When it comes to businesses, defining small businesses can be a bit of a challenge in today’s economy. There are more e-commerce shops popping up left and right, and also, the traditional brick-and-mortar, mom-and-pop shops that we’re used to when we talk about small businesses. Small businesses and being your own boss are a crucial part of the nation’s economy. They are often the lifeblood of the small communities they exist in. But just how many small businesses are there in the US? Well, without giving an exact number just yet, it suffices to say that the majority of businesses in the US are considered small businesses. There are a number of ways to make this determination and set definitions in place to help.
When you hear the words small business, the image that comes to mind is usually pretty straightforward: a storefront run by a family, maybe a husband and wife, that eventually is left to their children or closes when they retire. Well, a small business can be so much more than that. With the coming of the digital age, the small business model was able to change. The small storefront no longer had to be part of the model, and online businesses started popping up left and right. Without the need for the brick-and-mortar storefront to start a business, the ability to start one was made easier. So how do we identify small companies now? There are a few ways.
An easy way to determine if a business is considered small is by looking at the number of employees it has. The US Small Business Association, or SBA , considers any business with less than 1,500 employees a small business, depending on the industry. The number you hear thrown around the most is 500 employees or less, which seems to be the generally accepted term. What’s interesting about that figure is that, out of those businesses that are considered small, more than half have less than five employees that make up the entire business. So out of the whole working population, these businesses with less than five consist of 5% of the workforce in the US. However, the percentage jumps when you take into consideration all establishments considered to be small businesses. The number of Americans employed by a small business is roughly 48% of the working population. Small businesses make a huge impact in the US. States. The states that employ the most people through small businesses are Wyoming and Montana, both using over 60% of their workforce for small businesses. Conversely, the two states that employ the least through small businesses are Florida and Nevada, where small businesses only employ about 40% of the population. This makes sense, as Montana and Wyoming are widely undeveloped, whereas Florida and Nevada are heavily commercial.
When it comes to revenue generated, to be considered a small business, it tends to vary by the industry, according to the SBA. The general rule of thumb here is that to qualify as a small business, the amount of revenue has to be $35.5 million or less. Now, it is important to keep in mind here that this could be affected by the industry that the business exists in. For example, in the ambulatory health care services sector, nearly 60% of businesses bring in over $5 million in annual revenue. Therefore, to be considered the minority, you’d have to be in the 40% of businesses making less than $5 million in revenue per year. When it comes down to it, many businesses may fit into the category of small in terms of their employees, but the definition becomes a bit hazy if you begin to do industry comparisons and look at the picture in a more granular sense.
The industries with the smallest businesses are listed below.
Construction - Many small construction and handyman companies exist and tend to serve only local communities rather than spreading to other communities
Retail Trade - Numerous independent retail stores still exist and thrive in today’s economy, and with a focus on small businesses, they tend to do fairly well
Real Estate Rental and Leasing - Most rental and leasing companies, like construction companies, only serve the communities that they are directly related to
Healthcare, Professional, or Scientific - Private practices and community-based hospitals serve only the communities they exist in
Food Services - Independent restaurants and food services are more popular than ever as the public tries to stray from the larger fast-food companies.
Any of the above-mentioned small businesses tend to become staples in their communities as they age and do not grow beyond the town or city that they serve. Many businesses that are local to you are most likely small businesses.
Small business statistics estimate that the current number of small business profiles in the US hovers around 30 million businesses. These small businesses make up nearly 99% of the businesses in the United States, and that number will likely stay there as we continue to move forward. The value of small businesses from California to Texas to New York is high, as small businesses affect most people’s everyday lives. It’s also important to consider that these small businesses may enjoy growth, turning into medium businesses, and even big businesses with enough time and impact on the market.
There are several positive effects that small businesses have on the communities they serve.
New Jobs - Small business owners create nearly all new jobs in the US, and as they stabilize, they create stability in the communities they serve
Overall Job Creation - Including new jobs, it’s estimated that small businesses create 1.5 million net jobs in America annually
Independence - Opening a small business creates independence, allowing owners to become their own bosses, and separating them from big business in the community
Community Involvement - Entrepreneurs create community engagement , and in turn, creates a stronger community
Economic Drive - Because of the sheer volume of small businesses in the US, the economic stimulation and innovation they create is invaluable
While there are many strengths to small businesses and a number of reasons to value them, there are negative aspects to them, as well. As with anything else, you have to keep in mind many new businesses fail, too, when you think about the good.
It’s estimated that of all small businesses created, roughly 50% of small businesses fail in the first year. Furthermore, it’s estimated that up to 95% of small businesses face their biggest challenges and fail within the first five years. The most common reason for this small business failure rate is a lack of market demand, meaning that the service or goods offered by the business did not generate interest or sales, unfortunately. When these businesses fail, it causes job losses. Ultimately, the number of jobs lost due to small business failure equates to nearly 750,000 jobs per year.
This is somewhat harder to determine, as it seems to be a vicious circle of sorts. Most small firms are unable to pay a higher wage than the minimum wage (state or federal). Because of this, the entry-level employees hired to work at the businesses are less skilled, and in some cases, unskilled workers. This causes an issue in the labor quality itself. So the business suffers, and if the issues caused by the labor quality are severe enough, it can cause the business to close, resulting in an exit from the market and job loss.
While starting a new business may be daunting, it’s important to remember that it is not impossible and that small business stats show that there are over 30 million thriving small businesses in the US at any given time. These businesses make up nearly 99% of all businesses in the country. Without them, we’re left without the strong economy we have come to know. Whether you’re thinking about starting your own small firm or plan on having many of your own businesses, keep in mind that making a business plan is crucial, and understanding the market and the community’s needs can lead you to success. Additionally, it’s always important to find a reputable company to help when looking for startup funds. Often, they can provide the technical services that will help you reach the success you are looking to achieve! Sources: Small Business Administration | SBA.gov What is a Small Business? (January 2021) | Census.gov How Many Small Businesses Are in the US? | Fundera