Getting a small business going from the ground up is no easy task. Many difficult tasks lie ahead for the enterprising entrepreneur: crafting a business model, selecting a location, securing funding, breaking even (or turning a profit), and more. Knowing the facts and statistics regarding the creation of a small business can help people plan wisely and avoid common pitfalls.
You’ll find that many commonly shared notions about small businesses, like the often repeated “fact” that 90% of restaurants fail within the first year, turn out to be false, while a lot of figures will surprise you. With ado, here are the key statistics everyone should know before diving in.
Small business statistics
What is the success rate of small businesses?
Many people think that small businesses have it quite easy due to the wealth of entrepreneurship in the United States. The reality, however, is that 18% of small businesses fail within their first year, while 50% fail after five years and approximately 65% by their tenth year in business. This information is as per the Bureau of Labour Statistics.
One of the factors in the success rate of small businesses is definitely the geographic location. As of 2019, Michigan, Washington, and Kansas are the three states with the highest business failure rates, according to information found on Zippia. Massachusetts, Louisiana, and California, on the other hand, have the highest success rates.
The small business’s “industry” is another major factor in its success rate. The healthcare industry has the highest success rate, which is unsurprising, with 60% of small businesses staying afloat beyond their first year. Construction, transportation, and warehousing have the worst rates of success at 30% and 40%, respectively, following the fifth year.
According to a survey conducted by CB Insights, one of the major reasons for businesses failing is due to their inability to secure finances as well as running out of money. Additionally, some small businesses go out of business due to their products getting out-competed or becoming obsolete.
How many small businesses are started each year?
In a 2021 new business insights report conducted by Intuit, it’s estimated that 17 million new small businesses will be formed by the end of 2022. This comes as the pandemic brought on by the coronavirus has had dramatic effects on how people choose to work and has played a huge role in many people working at big businesses to launching their own businesses or becoming their own bosses.
What number of employees must a business have in order to be defined as a small business?
Many people determine a small business based on the amount of money it generates as well as the number of employees it has rather than each of its business locations. According to the US Small Business Administration’s definition of a small business, small businesses are defined by firm revenue (which ranges from $1 million to over $40 million).
Additionally, it is determined by the number of employees ranging from 100 to over 500 employees. For example, a roofing contractor earning an annual revenue of $16.5 million or less is considered a small business.
How many small businesses are there in the United States?
The number of small businesses in the United States as of 2022 is 32.5 million. This comprises 99.9% of all American businesses, according to the SBA. Many of the big-name chains you see qualify as small businesses if they operate locally. Of the 4,500 current business owners found during a survey conducted by Guidant Financial, 41 of them owned franchise businesses.
How many small businesses in the United States are individually operated?
The number of small businesses owned and operated individually in the United States is 70%.
What percentage of businesses in the United States are small businesses?
A whopping 99.9% of businesses in the United States are small businesses, owing to the rather large threshold of 500 employees or fewer.
What percentage of people work for small businesses?
The number of small business employees has increased naturally over the last few years as more and more small businesses in the US are established. The number of employees and small businesses in the US in 2022 sits at 61.7 million. Therefore, approximately 46.4% of people work for small businesses.
What percentage of new jobs come from small businesses?
The small business industry makes up 99.9% of all businesses in America. Therefore, it should be no surprise that small businesses create many job opportunities. According to the SBA, 1.5 million jobs are created by small companies each year and account for 64% of new jobs in the US.
According to SBA statistics, it shows that an integral part of the US economy and growth has come from small businesses. Therefore, financial growth, job opportunities, as well as the many unique services and products stem from small businesses in the US. Ultimately, they are known to contribute to economic growth.
What percent of small businesses fail in the first year?
In the United States, around 595,000 businesses fail or close each year. However, on the other hand, 627,000 businesses also open up each year, so while 595,000 may seem like a harsh number, the number of businesses that open up each year offset that number by approximately 32,000.
Additionally, 32.5 million small businesses in America currently exist and, consequently, form 99.9% of all US businesses. The average small business failure rate for the first year of operation is 21.9%, which is estimated to escalate as the years go by. The majority of small businesses or companies are likely to fail in the first three years of operation, so those that manage to stay afloat by the fourth year have done quite well, although not completely out of the woods until they have successfully operated the business for ten years. Even businesses that have stayed afloat for ten years still have a failure rate of 65.7% by the 10th year.
What’s the most frequent reason for small business failure?
It’s imperative to understand the reasons why small businesses fail in order to ensure that this doesn’t happen with your newly established business. The reality is that although failure is bound to happen for a number of reasons, there are obstacles that can be managed and even avoided altogether.
Some of the most common reasons why small businesses fail are due to a lack of startup capital funding, a faulty business model or infrastructure, retaining an inadequate management team, and unsuccessful marketing plans or initiatives.
Let’s take a closer look at each of the fundamental reasons for small businesses failing:
1. Poor marketing initiatives
Many small business owners fail to adequately prepare themselves for the company’s marketing needs in regard to accurate conversion ratio projections, prospect reach, and the capital required. When the expenses associated with initial marketing campaigns are underestimated, then securing financing tends to be a challenge.
In the early stage of business, marketing is a significant aspect and absolutely necessary for small businesses to make sure that they have set down and prepared for realistic budgets not just for the current but for future marketing requirements or needs.
It’s also imperative that small business owners have a realistic projection in terms of the target audience, sales conversion, and reach, as it tends to be critical to marketing campaign success. Suppose you don’t understand these marketing strategies. In that case, your business is more likely to fail as compared to companies that take the time to not just create but implement successful and cost-effective marketing campaigns.
2. Inadequate management
Another primary reason for small businesses in the US failing is a lack of business skills in terms of choosing an adequate management team. The owner of the business is normally the primary senior-level individual within the small business in most instances, especially when the business is still in the first one or two years of startup.
Small business owners have the necessary skills to develop and sell needed products and services, however, they may lack the characteristics of a strong manager and also don’t have adequate time to oversee employees successfully. Therefore a dedicated and competent management team is absolutely imperative to a business’s success, especially in the first one or two years of operation.
3. Financing hurdles
Another primary reason or biggest challenge for small business failure is the lack of working capital or funding. Business owners are very well aware of the capital required to keep day-to-day operations afloat in most instances. They also should have a good understanding of paying varied and fixed overhead expenses, funding payroll, and seeing to expenses such as utilities and rent, as well as ensuring that vendors are paid timeously.
However, when small business owners fail to realize the amount of revenue generated by the sale of products and services in relation to the number of expenses that need to go out that the oversight leads to financing mistakes that force a small business to close practically overnight.
4. Unproductive business planning
Effective business planning is imperative to the effective running of your new business. Lots of small business owners tend to overlook the business planning stage before starting their business. A good business plan must contain the following:
- Competitor analysis
- Marketing initiatives
- Potential investment in eCommerce strategies
- Capital needs, as well as projected cash flow and various budgets
- Threats and opportunities within the broader market
- Current and future employee and management needs
- A clear description of the business
You need to recognize the requirements of the business by putting down a good business plan prior to operations starting so you may overcome possibly serious challenges. Additionally, reviewing the original business plan should also be a priority, as your business should be able to keep up with the changes in the industry or market and surpass certain obstacles.
For businesses in their first year of operation, the failure rate is 21.9%. Therefore, the business survival rate is approximately 78.1%, which ultimately means that the first year of operation is typically successful for many small businesses in the US.
However, for businesses in the second year of operation, the failure rate is 31.8%, meaning that the survival rate is 68.2%.
For businesses in the third year of operation, you could expect a 60.3% survival rate with a failure rate of 39.7%. Businesses in their fourth year have a survival rate of 54.3%, while 45.7% is the failure rate.
Businesses that are in operation for five years have a failure rate of 50% and a survival rate of 50% as well.
Businesses that have stood the test of time and are in operation for their 10th year have a survival rate of 34.4% and a failure rate of 65.7%.
In which industries are startups most likely to succeed?
Healthcare and social assistance is the industry where small businesses succeed the most: 85% of small businesses in this industry are still up and running after one year, 5% above the average survival rate.
In which industries are startups most likely to fail?
The industry with the highest failure rate in the United States is the technology industry. Around 75% of all fintech start-ups clash within two decades, while approximately 30% of start-ups with venture backing end up failing.
The average venture capital firm receives more than 1000 proposals per year, and 22% of start-ups that fail don’t have a sound marketing strategy. 34% of small businesses that fail do so due to a lack of proper product-market fit, and payroll is one of the highest costs any business incurs.
However, the failure rate for new start-ups across all industries is currently 90%, while 10% of new businesses don’t survive the first year.
How many small businesses are profitable?
Approximately 65.3% of small businesses operating in the United States in 2022 are thriving and making money.
What percentage of U.S. businesses are run from home?
According to the SBA or US Small Business Administration, 50% of all businesses start at home. The SBA also reports that 60% of all businesses without staff are home-based. This means that of the 32.5 million small businesses currently operating in the US, 19 million of them are home-based.
What is the median income for self-employed entrepreneurs?
The average income for self-employed owners of small businesses is $51,816 per year, according to the SBA. When it comes to unincorporated businesses, the average income is $26,084. However, the data may be somewhat skewed due to the fact that lots of entrepreneurs use their entrepreneurial skills in side gigs and are not fully self-employed. However, though many entrepreneurs do see huge financial success, most of them will not see millionaire or billionaire status.
How much capital is needed to start a small business?
The amount of funding needed to launch a small business can vary widely according to an entrepreneur’s business plan. For a home-based business, $5000 may be enough to get off the ground, while opening a restaurant in a centrally located area can cost up to $500,000.
The Ewing Marion Kauffman Foundation estimates that $30,000 is the average cost of starting a small business.
Micro-businesses will need at least $2000 to start, according to the SBA. However, lots of home-based franchises will cost between $2000-$5000.
According to independent surveys, it is estimated that online-only business owners spend an average of $35,000 during the first year of operation. However, some entrepreneurs will spend more depending on the type of business they are running.
What percentage of small businesses are self-financed?
According to statistics, 78 percent of small business owners use their own funds to launch their businesses. However, lots of small businesses will eventually need funding at some point. The total amount of outstanding loans for small businesses reached $645 billion in 2019, and this number is so high because the average SBA loan is approximately $417,316.
Businesses that need large amounts of financing opt for business loans; however, another common method for businesses to pay their expenses is business credit cards. However, the interest rates on credit cards tend to be much higher than business loans, so they’re not the best option for long-term financing.
However, in terms of accessibility, credit cards are definitely more accessible than business loans, and they also offer perks and rewards that business loans do not include.
What percentage of small businesses are financed by other means?
16% of businesses are funded by bank loans, while loans from family and friends account for 2-6% of initial small business funding.
The following business lending statistics will help you understand the small business trends:
- The SBA distributed over 14 million loans worth $764 billion to small businesses in 2020.
- 33% of business people experience challenges or failure due to a lack of capital
- The average SBA loan is $417,316, and the maximum loan amount is $5 million.
- Large banks are responsible for 89.5% of smaller loans given to small businesses.
What’s the approval rate for small business loans?
Higher interest rates have accounted for better loan approval rates in the past two years. However, approval rates vary depending on the institution type.
Approval rates from certain institutions are much lower than the rates of SBA loans overall, which are as follows:
- SBA loans have a 25% approval rate at large banks
- SBA loans have a 49% approval rate at small banks
How much is the average SBA 7(a) loan amount?
The average SBA 7(a) loan in 2018 is a rather large sum: $417,316.The average SBA microloan is far less: $13,000.
The SBA 7 (a) loan rates are 9.25% to 11.75%.
How long does it take to receive financing after your loan’s been approved?
Funding and loan approval by the SBA could take as long as 60 to 90 days.
However, it’s important to note that money is not loaned directly to small business owners by the SBA. Instead, they guarantee up to 85% of the loan amount, depending on the amount as well as the loan program.
The advantage is that it reduces the risk of loaning money to applicants and also encourages SBA-approved lenders to work hand-in-hand with small-business applicants who may not otherwise be approved.
There are several SBA loan programs, including SBA 7 (a) loans, SBA express loans, Certified Development Company (CDC)/504 loans, and SBA microloans.
How many small businesses use accountants?
As of 2021, 62% of small businesses have in-house accountants. However, 30% of small business owners choose to work with external accountants. 8.64% of business owners do their own bookkeeping, while 64.4% make use of accounting software.
What’s the most common type of legal structure for a small business?
The most common type of business structure for small businesses is sole proprietorships. This is because they are the easiest business structure to form with the least amount of government regulation. Partnerships are also relatively easy to form, and limited liability companies seem to be the next most common option for small businesses in the US.
Nearly half (47.3%) of small employer businesses (businesses with 1-100 employers) are S-corporations, which is the most common type of organization for this type of business.
A whopping 86.4% of non-employer businesses are sole proprietorships, while just 14.4% of small employer businesses are sole proprietorships.
What is the average tax rate that a small business pays?
The amount of tax a small business pays depends on how much the business is making and also whether it’s a pass-through entity or corporation. Pass-through business entities pay taxes at the owner’s income-based marginal tax rate, which ranges from 10 to 37%. Corporations, on the other hand, pay a flat tax of 21% on business profits.
Women and minorities in business statistics
What percentage of small businesses in the U.S. are women-owned?
Taking a look at the demographics, women own 13 million small businesses in the United States. Overall, this is 42% of small businesses in the United States. Together, these businesses employ 9.4 million people.
According to the U.S. Census Bureau’s annual business survey, men currently own more small businesses than women. In fact, the survey found that one in every five employer firms in the US is women-owned.
However, the number of female businesses grew 0.6% year over year. Women-owned businesses grew by 21% over the past five years. Consequently, women-owned business employees rose by 8% over the last five years.
What are the fastest-growing states for women-owned businesses?
Women-owned businesses tend to be successful across the country. However, geographic trends of all 50 states as well as the District of Columbia were analyzed, and the states with the largest growth in the number of women-owned firms in 2019 are as follows:
- South Carolina
The state showing the highest employment vitality or the measure of employment growth rate from 2014 to 2019 at women-owned firms are as follows:
Between the years 2014 and 2019, the top states that allowed women-owned businesses to increase authority or economic clout are as follows:
- South Dakota
The top Metropolitan areas where women-owned businesses increased their influence from 2014 to 2019 are as follows:
- Charlotte, North Carolina, and South Carolina
- Austin, TX
- Atlanta, GA
- San Antonio, TX
What percentage of U.S. businesses are minority-owned?
According to a recent annual business survey, approximately 18.7% or 1.1 million of US employer businesses were minority-owned.
Additionally, it was estimated that Asian-owned businesses, with around 23.8% in the accommodation and food services sector, accounted for 581,200 small businesses. The largest estimated receipts can be credited to Asian-owned businesses and amounted to $874.6 billion among minority race groups across all sectors.
Additionally, 26,064 Alaska Native and American Indian-owned businesses are estimated to have $35.8 billion in receipts, with $8.7 billion in annual payroll for 215,049 employees.
African-American or Black-owned businesses accounted for 134,567 businesses with $133,7 billion in annual receipts. Approximately 1.3 million employees and about $40.5 billion in yearly payroll. Additionally, 39,705, or 29.5% of these small businesses, were in the social assistance and healthcare sector.
The number of Hispanic-owned businesses also saw a rise of about 4.6% from 2018 to 2019. Hispanic-owned businesses accounted for 6% or 346,836 of all businesses, with an estimated $463.3 billion in annual receipts.
How many veteran-owned businesses are in the U.S.?
Veteran-owned businesses account for 5.7% or 331,151 of all small businesses. Additionally, veteran-owned businesses had an estimated 963.4 billion in receipts. This makes up 191.6 billion in annual payroll for 4.0 million employees.
How many small businesses have a website?
While there are an increasing number of Americans looking to purchase food, essentials, and custom birthday presents online, some small businesses are reluctant to go online in order to keep up with the competition. When it comes to the number of small businesses that already have websites, our research is as follows:
- 71% of small businesses have their own website
- The number of online shoppers choosing to do searches on a business prior to making a purchase is 81%, with 55% of the population searching for online reviews and 47% searching for the businesses’ websites.
- Roughly 85% of customers use the Internet to find and discover local businesses.
- Starting a website for a small business could cost anywhere between $2000-$10,000 on average.
- Approximately 44% of B2B buyers will leave a small business website when they find no contact information contained.
- While 29% of small businesses in the US don’t have a website already, 44% of small business owners do plan on creating one in the coming months. One of the reasons why lots of small business owners avoid creating a website is the costs involved. Lots of business owners are of the opinion that if website traffic is low, then they will be unable to make their money back.
- 40% of small businesses don’t want a website, and a further 28% say they likely won’t ever want one in the future.
- 20% of small businesses are of the opinion that a website isn’t relevant to their industry. A further 26% don’t like the costs associated with creating a website, while 40% feel they lack the technical knowledge to create and operate a website themselves.
What percentage of small businesses use social media?
In place of a website, 20% of small business owners use social media as a digital marketing avenue. This is equivalent to one in five small businesses relying on social media for their online traffic. One of the main and obvious benefits of social media is that it is free; however, it does have its limits when it comes to lead generation, and in some cases, it lacks credibility and diminishes branding.
What percentage of small businesses have mobile apps?
Nearly half of small businesses have a mobile app in 2022. This accounts for 48% of small businesses with mobile applications to connect with customers. This figure indicates a 16% jump from 2021, which is quite a significant increase showing how mobile app technology is impacting the way small businesses run their operations.
Additionally, 20% of the respondents that don’t have mobile apps said that they plan on investing in mobile applications for future business growth. However, one-third of businesses use CRM technology like Salesforce more than any other digital tool for their small businesses.
How much money is spent on social media marketing?
The overall social media advertising spending by US small businesses in 2022 is expected at just under $63 billion. This indicates an 11.15% rise from 2021 and a slight deceleration in the growth rate from the previous year.