in facilities support and employment services; the most lucrative industry for entrepreneurial veterans is automotive sales, with annual revenue of almost $20 million.
Hawaiian and Pacific Islander business owners are more likely to be under the age of 35 (24 percent) than business owners in general (14 percent). Most firms owned by this group (44 percent) have fewer than 20 employees. Sole proprietors in this group make the most money in leather goods manufacturing ($70,000 annually); firms with employees are most lucrative in the facilities support service industry, earning about $9.8 million in annual receipts.
The number of businesses owned by American Indians and Alaska Natives increased by 15 percent between 2007 and 2012. More young business owners than the industry average fall into this group. Forty-three percent of these businesses employ fewer than 20 people. Among sole proprietors in this group, gas station owners tend to earn the most — an average of $230,000 annually.
Asian-owned businesses increased by 24 percent over that same five-year period. The businesses in this group with the most employees include those in the seafood packaging and employment services sectors. When it comes to revenue, the most lucrative are those in petroleum manufacturing, with an average annual revenue of $31.4 million.
Black-owned businesses experienced 34 percent growth between 2007 and 2012. More African-American business owners than average (21 percent) are younger than age 35. For this group, food-related businesses tend to be the most lucrative, with average annual revenue of $12.3 million.
The number of Hispanic-owned businesses increased by an unprecedented 46 percent between 2007 and 2012. Eighty-five percent of these businesses have fewer than 500 employees. Among sole proprietors in this group, grocery stores are the most lucrative business, with an average of $167,000 in yearly revenue.
Homeowners are 10 percent more likely to start a business than entrepreneurs who don’t own homes, according to the SBA. Half of small business owners are between ages 50 and 88.
Types of Small Business by the Numbers
The North American Savings Bank Economic Report from 2015 indicates that most small businesses (42 percent) are structured as S corporations, while 23 percent are limited liability companies (LLCs). The business entity you choose to form has implications for taxation and regulatory requirements.
Eighty percent of small businesses are sole proprietorships with no employees, according to the SBA, while 52 percent of small businesses operate from the owner’s home.
Small Business Marketing Efforts
Almost half of small business owners — 47 percent — serve as their own marketing department, according to LeadPages. In 2015, Fusionsoft reported that 72 percent of small businesses have websites, although 96 percent promote their businesses through social media, according to Social Media Examiner. Only 22 percent of small businesses rely on mobile advertising, according to data from MatchCraft. In a survey conducted by Capital One, 76 percent of small business owners reported that effectively marketing their enterprise was a challenge. Digital.com reports that only 32 percent of small businesses have a documented content marketing strategy.
Small Business Pitfalls to Avoid
According to the U.S. Bureau of Labor Statistics, only a third of new small businesses will remain in existence for 10 years or more. Half will still be in business after five years, and about 66 percent will persevere after the first two years. These percentages are relatively consistent across all industries. However, the Statistic Brain Research Institute notes that small businesses in the finance, real estate, insurance, education, wholesale, agricultural and health sectors are the most likely to last longer than four years.
Thinking of opening a restaurant? Plenty of well-meaning friends and acquaintances have likely warned you of the high risk of this endeavor. While conventional wisdom indicates that most new restaurants fail, the numbers don’t support this myth. Only about 20 percent of new restaurants fail in their first year of business, which is comparable to the first-year failure rate across industries.
The most common reason for small business failure is by far cash flow, cited as the reason for failure in 82 percent of cases, according to a survey conducted by U.S. Bank. This is sometimes due to an overall lack of funds but can also be caused by the timing of payments — especially in seasonal industries such as landscaping. With a percentage this high, it’s no wonder small business owners surveyed by the National Association of Small Businesses (NASB) in 2015 listed their top three challenges as costly health insurance benefits, low customer spending and general economic uncertainty.
While e-commerce is an important income stream for many small businesses, it’s essential to protect your online business presence and accounts. An estimated 43 percent of cyber attacks target small businesses; 60 percent of businesses affected by hacking shut down within six months of an attack. Symantec reports that the average cost of a data breach is $172 per affected file, which can add up quickly and devastate small business owners.
The Future Is Freelance
Digital.com predicts that at least half of the U.S. workforce will be made up of freelance workers by 2020. Many of these freelancers will expand from sole proprietorships to microbusinesses, defined as those that employ between one and nine workers. The most common types of microbusinesses include those in finance, insurance and real estate; in fact, this type of enterprise makes up 85 percent of that sector.
Fledgling entrepreneurs who aren’t sure what type of business they want to start should consider the industries projected to be most profitable for new small enterprises:
- Healthcare will continue to be big business as the baby boomer population ages and the U.S. medical landscape continues to shift. If you’re a nurse practitioner, physical therapist, physician assistant or other medical professional, it’s a great time to start your own business. Corporate wellness services are another fast-growing niche in the healthcare realm. Companies hire independent consultants to help plan and implement wellness fairs, develop employee fitness programs and create activities and programs that promote employee health.
- Entrepreneur.com named the accounting, bookkeeping and payroll sector as one of the most profitable small business industries of 2017. The low overhead cost of starting this type of business and the ongoing need for financial services make this a stable industry. According to Inc., accounting has a profit margin of 18.3 percent, the highest of any industry.
- The Balance named virtual reality one of the best small business opportunities of 2018. Tech-savvy entrepreneurs can break into one of the many potential uses for this quickly advancing technology, including real estate tours, gaming, social media, team-building and training, recreation and even meditation.
- With an ever-increasing number of states legalizing marijuana for recreational and medical use, cannabis is a big business opportunity for new entrepreneurs. If you have a green thumb and live in a legal state, revenues for growers are expected to increase by 33.5 percent by 2021. Retail marijuana sales are also booming, creating an opportunity for new dispensary owners.
- If you’re good with your hands or willing to learn, consider entering the skilled trades. An estimated 40 percent of this group is expected to retire in the next decade, creating a major opportunity for new welders, plumbers, carpenters, electricians, HVAC specialists, machinists, masons and metalworkers.
- Companies are increasingly outsourcing human resources services, so independent firms are able to break into this sector by providing B2B benefits administration, training and related needs.
- Information security is the ideal small business for skilled IT professionals, as individuals and companies grow increasingly cognizant of the need to protect their sensitive online data. The BLS predicts a 28 percent growth rate for this profession between 2016 and 2026. Software engineering and development is also a growth area in the IT sector, projected to increase by 17 percent in the same time period. While many developers start out in salaried roles before launching a freelance business, other app builders and software engineers are self-taught.
- Not only are personal care services a major growth industry, but these are also the types of small businesses most commonly funded by SBA-backed lenders. This category includes, but is not limited to, wedding planning, haircare and skin care, tattooing, virtual assisting, personal shopping and meal planning, pet care, child care and massage therapy.
According to NASB, one in four small businesses have trouble securing funding from traditional lenders. If you need working capital for your small business, consider contacting an online small business lender. The application process and turnaround time is generally much quicker than that of traditional lenders. If you’re approved, funds can be used for rent, payroll, inventory or anything else you need to help your small business grow. Now that you have an understanding of the small business landscape, you’re ready to get started.