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The Office of Advocacy defines a small business for research purposes
as an independent business having fewer than 500 employees. Small firms Sources: U.S. Bureau of the Census; Advocacy-funded research by Joel Popkin and Company (Research Summary #211); Federal Procurement Data System; Advocacy-funded research by CHI Research, Inc.(Research Summary #225); Bureau of Labor Statistics, Current Population Survey; U.S. Department of Commerce, International Trade Administration. In 2005,there were approximately 25.8 million businessesin the United States,according to Office of Advocacy estimates. Census data show that there were 5.8 million firms with employees and 18.6 million without employees in 2003,the most recent year with data. Applying the sole proprietorship growth rates to the nonemployer figures and similar Department of Labor growth rates to the employer figures produces the 25.8 million figure. Small firms with fewer than 500 employees represent 99.9 percent of the 25.8 million businesses (including both employers and nonemployers), as the most recent data show there are nearly 17,000 large businesses. 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, 2000–2004
e=Estimate. For more information, see
"Business
Estimates from the Office of Advocacy: A Discussion of Methodology",
a working paper by Brian Headd, June 2005
(Research Summary
#258). 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. The small business share of employment remains around 50
percent.
Although small firms
generally create 60 to 80 percent of the net new jobs, some firms
will become large firms as the new jobs are created. Of 113.4
million nonfarm private sector workers in 2003, small firms with
fewer than 500 workers employed 57.4 million and large firms, 56.0
million. Smaller firms with fewer than 100 employees employed 41.0
million. Two-thirds of new employer establishments survive at least
two years, and 44 percent survive at least four years, according
to a recent study.
These results were similar
for different industries. Firms that began in the second quarter
of 1998 were tracked for the next 16 quarters to determine their
survival rate. Despite conventional wisdom that restaurants fail
much more frequently than firms in other industries, leisure and
hospitality establishments, which include restaurants, survived
at rates only slightly below the average. Earlier research has
explored the reasons for a new business's survivability. Major
factors in a firm’s remaining open include an ample supply of
capital, being large enough to have employees, the owner’s
education level, and the owner's reason for starting the firm in
the first place, such as freedom for family life or wanting to
be one’s own boss.
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