Small businesses power the economy of the United States.
According to the U.S. Small Business Administration (SBA), there are currently 29.6 million small businesses operating right now, employing 57.9 million people.
The SBA also notes that 99.9% of all businesses in the United States qualify as a small business.
With healthy small businesses come more employment opportunities. In June 2018, the unemployment rate was down 1.0% from where it was at the close of the 2015.
The average annual payroll for small businesses in the United States is $45,000 per employee, accounting for 52% of net job growth.
Half the population in the United States is either working for a small business right now or owns one. Knowing how healthy small businesses are in the United States allows for business owners to know the comparative health of their own companies.
What Is the Definition of a Small Business?
In the United States, a small business can be a privately-owned corporation, a partnership, or a sole proprietorship.
According to the federal government, any business with 500 employees or fewer qualifies as a small business in the United States, though some industries have caps on the receipts a business earns.
The most common form of business structure in the United States is the sole proprietorship. It accounts for more than 70% of the businesses which are currently active.
It is a popular structure for a business because it is so easy to form. In many states, no trade names or other legal entities are required to create such a business. You just decide to work for yourself, get the business licenses you require, and get to work.
That ease of creation does come with one drawback. The business has no legal separate existence from its owner. That means any income or losses which are associated with the business are taxed on personal income tax returns.
If someone were to sue your business, they would be able to access your personal assets if awarded a judgment against you.
Partnerships are almost as easy to form as a sole proprietorship.
Like sole proprietors, there is no legal distinction between personal and business income. The only difference is a partnership agreement which governs how the business should be operated – and even that may not be required.
That means there are lower costs associated with the start-up of a business under these structures. You also face more risk to your personal assets under these structures as well.
To limit that risk, many small businesses will eventually incorporate themselves in some way. An incorporated business becomes a separate legal entity. Your business assets are placed at risk, not your personal assets.
Many Micro-Businesses Are Home-Based
The SBA reports that over 60% of firms without paid employees have a home-based office, with 23% of small employer firms and 0.3% of large employer firms having home offices as well.
If you feel that a home address could be detrimental to your business, then consider signing up for a fractional executive office service.
Small Businesses Do Lots of Exporting
Small businesses are not just serving their local communities.
Almost all exporters that are based in the United States qualify as small businesses. In 2015, over 97% of all exporting firms, a total of over 287,000 firms in 2015, were registered as small businesses. That represents over $440 billion in exports, or almost 33% of total known export value.
It’s All About Family
About 90% of the businesses in the U.S. are either family-owned or family-controlled. Family-owned companies are responsible for half of the GNP in the United States each year, along with half of the new employment opportunities.
Survival Rates for Small Businesses
In the United States, about 67% of small business are able to survive through their first 2 years. The data also indicates that about half of all small businesses survive to the 5-year mark. At 10 years, about 1 in 3 businesses are still operating.
Small business fail for a variety of reasons. Cash flow problems are prominent among them.
That can lead to financing issues for the business. The average startup capital requirement for a small business owner right now in the U.S. is $10,000.
“It may seem obvious – and for some businesses, simply too late – but the fact is that certain enterprises require much more or less cash to launch and grow than others,” writes Elaine Pofeldt for Time. “If you don’t have much access to startup funding, your best bet may be business you can fund mostly through the revenue you receive from customers.”
What Challenges Do Small Businesses Face?
The reason why many small businesses may struggle financially is that leaders and owners in a small business are often responsible for multiple duties.
“Generally, the fewer people you have working for you, the more ‘hats’ you wear,” writes Jayson DeMers, CEO and Founder of AudienceBloom. “For example, if you can’t afford a financial advisor or accountant, you’re the one to keep track of your company’s finances on top of all your other responsibilities.”
In 2011, 18 million businesses, or 80% of qualifying small businesses in the United States, reported receipts of $50,000 or less. If you’re barely covering your own income, hiring someone else to take care of specific job responsibilities isn’t going to happen.
That means you (and your partners) must be multi-disciplined to get a small business started successfully. If you are unable to balance many hats, then you increase the chances of struggling financially.
Being a minority-owned small business creates its own set of financial challenges as well.
According to 2015 statistics from the SBA, 57% of small businesses owned by Caucasians/Whites were approved for small business loans, compared to a 29% approval rate for minority-owned small businesses.