A small business, as defined by the U.S. Small Business Administration, is any business with fewer than 500 employees. That encompasses everything from your neighborhood coffee shop to the fast-growing tech startups that are still getting underway in a lean, aggressive fashion from a shared coworking space.
Today, we’re looking at what small businesses actually look like across the country. We’ll break down the key statistics, including the number of companies on the market, who owns them, their composition, and the challenges they face. We will explore how these businesses are adapting to a rapidly changing economy and what the future may hold for America’s entrepreneurs.
Whether you are a business owner yourself or simply interested in the backbone of the economy, this is for you.
By the Numbers: How Many Small Businesses Are There?
Here’s the big headline: 33.2 million small businesses are in the U.S. Some estimates for this year are even closer to 34.8 million. Either way, the point is the same: Almost every business in the nation is small.
They comprise 99.9% of all businesses in the United States. That’s not a typo. Mom-and-pop bakeries, small-time freelancers, startups, family businesses, and niche e-commerce stores are all part of the small business world.
And business formation is booming. Americans submitted more than 5.5 million new business applications in 2023. That’s up 8.1 per cent from the previous year. And the ball is still rolling. Many people are leaving traditional jobs in the wake of the pandemic in search of more independence, and the numbers suggest that they are creating their own visions from scratch.
The retail trade, professional and technical services, construction, and food services are among the top industries for new establishments. From selling homemade products online to launching niche consulting businesses, entrepreneurship is more varied and more attainable than ever.
Small Teams, Big Impact: Size and Structure of U.S. Small Businesses
One of the most special things about small businesses is just how small they are. There are approximately 28.5 million small businesses in America that do not have employees (called nonemployer firms because they are run by sole proprietors or partners with no employees). That’s a significant portion of the business world comprising freelancers, gig workers, and independent operators.
There are approximately 6 million small businesses with paid employees. Although this accounts for only 18.8% of the total, these firms account for nearly half, 46%, of all private sector employment.
Building and running a company with a limited team, or no team at all, has its upsides and downsides: freedom and friction. The owner wears every hat, including manager, accountant, marketer, and customer service rep. Burnout among owners is a real risk, and when someone gets sick or quits, it is felt immediately.
Meanwhile, small business owners are turning to virtual assistants, automation solutions, and AI-powered platforms to streamline their operations. Whether it’s automating email responses, accounting with cloud-based books, or outsourcing design work, there’s an expanding toolkit for how to run smarter rather than grow too fast.
New Businesses Are Nearly All Small Businesses
New doesn’t equal small forever, even though almost every new company starts that way. More than 99.9% of new establishments are small firms.
But what drives people to take the plunge?
You may think the answer is money. However, in truth, only 8% of the entrepreneurs surveyed say making money is their primary motivator. Most of us are drawn to entrepreneurship because of the freedom it offers, flexible schedules, being one’s own boss, and the opportunity to build something both meaningful and lucrative.
Yet others are motivated by need. During the pandemic era, thousands of people were laid off or looking to recalibrate what they want out of work. Business creation wasn’t some idle dream; it was a natural next step.
Personal passion, autonomy, and creating a legacy are among the top motivations, according to a survey conducted by Cox Business. The entrepreneurs are also younger and more diverse than at any point in the past, and women and minorities make up a greater share of founders now in the public eye.
And though getting started is easier than it used to be, keeping things going in the long term requires real grit.
Financial Struggles Remain a Core Challenge
The truth behind the glow of entrepreneurship? It’s financially challenging for many of us.
About 66% of small business owners say they are struggling to stay afloat financially. Some top concerns include increased supply costs, inflation, slow-paying customers, and a lack of affordable credit.
Some businesses bootstrap or use personal savings, while others leverage loans. However, getting approved can be challenging. Small business loan applications are approved at big banks only 26.9% of the time. Among borrowers who apply through small lenders, a mere 48 per cent report they got the money they wanted.
Cash flow is the killer. It’s not just about making money, it’s about having enough to never worry about the cash you need to meet bills as they come due. Roughly 29% of enterprises go out of business solely because they fail to manage their cash flow properly. That’s why resources such as invoice automation, budgeting software, and private working capital loans are becoming increasingly necessary.
The bottom line? You can have a great product and passionate customers, but if the math doesn’t work, you won’t make it far.
Legal Risks Are Common
Financials are not the only minefield. There’s a surprising number of legal challenges, and they’re usually costly.
Up to 36-53% of small businesses get sued every year, depending on the source. Those might be disputes with vendors, disputes with clients and employment issues such as wrongful termination or harassment claims.
One report indicated that small businesses are the defendants in more than 12 million suits every year. The average cost of defending a lawsuit is $20,000, or possibly a bit more. And that’s without any escalation of cases.
In the scramble to safeguard themselves, a growing number of business owners are purchasing liability insurance, conducting legal audits, and drafting crystal-clear contracts. Even simple coverages, such as general liability, professional indemnity, or cyber insurance, can significantly minimize the fallout of a legal fight.
It is also how you build a culture of transparency and documentation. The more a business takes steps to be proactive, the less it is exposed when things get tough.
Survival Rates: A Long-Term Look
Getting started is one thing, but surviving is another. Let’s look at the stats:
- 80% of small businesses survive to see their first year out
- 50% are surviving a half-decade later.
- Only 25% make it to 15 years
And those numbers have not changed significantly over the last two decades. This continuity highlights just how challenging long-term success can be.
So what makes the survivors?
For one, adaptability. The businesses that survive are those that are willing to pivot, whether that involves changing their services or moving them online, or adjusting their brand to appeal to new customer needs.
Another factor is leadership. Entrepreneurs taking the initiative to seek out mentorship, staff to their weaknesses and invest in systems, weather the storms more effectively.
Finally, successful small businesses generally take a steady, realistic approach to growth, growing at a rate they can manage rather than attempting to blow up overnight.
The Bigger Picture: Key Takeaways and Future Trends
So what do we get from all this?
Small businesses may be small, but the power is huge. They represent 99.9% of all U.S. businesses, create almost half of all private sector jobs, and bring significant innovation and community connectivity each and every day.
But it is not a guaranteed survival. Most owners face a mix of challenges, including tight cash flow, unfilled staffing needs, legal risk, and limited access to credit. And still, they persist.
The landscape of small businesses is changing, however. Here’s what we’re seeing:
The playing field in tech is being leveled. For solo entrepreneurs, artificial-intelligence-enabled tools, cloud-based software, and automation are enabling one to operate like a full-scale team.
90% of work is remote. It allows businesses to tap into wider talent pools and reduce overhead.
Social media and e-commerce represent new frontiers. Companies can go from idea to launch in days, and to scale globally from a spare bedroom.
Community support is growing. Buy-local campaigns, microgrants, and small business incubators have become lifelines that are keeping more founders from being locked out.
The resilience of small business owners, especially in the face of global economic uncertainty, is a testament to creativity, resourcefulness, and drive.
Final Thoughts
Small businesses are not just several numbers crunched on a spreadsheet. They’re the coffee shop on the corner, the Etsy store that helped you stay inspired during lockdown, the local print studio that carefully chooses just the right paper for wedding invitations. They are the beating heart of neighborhoods and the launchpad for countless dreams.
If you’re operating a small business or considering starting one, know this: It’s not easy, but you’re not alone. Millions of people are doing it, day by day, finding ways to grow, meet the challenge, and keep on going.
So here’s to the doers, the builders, the risk-takers. Small businesses are not just a part of the economy. They are the economy.