Despite a bit of disappointing statistics stating that 20% of start-up enterprises fail within the first two years, small business has been recently on the rise and tends to grow.
People keep dreaming about launching their own ventures to realize their aspirations. Yet, a great business idea is not enough to make your new venture a success. You need an efficient strategy and a solid business plan to come to the top.
Knowing the recent small business statistics, you’ll be able to work out a long-term strategy that will take you on a successful corporate journey.
Small Business in the US: Key Factors You Need to Know
Before we delve into details, let’s first take a look at the core small business stats in the US to get a common understanding of the main aspects.
Following the Small Business Administration's definition of such a venture as a company employing up to 500 workers, there are 32.5 million small businesses in the US; Fundera states that small companies generate over 1.5 million job opportunities annually taking over 64% of all new jobs; Small businesses currently represent over 90% of US entities. As such, they drive the national economy and significantly maintain global economic growth; Small businesses generate over 45% of the US GDP; The most active small business initiators are Gen Xers with Baby Boomers stepping on their feet and followed by Gen Zers; A small business failure rate is about 20% for projects failing within the first year and 50% of companies that fail within a 5-year period; Low market demand is a major reason for 42% of new business failures; Low workforce quality is the biggest problem for over 52% of small businesses; 64% of small businesses in the US rely on social media as a primary marketing tool; Over 46% of customers prefer purchasing goods and services from small businesses; Nearly 67% of small businesses face some kind of financial problems and challenges after launch. Small Businesses Survival Stats 60% of businesses live for as long as 2 years; 50% of US small companies survive at least 5 years in a row; The part of private companies that outlast a 10-year period is about 30%; According to Investopedia surveys, only 25% of small businesses pass a 15-year mark and make it through a longer period; Hawaii faces the highest small business failure rates, with over 25% of companies winding up during the first year; Washington and Illinois are the leading states, with the lowest failure rates. Only 10.9% and 15.3% of companies accordingly fail in those states during the first year; In an industry breakdown, mining, oil, and gas extraction spheres top up the list of industries with the highest first-year failure rate hitting 25%; The US bank reports that the main reason for 82% of failures is cash flow problems. Survival Rates for Small Businesses in the US
Period Survival Rate 1 year 81% 2 years 69.5% 3 years 62% 4 years 55.5% 5 years 50% 6 years 46% 7 years 43% 8 years 40% 9 years 37% 10 years 34% Business Survival Rates by Industry
Industry 1-year survival rate 5-year survival rate 10-year survival rate Property and real estate 89% 65% 40% Agriculture and farming 88% 70% 52% Retail trade 87.6% 62% 39% Healthcare services 86% 56% 39% Production 85.5% 61.3% 41% Lodging and food services 85.3% 60.5% 35.7% Insurance and financial services 84.7% 57% 37% Business management 84% 51.4% 37% Logistics 83.8% 53% 33% Utilities 83.8% 60% 45% Education 83% 59% 36.4% Professional services 82.9% 52.3% 30% Building and construction 82.9% 58.6% 38% Wholesale trade 82.5% 52.5% 29.5% Entertainment and recreation 80.1% 57.4% 33.5% Information 79.2% 48.3% 26.7% Administrative services 79.1% 51% 33.1% Mining, oil, and gas extraction 74.5% 41.5% 25.2% Top 10 Reasons Why Small Businesses Fail Cash flow and capital raising issues: 38%; Low market demand: 35%; High competition: 20%; Inefficient business concept: 19%; Regulatory problems: 18%; Pricing issues: 15%; Poor marketing: 14%; Poor customer service and maintenance: 14%; Inappropriate or poor-quality product: 10%; Lost passion and motivation: 6%. Small Businesses Success Stats For most industries, it takes about 2 to 3 years for small businesses to generate profit; An average period for a private company to achieve success is 7 to 10 years; A perfect annual growth rate for a small business is estimated at 15% to 25%; The fastest growing small businesses pop up in the retail industry ( 15%), food and restaurant industry ( 13.712%), and business services ( 10.10%); The latest surveys show that 65% of small businesses are profitable in the US despite the recent pandemic struggles. Top 5 Reasons Why Small Businesses Succeed The well-defined vision of a business idea and knowing how to realize it; Perfectly matching consumer needs and reaching the target audience fast; Great budgeting and cash flow management skills; Flexibility and adaptivity to any ongoing changes; Knowing how to raise funds to maintain business growth. The Core Industries Attractive for Small Businesses
Industry Growth Rate in 2021 Warehousing and storage Over 80% Gas stations 58% Liquor stores 50% Hospitality services 47% Insurance 43% Automotive 29% Landscaping services 20% Transportation services 19% Food services and restaurants 14% How Will Small Businesses Grow in 2022? 2022 is predicted to end with nearly 17 million new entities in the US small business portfolio; The forecast is that nearly 5.6 million new companies will hire employees, thus greatly contributing to the job market; 90% of small businesses consider online sales as an important revenue source in 2022; 40% of private companies target to enhance their online presence and increase online sales; 50% of growing small businesses are going to apply for business loans to boost growth further; 51% of companies seek to increase their staff; Over 41% of businesses prioritize business expansion; 37% of entities plan digital marketing investments to catch up with ongoing business trends. Small Businesses Profitability Stats The Bench research shows that on average, a small business will start paying for itself and generating profit in about 24 months; In 2022, over 65% of small businesses prove to be profitable as compared to only 40% back in 2018; About 9% of smaller companies get an annual profit of over $1 million; The US Chamber of Commerce poll in October 2021 showed that over 77% of small business owners were optimistic about the future of their businesses; The average small business revenues vary from about $50.000 for non-employer companies to nearly $41 million for businesses with up to 500 employees; About 30% of small business owners report that their sales exceed the $200.000 mark; 86% of small business owners get an annual salary below $100.000;An average healthy profit margin for them lingers around 10%, with 20% being a remarkable result. Average Profit Margins in 2022 by Industry
Industry Gross Margin Net Margin Software and technology 71.59% 19.66% Pharmaceuticals 67.35% 11.03% Healthcare products and services 59.04% 12.92% Communication equipment 55.66% 14.96% Beverages and liquors 55.47% 14.27% Information services 53.83% 16.92% Household products 50% 12.5% Entertainment and recreation 41.94% 3.86% Online retail 41.54% 7.56% Food and restaurant 31.52% 12.63% Residential Construction 24.87% 12.73% The Most Profitable Sectors for Small Businesses
Sector Average profit margin Financial consulting 20% - 25% Tax advisor 20% Software services 19% Accounting services 16.5% E-commerce 10% Property rentals 7% Mobile diners and food trucks 7% to 8% Small Business Owner Demographics According to Guidant Financial, over 46% of small business owners belong to Generation X, i.e. are between 55 to 40 years of age; 32% of US small businesses are owned by women; The last two decades show a 114% growth in the number of companies owned by females; Over 32% of small business owners have a bachelor’s degree; Over 80% of private entrepreneurs work at night and during weekends; Nearly 30% of small businessmen started private ventures to be their own bosses; A small business owner’s salary range in the US is $30.0000 to $130.000; Over 70% of small companies in the US are owned by Caucasians;Recently, 30% of overall small business growth is promoted by immigrants. Small Business Accounting Stats Only about 30% of small businesses choose to hire an accountant to handle their business books; An hourly accountant rate falls anywhere between $20 to $100; 31% of private companies pay over $5000 for tax administration and 15% of small businesses spend over $10.000 on tax compliance; 64% of company owners account for their finances on their own by using special accounting software; 62% of small businesses worldwide prefer one of the most popular accounting services QuickBook Online; About 33% of companies spend between $1000 and $5000 on cloud-based accounting services; The forecast is that in about a year, nearly 80% of small businesses will do their own bookkeeping via digital accounting services. Small Business Marketing Stats About 47% of small businesses do their own marketing; Only 64% of them maintain their own web platform; 67% use digital marketing tools; 73% of companies regularly invest in social media marketing; Email is a top marketing tool for small businesses, with a 54% share in social media marketing; 47% of private companies have marketing budgets below $10.000; According to Stat is ta, the most advertised industries in the US as of 2021 are retail (26%), healthcare and pharmaceuticals (18.8%), financial services (16.3%), and other services (14.6%). References