Americans love small businesses. In fact, statistics on small businesses show that 47% of Americans shop small at least twice a week.
It’s not just consumers who love small businesses — the economy does too. You’ve likely heard the saying before, “Small businesses are the backbone of the U.S.,” and it’s true. Millions of new small firms enter the market every year, creating hundreds of thousands of jobs across all industries and millions of dollars flowing into the economy.
However, even with the support they receive, they aren’t without their struggles. Small businesses were hit the hardest with recent turbulent economic times with supply chain delays and inflation rising costs across the board.
Follow along as we look into the small business landscape of 2023 — what small businesses are most profitable, where they thrive, why some fail, and more. For a quick visual on the most insightful small business statistics, jump to our infographic below.
The definition of a small business isn’t as cut and dry as you may think. The U.S. Small Business Administration (SBA) sets the classification parameters, which vary by industry sector, revenue, and employment numbers. Some small businesses, as defined by the SBA, might make millions of dollars in revenue each year or employ hundreds, sometimes thousands, of workers.
For example, a jewelry retailer with an annual revenue of $20.5 million or less is considered a small business. However, the SBA also labels a cosmetics retailer earning $34 million as a small business. Additionally, book publishers with 1,000 employees classify as small businesses, but a new car dealership employing 300 people is not. For a full classification, look to the SBA table of size standards.
Beyond the numerical requirements, small businesses must also be:
Half of small firms operate out of the owner’s home.
The five states with the most small businesses are California, Texas, Florida, New York, and Illinois.
Small businesses account for the following industry market share:
There are 33,185,550 small businesses in the United States.
Most small businesses (43%) classify as LLCs, followed by S corporations at 30%, C corporations at 18%, Sole Proprietorships at 6%, and partnerships at 3%.
Only 21% of small businesses start from scratch. Most (46%) operate on a franchise license, and 35% start from an existing business.
46% of the U.S. workforce is employed by small firms.
Most small businesses (38%) operate with just two to five employees. 18% have six to eight employees and 16% are employed just the business owner. 9% have 11 to 15 employees, 6% have 16 to 20 employees, and 6% have 21 to 30 employees.
47% of small firms faced difficulty filling positions in the past year. The most common challenges include:
Rollovers for Business Startups (ROBS) fund more than half (52%) of small firms. Other common methods of financial sourcing are cash (19%) and SBA loans (13%). Less common methods are term loans (4%) or lines of credit (3%).
Owners spend the following to get their small businesses off the ground:
Small businesses generate more than 44% of U.S. economic activity.
Small business owners make a $63,494 salary on average. The average minimum salary is $29K, and the average maximum is $128K.
17% to 25% of a typical business’s budget is allocated for inventory.
Labor costs account for 70% of small business spend — their largest expense.
14% of owners report cash flow as a main concern, with 11% facing supply chain issues.
The most common challenge for 22% of small business owners is recruiting and retention.
43% of cyberattacks target small firms, with 57% coming from phishing attacks, 33% from stolen devices, and 30% from credential theft.
Human error is the main reason why the average U.S. small retailer has only 63% inventory accuracy.
California, Massachusetts, and Louisiana have the highest success rates in the U.S., whereas Washington, Kansas, and Michigan have the three worst rates.
40% of small businesses will become profitable eventually, but 30% lose money, and 30% break even.
On average, 22% of businesses fail within their first year, 32% in the second, and half by their fifth. After this point, the failure rate slows, and by the 10-year mark, 66% have closed.
The most profitable small businesses are those in:
64% of small business owners use accounting software to manage their books.
50% of small businesses rely on customer relationship management (CRM) tools.
29% of small businesses use artificial intelligence in some manner, from task automation to forecasting analysis.
By 2025, over 50,000 warehouses will hold a combined 4 million commercial robots.
More than a third of companies plan to add more scannable bar codes (SKUs) and bar code scanners to improve inventory accuracy.
3,600 toggles per day Is the number of times a typical worker switches between apps. The toggling tax — the time spent switching between apps and the cognitive effort it requires — adds up to five work weeks each year.
More than half of Amazon sellers make more than $5,000 a month, and 58% spend less than that to start.
It’s common for small business retailers to utilize numerous sales channels. The most common are:
Most small business post frequently on their social media:
55% of small firms are on social media, making it the most popular advertising avenue. In fact, 20% rely on social media for visibility online instead of a website.
Over a quarter of businesses plan to invest more in marketing in 2023 — 18% in digitally and 10% traditionally.
Small businesses account for 60% of Amazon product sales, which translates to 4,000 products sold per minute by small retailers.
91% of consumers prefer to support small firms when convenient, and 74% will actively search out small firms even if it’s inconvenient.
A wide range of products makes Amazon a first choice for 61% of online shoppers.
Some of the most important factors for small business customer service are:
71% of consumers expect better support from a small business.
77% will pay more for better support.
Minorities own about one-fifth of small businesses, roughly 1.1 million companies in the U.S.
41% of small firm owners hold bachelor’s degrees, 29% hold master’s degrees, and 4% have docorates. The remaind small business owners have lower-level degrees — 10% with associates and 16% with high school diplomas or unspecified education.
Small business owners by age:
Small business owners are:
Nearly a fifth of small businesses are owned by immigrants.
There are roughly 1.7 million small businesses owned by veterans.
Follow along to answer some of the most asked questions about small businesses.
Though they may face many challenges, small businesses have many benefits over large corporations. A few of these top benefits include:
As of 2023, there are 33,185,550 small businesses in the United States.
On average, 20% of businesses fail within their first year. After the second year, the failure rate increases to 30% and 50% by year five. By the 10-year mark, it slows and reaches 65%.
Forty percent of small businesses will become profitable at some point, but it may take two to three years. Many business owners find themselves in the red or just breaking even during the beginning years.
On average, small businesses use between 25 and 50 SaaS tools. However, 80% feel they don’t take full advantage of them. Some of the most common tools for small businesses are:
So where is the future of small business headed? Small business statistics show that firms must adapt to the ever-changing playing field. Technology plays a critical part in staying competitive.
If you’re part of the 83% of small businesses planning to invest in technology in the near future, consider a one-stop solution for efficiency. You don’t have the time or funds to pay the toggling tax of shuffling between multiple tools.
Connected inventory performance solutions like Cin7 Core and Cin7 Omni are just that — cloud-based inventory management software that gives growing product businesses an automated and real-time view of the entire inventory life cycle. Integrating with applications allows you to consolidate, streamline, automate, and scale your inventory management from one place.
In compiling our list of insightful small business statistics, we looked to the experts at the United States Small Business Administration, U.S. Census Bureau, Bureau of Labor Statistics, and U.S. Chamber of Commerce. We reviewed direct surveys from small business owners and consumers to round out our collection with information straight from the source. We pulled together fresh data from recent years from various relevant and quality sources.
Our extensive knowledgebase lets you quickly find answers to our most commonly asked questions.
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