Each day, in cities and towns across the United States, almost every individual comes into contact with a small business owner. But still, “What exactly is a small business?” is one of the most frequent questions we receive at SmallBusiness.com. Recently the Small Business Administration (SBA) Office of Advocacy updated a PDF document that they periodically compile of frequently asked questions (FAQs) about small businesses. Working from their list and our own, here are answers to 20 of the most FAQs about U.S. small businesses.


1 | What is a small business?

Because government contracts typically include requirements for a percentage of the goods or services to be awarded to a small business, there is a statutory definition of “small business” that is part of nearly every spending bill signed by the President. The definition codifies the size (in revenues or the number of employees) a company must be to be considered for governmental procurements that must be fulfilled by a small business. It is the responsibility of the SBA to determine what the technical definition of “small” is when it comes to a small business. Currently, the SBA defines a small business as an independent business having fewer than 500 employees. However, in various industries, the definition of small business can include more than 500 employees.

For the industry-level definition of small business used in government programs and contracting, see the SBA Table of Small Business Size Standards. (Note: “Independent” means the business is not a subsidiary or another company nor is it a publicly traded company.)

In addition to the definition of “small business” that is determined by size, the U.S. tax laws, the IRS, and the Census Bureau have a definition related to small businesses that, in effect, divides businesses into two categories: (1) Small businesses with no employees other than the owner. These businesses have lots of names: freelancer, sole proprietorships, self-employed,

1 | Small businesses with no employees other than the owner. On government websites and documents, you will see the term “nonemployer business” applied to such companies. We think, however, that businesses should not be classified by what they are not, but rather by what they are. So in describing a business of one person, we typically refer to titles like freelancer, sole proprietorships, self-employed and independent contractor, etc. However, in this article, we use terms like “businesses with no paid employees” when linking to data that is similarly labeled on the source.

2 | Small businesses that have paid employees.

For more on SmallBusiness.com regarding how to define small businesses


village of Seneca Falls before sundown

2 | How many small businesses are there in the U.S.?

In 2013 (most recent data), there were 28.8 million small businesses.

80% (23 million) | Businesses with no employees other than owner
20% (5.8 million) | Businesses with paid employees

SOURCES | SUSB, NES | Scroll to bottom for links to data sources

3 | How big is the role of small businesses in the U.S. economy?

Small businesses comprise:

99.9% | of all firms
99.7% | of firms with paid employees
97.7% | of exporting firms (297,000 small exporters)
33.6% | of known export value ($471 billion out of $930 billion)
48.0% | of private sector employees (57 million out of 118 million employees)
41.2% | of private-sector payroll

SOURCES | SUSB, NES, ITA (2013) | Scroll to bottom for links to data sources

San Fransisco downtown, crossing of streets Columbus Ave. and Kearny St.

4 | What percent of net new jobs are created by small businesses?

63.3% | Percentage of new jobs created by small businesses from the third quarter of 1992 until the third quarter of 2013

SOURCE | BED | Scroll to bottom for links to data sources

5 | How can small businesses’ share of net new jobs be larger than their share of employment, yet their share of employment remain steady?

As firms grow, they change employment size classes. So as small firms grow, their growth counts toward small firm job gains; but if they pass the 500-employee mark, their employment is classified as large firm employment.

SOURCE | SBA-ADVOCACY | Scroll to bottom for links to data sources

6 | How many businesses start and close each year?

The chart below tracks business startups and closures since 2007, prior to the financial meltdown of 2008 and subsequent great recession. The most recent data is below.

Year Startups Closures
2007 528988 439494
2008 490834 477010
2009 409065 493994
2010 387976 424610
2011 401156 413882
2012 411252 375192
2013 406353 400687

SOURCES | BED, BDS, SBA-ADVOCACY | Scroll to bottom for links to data sources

7 | What is the one-year survival rate for new small businesses?

79.9% | Percentage of small businesses that survive one year or longer (Based on average of the businesses started during the years 2004 to 2014)

SOURCES | BED, BDS, SBA-ADVOCACY | Scroll to bottom for links to data sources

8 | What is the five-year survival rate for new small businesses?

50% | About half of all businesses that were started between 2006 to 2011 survived five years or longer. (Based on average of the businesses started during the years 2006 to 2010)

45.4% | Established in 2006 that survived five years (lowest between 2006 to 2010)
51.4% | Established in 2011 that survived five years (highest between 2006 to 2010)

SOURCE | BED, BDS,  SBA-ADVOCACY | Scroll to bottom for links to data sources

9 | What is the ten-year survival rate for new small businesses?

33% | An estimated one-third of establishments survive 10 years or longer. While government data is not available on ten-year survival rates, other data sources suggest that about two out of three businesses are still open after ten years. (Note: Not all closures should be described as “failures.” Closures also include decisions by the owner to sell or close a profitable business.)

SOURCE | SBA-ADVOCACY

10 | How many businesses do women own?

9.9 million | Businesses owned by women
2.5 million | Businesses owned jointly and equally by men and women
12.3 million | Total firms at least 50 percent women-owned
45% | Percentage of all classifiable businesses owned at least 50 percent by women

SOURCE | SBO | Based on 2012 data | Scroll to bottom for links to data sources

11 | How many businesses do minorities own?

In 2012 (most recent data), 8 million businesses were minority-owned, an increase of 38 percent from 2007.

29.3% | Percentage of U.S. firms minority owned
12% | Hispanic-owned
10% | Black- or African American-owned
7% | Asian-owned
1% | American Indians- and Alaska Natives-owned
.2% | Native Hawaiians- and other Pacific Islanders-owned

 SOURCE | SBO | Based on 2012 data | Scroll to bottom for links to data sources

12 | How many businesses do military veterans own?

2.5 million | Businesses owned by U.S. military veterans
440,000 | Businesses with paid employees owned by veterans
9.3% | Percentage of all U.S. businesses owned by veterans

SOURCE | SBO | Based on 2012 data | Scroll to bottom for links to data sources

13 | What percent of U.S. small business owners are immigrants?

14.4% | The percentage of business owners who are immigrants

Top two industries in which immigrants comprise the largest percentage of owners:

29.1% of owners | Hospitality (accomodation and food services)
27.5% of owners | Transportation and warehousing

SOURCE | SBO | Based on 2012 data | Scroll to bottom for links to data sources

14 | Is millennial business ownership increasing?

Recent research by the SBA Office of Advocacy shows that in 2014, millennials (those born between the early-1980s and mid-1990s) are less likely to be self-employed than older individuals. This research also revealed that the rate of self-employment among individuals ages 15 to 34 has been gradually declining since 1990.

SOURCE | “The Missing Millennial Entrepreneurs” (PDF) February 2016

Asian family in front of store

15 | What percent of firms are family-owned and how does this compare to ‘equally-owned’ firms?

19.3% | Percentage of all businesses that are family-owned
50% | Percentage of family-owned businesses that are “equally owned,” that is, 50 percent owned by two individuals
10% | Percentage of all businesses that are equally-owned and family-owned

Industries with largest share of family-owned firms:

46.4% of firms are family-owned | Business management services
37.3% of firms are family-owned | Real estate, rental and leasing
33.2% of firms are family-owned | Accommodation and food services

Industries with largest share of equally-owned firms:

18.6% of firms are equally-owned | Mining and quarrying
16.9% of firms are equally-owned | Oil and gas extraction
16.9% of firms are equally-owned | (16.9%) Accommodation and food services

SOURCE | SBO | Scroll to bottom for links to data sources

View of Union Station in downtown Denver, Colorado, taken at night from the middle of a street. The train station is lit up for the Christmas Holiday season

16 | What legal structure do most small businesses choose?

The majority of firms without paid employees are sole proprietorships (86.4 percent) while only 14.8 percent of small employer firms are sole proprietorships.

[table “” not found /]

SOURCE | SUSB, NES | Scroll to bottom for links to data sources

17 | What percent of firms are home-based?

A home-based business is operated primarily out of the home but its business activities may take place at other locations as well.

50% | Percentage of all businesses that are home-based
60.1% | Percentage of of all businesses without paid employees that are home-based
23.3% | Percentage of small businesses with paid employees

Industries with highest percentage of home-based businesses

70.0% | Information construction
68.2% | Construction
65.3% | Professional, scientific and technical services

SOURCE | SBO | Scroll to bottom for links to data sources

18 | What percentage of businesses are franchises?

2.3% | Percentage of businesses with no employees are franchisees
5.3% | Percentage of small businesses with employees that are franchiees

SOURCE | SBO | Scroll to bottom for links to data sources

Picture shows the city St. Louis in USA

19 | How are small businesses financed?

Most common sources of capital to finance business expansion:

21.9% | Personal and family savings
5.7% | Profits and assets
4.5% | Business loans from financial institutions
3.3% | Business credit cards from banks

SOURCE | SBO | Scroll to bottom for links to data sources

20 | What is the small business share of federal procurements?

25.8% | Percentage of federal contracting dollars that went to small businesses (Fiscal Year 2015)
25.1% | FY 2014
23.4% | FY 2013

Agencies with at least $1 billion in eligible contracting dollars that awarded the highest share of such contracts to small businesses:

55.4% | Department of the Interior
50.6% | Department of Transportation
50.1% | Department of Agriculture

SOURCE | Small Business Dashboard smallbusiness.data.gov


BED | Business Employment Dynamics, Bureau of Labor Statistics, US Department of Labor
BDS | Business Dynamics Statistics, US Census Bureau, US Department of Commerce
ITA | International Trade Administration, US Department of Commerce
NES | Nonemployer Statistics, US Census Bureau, US Department of Commerce
SBA-ADVOCACY | Small Business Administration, Office of Advocacy
SBO | Survey of Business Owners, US Census Bureau, US Department of Commerce
SUSB | Statistics of US Businesses, US Census Bureau, US Department of Commerce

VIA | SBA Office of Advocacy (PDF)

 


ThinkStock

7
U.S. Resources for Employers and Job Seekers

Job training and resources including hundreds of local training programs and job resources funded through federal grants

8
U.S. Resources for Small Business: USDA Rural Development

USDA’s Rural Development program finds innovative ways to create business opportunities and jobs in rural and small towns.

9
U.S. Small Business Resources for Military Veterans

A roundup of information on SmallBusiness.com about military veterans and small business.