Small Business Facts
Small business is big business both in the creation of jobs, the employment of workers, and sheer numbers.
The U.S. Department of Commerce defines small businesses as those with fewer than 500 workers. While their bigger brethren employed 57.7 million, those small firms employed 58.6 million workers. In fact, small businesses create 60-80 percent of net new jobs.
Of course, most of us would probably consider a business with several hundred employees to still be pretty large. Those that employ fewer than 20 people employed 21.3 million, over one-third of the small business total. (These statistics are from 2005 numbers as it takes a while to count.)
In 2007, there were just over 27 million businesses in the United States. Small businesses (less than 500 employees) represent 99.9% of them. Of those, close to 80% have no employees. The number of nonemployer firms has risen steadily this decade. And with the currently increasing numbers of unemployed, I doubt that this trend has stopped.
It is well known that most businesses go belly-up in the first few years. The main culprit is undercapitalization. In other words, there wasn’t enough money to get through the start-up phase. Most people starting a business can’t imagine a scenario where people don’t beat a path to their door. Pure optimism and no realism is a sure path to disaster.
For example, let’s look at firms that employ workers (this tends to eliminate “hobby” businesses). In 2007, two-thirds of new firms survive at least two years and 44 percent survive at least four. Just around 3 in 10 are still going after seven years. In real numbers there were an estimated 637,000 of these businesses created. 560,000 closed, and 28,000 went bankrupt.
Dismal? Perhaps. But think of all the businesses that succeed and flourish. I love the fact that I own a small business. While it does mean a lot of hard work, long hours, and having to keep up with lots of minutia, it also gives tremendous freedom and a personal satisfaction that is often missing in traditional jobs.
How do you become one of the successes instead of a failure? Preparation sure helps. Most of the data I used in this article came from the U.S. Small Business Administration (SBA) at www.sba.gov. If you are interested in learning more about small business, the SBA is a great place to start.
Locally we have the Midwestern State University Small Business Development Center (SBDC). The SBDC is a partnership program with the SBA and is staffed with highly trained individuals specializing in providing service and assistance to business owners and potential entrepreneurs. Surf over to www.msusbdc.com to learn about this local resource. You’ll find articles of local success stories, a business start-up checklist, and many workshop offerings. Or call (940-397-4373) or e-mail (firstname.lastname@example.org) to schedule an appointment.
Gary Silverman, CFP® is the owner of Personal Money Planning, a financial planning and investment management firm located in Wichita Falls. You may e-mail him at Gary@PersonalMoneyPlanning.com.