45 facts about small businesses in America
You can't go through an election season without hearing the phrase "small businesses are the backbone of America" repeated over and over again. But while the adage may feel tired, it is far from untrue. Small businesses account for a whopping 99.9% of companies in the U.S., according to the U.S. Small Business Administration (SBA). The number can be partly attributed to the administration's broad definition of a small business as any firm with fewer than 500 employees, but it also reflects how embedded entrepreneurship is in American culture. We watch in awe as once-small startups, like Twitter and Slack, transition into hugely successful ventures that are part of our everyday lives. We binge-watch old episodes of "Shark Tank," eager for inspiration for the next great business idea. And many of us dream of starting our own companies by dipping our toes into entrepreneurship with side hustles.
But as dreamy as business ownership can seem, it takes a lot of grit, hard work, and old-fashioned luck to find success. Recent data shows that fewer than 80% of businesses make it beyond their first year, while only around half survive for at least five years or more. Small businesses also provide employment for nearly 60 million workers, and the pressure of making payroll every week can be crippling if sales don't meet expectations. Understanding the good, the bad, and the ugly about entrepreneurship is the only way you can decide if it's the right career path for you.
To learn the truth about small businesses in America, Stacker took a look at figures and facts on entrepreneurship from a variety of sources, including the SBA, The Ewing Marion Kauffman Foundation, the Census, the Bureau of Labor Statistics, and news reports. The statistics painted a fascinating picture of who's most likely to launch a business, the chances of a business to stick around for generations, and how much economic activity comes from firms that aren't major corporations.
Are you thinking of founding a company? Before you get started, click through to read 45 facts about small businesses in America.
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SBA defines a small business as having less than 500 employees
While "small business" might make you imagine local mom-and-pop shops on Main Street, the actual definition describes a company that's probably larger than you think. The U.S. Small Business Administration (SBA) considers companies with fewer than 500 employees to be small businesses. This was also the standard used to determine which companies qualified for the Paycheck Protection Program loans during the COVID-19 crisis.
The US has 30.7 million small businesses
99.9% of US companies are small businesses
The American economy depends on small businesses. Companies of this size account for 99.9% of all businesses in the country, according to 2019 data from the SBA. Earlier data from the Small Business & Entrepreneurship Council found that nearly nine out of 10 employer firms in the U.S. had fewer than 20 workers.
Small businesses employ 59.9 million workers
Almost 60 million people in the U.S., or 47.3% of the country's workers, get their paychecks from small businesses, according to the SBA. Many of these companies have struggled to make ends meet during the pandemic, and layoffs at small businesses spiked by 1,021% from February to March, according to Gusto.
Montana, Wyoming, and Vermont have the highest rates of small business employment
Small businesses account for 65.2% of all employment in Montana, followed by 62.6% in Wyoming, and 59.4% in Vermont, according to 2018 rankings from the SBA. Other states that depend on small businesses for more than half of all employment include South Dakota, North Dakota, Maine, Idaho, Oregon, New Mexico, and Louisiana.
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Small health care businesses employ 8.8 million people
When it comes to high numbers of small business employment by industry, health care and social assistance businesses come out on top, employing more than 8.7 million people, according to 2016 data from the SBA. The next highest industries for small business employment were accommodations and food services (8.3 million workers), retail trade (5.6 million workers), and construction (5.2 million workers).
Small businesses account for 84% of employment in agriculture, forestry, fishing, and hunting
Almost 84% of workers in the industry of agriculture, forestry, fishing, and hunting are employed by small businesses, making it the sector with the highest rate of small business employment share, according to 2016 data from the SBA. The industries with the next highest rates of small business employment share include construction at 82.3% and real estate at 67.9%.
19% of small businesses are family-owned
Nearly 1 in 5 small businesses in the U.S. are family-owned. This means that two or more members of the same family run the company, and the majority of ownership lies within a family, according to data analyzed by SCORE. Family-owned businesses are responsible for employing 60% of all workers in the country.
Husband-wife teams run 1.2 million small businesses
Married couples can make for a powerful entrepreneurial duo. Data analyzed by SCORE found that 1.2 million family-owned small businesses in the U.S. are controlled by a husband and wife. The concept is so common that the Internal Revenue Service has a special section of its website about married couples in business.
30% of family businesses are successfully passed to second generation
Less than a third of family-run small businesses make it through the transition from the first owners to the next generation, while only 12% successfully transition from the second to the third generation, according to data analyzed by SCORE. Lining up a successor can be tricky for owners of family-run businesses. Only about half of family business owners who plan to retire soon know who their successor will be.
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