Frequently Asked Questions

What is a small business?

The Office of Advocacy defines a small business for research purposes as an independent business having fewer than 500 employees.

Firms wishing to be designated small businesses for government programs such as contracting must meet size standards specified by the U.S. Small Business Administration (SBA) Office of Size Standards. These standards vary by industry; see www.sba.gov/size

How important are small businesses to the U.S. economy?

Small firms

  • Represent 99.7 percent of all employer firms.
  • Employ half of all private sector employees.
  • Pay 44 percent of total U.S. private payroll.
  • Generated 65 percent of net new jobs over the 17 years.
  • Create more than 50 percent of nonfarm private gross domestic product (GDP).
  • Hire 43 percent of high tech workers (scientists, engineers, computer programmers, and others).
  • Produce 13 times more patents per employee than large patenting firms.
  • Are 52 percent home-based and 2 percent franchises.

Source: U.S. Dept. of Commerce, Census Bureau and Intl. Trade Admin.; Advocacy-funded research by Kathryn Kobe, 2007 (www.sba.gov/advo/research/rs299tot.pdf) and CHI Research, 2003 (www.sba.gov/advo/research/rs225tot.pdf); U.S. Dept. of Labor, Bureau of Labor Statistics.

How many small businesses are there?

In 2009, there were 27.5 million businesses in the United States, according to Office of Advocacy estimates.

The latest available Census data show that there were 6.0 million firms with employees in 2007 and 21.4 million without employees in 2008. Small firms with fewer than 500 employees represent 99.9 percent of the total (employers and non-employers), as the most recent data show there were 18,311 large businesses in 2007.

Source: Office of Advocacy estimates based on data from the U.S. Dept. of Commerce, Census Bureau, and trends from the U.S. Dept. of Labor, Bureau of Labor Statistics, Business Employment Dynamics.

How many businesses open and close each year?

Estimates for businesses with employees indicate there were 671,800 new firms and 544,800 closures (both about 10 percent of the total) in 2005.

     
Starts and Closures of Employer Firms, 2005–2009
Category 2005 2006 2007 2008 2009
Births 644,122 670,058 668,395 626,400e 552,600e
Closures 563,745 599,333 592,410 663,900e 660,900e
Bankruptcies 39,201 19,695 28,322 43,546 60,837
Notes: e = Advocacy estimate. Bankruptcies include non-employer firms. Source: U.S. Dept. of Commerce, Census Bureau; Administrative Office of the U.S. Courts; U.S. Dept. of Labor, Business Employment Dynamics (BED). Estimates based on Census data and BED trends.

 

How many new jobs do small firms create?

Over the past decade, small business net job creation fluctuated between 60 and 80 percent. In the most recent year with data (2003),employer firms with fewer than 500 employees created 1,990,326 net new jobs,whereas large firms with 500 or more employees shed 994,667 net jobs. For a more complete look at employment dynamics by firm size from 1989 to 2003, see www.sba.gov/advo/research/data.html#us.

Source: U.S. Bureau of the Census.

What is small firms' share of employment?

Small businesses employ about half of U.S. workers. Of the 120.6 million nonfarm private sector workers in 2007, small firms employed 59.9 million and large firms employed 60.7 million. About half of small firm employment is in second-stage companies (10-99 employees), and half is in firms that are 15 years or older. Small firms’ share of employment in rural areas is slightly higher than in urban areas; their share of part-time workers (22 percent) is similar to large firms’ share (19 percent). Small firms’ employment share remains steady since some small firms grow into large firms over time.

Source: U.S. Dept. of Commerce, Census Bureau: Statistics of U.S. Businesses, Current Population Survey, and Business Dynamics Statistics; and the Edward Lowe Foundation (http://youreconomy.org).

What is the survival rate for new firms?

Seven out of 10 new employer firms survive at least 2 years, half at least 5 years, a third at least 10 years, and a quarter stay in business 15 years or more. Census data report that 69 percent of new employer establishments born to new firms in 2000 survived at least 2 years, and 51 percent survived 5 or more years. Survival rates were similar across states and major industries. Bureau of Labor Statistics data on establishment age show that 49 percent of establishments survive 5 years or more; 34 percent survive 10 years or more; and 26 percent survive 15 years or more.

Source: U.S. Dept. of Commerce, Census Bureau, Business Dynamics Statistics; U.S. Dept. of Labor, Bureau of Labor Statistics, BED.