Page 1 Frequently Asked Questions about Small Business September 2012
Small businesses comprise what share of
the U.S. economy?
Small businesses make up:
99.7 percent of U.S. employer firms,
64 percent of net new private-sector
jobs,
49.2 percent of private-sector
employment,
42.9 percent of private-sector payroll,
46 percent of private-sector output,
43 percent of high-tech employment,
98 percent of firms exporting goods,
and
33 percent of exporting value.
Source: U.S. Census Bureau, SUSB, CPS;
International Trade Administration; Bureau
of Labor Statistics, BED; Advocacy-funded
research, Small Business GDP: Update 2002-
2010, www.sba.gov/advocacy/7540/42371.
How many small businesses are there?
In 2010 there were 27.9 million small
businesses, and 18,500 firms with 500
employees or more. Over three-quarters
of small businesses were nonemployers;
this number has trended up over the
past decade, while employers have been
relatively flat (figure 1).
What is a small business?
The Office of Advocacy defines a small
business as an independent business
having fewer than 500 employees. For
the small business definition by industry
used in government programs and
contracting, see www.sba.gov/content/
small-business-size-standards.
What percent of small businesses
operate as . . . ?
The many kinds of small businesses are
shown in table 1. The definitions overlap
so the shares total more than 100.
What is small businesses’ share of net
new jobs?
Small firms accounted for 64 percent of
the net new jobs created between 1993
and 2011 (or 11.8 million of the 18.5
million net new jobs). Since the latest
recession, from mid-2009 to 2011, small
firms, led by the larger ones in the category
(20-499 employees), accounted for
67 percent of the net new jobs.
Source: Bureau of Labor Statistics, BED. For
the latest employment statistics, see Advocacy’s
quarterly reports, www.sba.gov/advocacy/10871.
How can small businesses’ share of
net new jobs be larger than their share
of employment, yet their share of
employment remains 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.
Do the unemployed become self-employed?
When finding work is difficult, starting
a business can be just as difficult
if not more so. But in March 2011, a
significant number of the self-employed,
5.5 percent or about 900,000, had been
unemployed in the previous year. This
figure was up from March 2006 and
March 2001, when it was 3.6 and 3.1
percent, respectively.
Which businesses create more jobs—
startups or existing businesses?
In the last two decades about 60 percent
of the private sector’s net new jobs have
been created by existing establishments
and about 40 percent from the churn
of startups minus closures. While firm
births account for many new jobs, job
losses from firm closures are equally
important in accounting for net effects to
employment levels.
Source: Bureau of Labor Statistics, BED.
Table 1: Small Business Shares
Kind of Business Share (percent)
Home-based business 52.0
Franchise 2.0
Sole proprietor 73.2
Corporation 19.5
Employer business 21.5
Nonemployer (business
without employees) 78.5
Source: U.S. Census Bureau, SBO, SUSB.
Figure 1: Number of Businesses (millions)
3.5
4.5
5.5
6.5
11
13
15
17
19
21
1985 1990 1995 2000 2005 2010
Employers Nonemployers
Nonemployers (right scale)
Employer
Source: U.S. Census Bureau, SUSB and Nonemployer Sta s cs.
,
23
Page 2 Frequently Asked Questions about Small Business September 2012
What happens to the jobs created by
startups?
The total employment from a group of
startups is highest at birth and declines
as the firms age. Put another way, employment
gains from growing businesses
are less than employment declines
from shrinking and closing businesses
(figure 2).
What is the status of the startup market?
While the number of new employer
businesses has recovered from the recessionary
dip, the average employment of
these businesses has been declining over
the past decade (figure 3).
How many businesses do women own?
While women-owned firms have increased
as a share of total businesses
over the years, their size still remains
smaller than national averages. The 7.8
million women-owned firms averaged
$130,000 in receipts in 2007 (table 2).
How many businesses do minorities own?
Asian-owned businesses numbered 1.6
million in 2007 and have average receipts
of $290,000. African-American-owned
businesses numbered 1.9 million in 2007
and have average receipts of $50,000.
Hispanic-American-owned businesses
numbered 2.3 million in 2007 and have
average receipts of $120,000. Native
American/Islander-owned businesses
numbered 0.3 million in 2007 and have
average receipts of $120,000 (table 2).
How many businesses do veterans own?
Veteran-owned businesses numbered 3.7
million in 2007, with average receipts of
$450,000 (table 2).
Source: U.S. Census Bureau, SBO.
Is youth entrepreneurship increasing?
Self-employment among younger age
groups has been dropping. From 2005 to
2010, self-employment among individuals
age 25 and under decreased 19
percent (compared to a 7 percent drop
in the overall population). In contrast,
self-employment among those age 65
and over increased 24 percent over this
period as their population grew. Selfemployment
rates increase with age; for
example, they were 2 percent for those
25 and under and 23 percent for those 65
and over in 2010.
Source: Office of Advocacy calculations using
U.S. Census Bureau, CPS data.
What are the home-based business
trends?
The share of firms that primarily operate
out of the home was unchanged from
2002 to 2007 at 52 percent (the latest
figure available). Employers had a lower
share than nonemployers, 24 percent vs.
63 percent, respectively, in 2007. Of the
major industries, construction had the
highest share of home-based businesses,
70 percent. (Being home-based is not
synonymous with working at home.) It is
interesting to note that retail trade went
from 49 percent home-based in 2002 to
44 percent in 2007 while the share of
Internet retail sales went from 1 percent
to 3 percent of total retail sales.
Source: U.S. Census Bureau, SBO and Quarterly
E-Commerce Report.
How does franchise survival compare
with independent business survival?
Survival among independent businesses
and franchises appears to be similar, as
they have similar age distributions. Of
course each potential business owner
debating an independent business or
franchise arrangement will have unique
factors to weigh, such as their managerial
talent and sales abilities.
Figure 2: Mean Employment Level for Firm
Birth Year, 1995–2010 (millions)
3.07 2.96 2.77 2.61 2.48 2.36 2.15 1.94 1.82
0 1 2 3 4 5 6 to 10
11 to 15
16 to 20
Years in existence
Source: U.S . Census Bureau, BDS.
Employment per
establishment
Establishment
starts (thousands)
Source: Bureau of Labor Statistics, BED.
Figure 3: Number and Size of Establishment Births
1
2
3
4
5
6
7
8
50
100
150
200
250
1998 2000 2002 2004 2006 2008 2010 2012
Sole
Births (right scale)
Average employment
(left scale)
Table 2: Number of Firms and
Receipts by Demographic, 2007
Business Owner
Demographic
Firms
(millions)
Receipts
per firm
($1,000)
All businesses 27.1 1,070
Male 13.9 570
Female 7.8 130
Equally male/
female 4.6 240
African-American 1.9 50
Asian 1.6 290
Hispanic 2.3 120
Native American/
Pacific Islander 0.3 120
Veteran 3.7 450
Publicly held 0.8 23,860
Source: U.S. Census Bureau, SBO.
Page 3 Frequently Asked Questions about Small Business September 2012
Source: Advocacy research, Do Business Definition
Decisions Distort Small Business Research
Results? http://archive.sba.gov/advo/
research/rs330tot.pdf. Note that about half of
the franchises in the data were nonemployers,
which may not be the stereotypical franchise
that individuals imagine.
How many businesses open and close
each year?
About 10-12 percent of firms with employees
open each year and about 10-12
percent close (table 3). Employer firm
births were down and deaths were up in
the most recent available data because
of the downturn. But establishment birth
figures from 2011 show gains (figure 4).
Nonemployer firms have turnover rates
three times as high as employer firms,
mostly because it is easier for nonemployers
to start and stop, as they tend to
be smaller than employer firms. Business
bankruptcies numbered 48,000 in
2011, a decline of the about 60,000 over
the previous two years. Note that not all
firm deaths are business bankruptcies,
and many business owners file personal
bankruptcy instead of business bankruptcy.
What is the survival rate for new
businesses?
About half of all new establishments
survive five years or more and about
one-third survive 10 years or more.
As one would expect, the probability
of survival increases with a firm’s age.
Survival rates have changed little over
time (figure 5).
How do small and large businesses
compare on innovation?
Of high patenting firms (15 or more in
a four-year period), small businesses
produced 16 times more patents per
employee than large patenting firms.
Research also shows that increasing the
number of employees correlates with
increased innovation while increasing
sales does not.
Source: Advocacy-funded research, An Analysis
of Small Business Patents by Industry and Firm
Size, http://archive.sba.gov/advo/research/
rs335tot.pdf; Innovation in Small Businesses:
Drivers of Change and Value Use, www.sba.
gov/sites/default/files/rs342tot_0.pdf.
How are small businesses financed?
Small businesses are financed through
owner savings; loans from family,
friends, and commercial lenders; bonds;
stocks; ownership stakes; and other
arrangements. For detailed financing
information, see Advocacy’s Frequently
Asked Questions about Small Business
Finance, www.sba.gov/advocacy/9601.
How are credit conditions for small
firms?
For up-to-date statistics, see Advocacy’s
quarterly reports, www.sba.gov/
advocacy/10871.
What is small businesses’ share of
federal government procurement?
In fiscal year 2011, 21.7 percent of federal
government small-business–eligible
purchases went to small businesses.
The Department of Defense accounted
for the majority of small business procurement.
Source: Small Business Goaling Report, 2012,
www.fpdsng.com/downloads/top_requests/
FPDSNG_SB_Goaling_FY_2010.pdf.
How are business churn and the economy
related?
Business churn (the sum of the firm
birth and death rates) tends to follow
the change in GDP with a six-quarter
lag (figure 6). Recently, churn has been
down, which may be a response to the
general decline in output.
Figure 4: Startups and Closures
(thousands of establishments, seasonally adjusted)
200
400
600
800
1,000 Deaths Births
Source: Bureau of Labor Statistics, BED.
1999 2001 2003 2005 2007 2009 2011 0
20
40
60
80
100
0 2 4 6 8 10 12 14
Percent of
establishments
Years in existence
1995
2000
2005
2010
Figure 5: Cumulative Survival Rates for
Establishments by Birth Year
Source: Bureau of Labor Statistics, BED.
Table 3: Employer Firm Births and Deaths*
1999-2000 2004-2005 2007-2008 2008-2009
Births 574,300 644,122 597,074 518,500
Deaths 542,831 565,745 641,400 680,716
*Figures are March to March.
Source: U.S. Census Bureau, SUSB.
Page 4 Frequently Asked Questions about Small Business September 2012
What are the effective tax rates for small
businesses?
The average effective tax rate for businesses
organized as sole proprietorships
was 13.3 percent in 2004, with small
S corporations facing the highest rates
(table 4). (An effective tax rate is usually
defined as the amount of tax paid as
a fraction of net income or profit.)
Table 4: Effective Tax Rates, 2004
Legal form of
business ownership
Effective tax rate
(percent)
Non-farm sole
proprietorship 13.3
Partnership 23.6
S corporation 26.9
C corporation 17.5
Source: Advocacy-funded research, Effective
Federal Income Tax Rates Faced By Small
Businesses in the United States, www.sba.
gov/sites/default/files/rs343tot.pdf.
What legal form of organization are small
businesses?
Sole proprietors and partnerships constituted
94 percent of nonemployers in
2010 and of the corporations, most were
likely S corporations which are taxed at
personal rates. Twenty-two percent of
small employers were C corporations in
2009, with 71 percent taxed at personal
rates and 7 percent nonprofits (figure 7).
Do you have any newer data?
For updates of many quarterly small
business indicators, see www.sba.gov/
advocacy/10871. For more details and
information, visit Advocacy’s general
website, www.sba.gov/advocacy. Two
of the most comprehensive pages are
the Data Resources page and the Firm
Size Data page. Both are accessible
from www.sba.gov/advocacy/849. Two
other often visited pages are the Banking
Study (www.sba.gov/advocacy/
7540/173967) and the State Small
Business Profiles (www.sba.gov/advocacy/848).
Additional questions may be
emailed to advocacy@sba.gov.
Abbreviations & Sources
BED Business Employment Dynamics.
U.S. Department of Labor,
Bureau of Labor Statistics,
www.bls.gov/bdm.
BDS Business Dynamics Statistics.
U.S. Department of Commerce,
Census Bureau, www.census.
gov/ces/dataproducts/bds.
CPS Current Population Survey. U.S.
Census Bureau, and U.S. Department
of Labor, Bureau of Labor
Statistics, www.census.gov/cps.
SBO Survey of Business Owners. U.S.
Census Bureau, www.census.
gov/econ/sbo.
SUSB Statistics of U.S. Businesses,
U.S. Census Bureau, www.census.gov/econ/susb.
-12
-9
-6
-3
0
3
6
9
5.0
5.5
6.0
6.5
7.0
1996 1998 2000 2002 2004 2006 2008 2010
Churn Real GDP
Business churn rate
(births plus deaths),
lagged six quarters (left scale)
Real GDP (annualized change)
(right scale)
Figure 6: Business Churn versus Output (percent)
Source: Bureau of Labor Statistics, BED (churn); Bureau of Economic
Analysis (GDP).
,
Source: U.S. Census Bureau, SUSB and Nonemployer Statistics.
Sole
proprietorship
16%
Partnership
11%
S corporation
44% Nonprofit, 7%
C corporation
22%
Other, 0%
Small Employer Firms
Nonemployers
Figure 7: Legal Form of Organization of Small Business
Sole
Proprietorship
86%
Partnership
7%
Corporations
7%
About the Office of Advocacy
The SBA’s Office of Advocacy was created by Congress in 1976. Part of the
office’s mission includes conducting policy studies and economic research
on issues of concern to small businesses. The office also publishes data on
small firm characteristics and contributions. For further data and research
information, visit the Office of Advocacy’s website at www.sba.gov/
advocacy/847.
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