02/10/2005
CONTACT: Michelle Dimarob at (202) 554-9000
WASHINGTON, D.C., Feb. 10, 2005--Home, it is said, is where the heart is. But it is also the primary location for more than one-in-four American small businesses that have employees, according to a study of small-business structure released today by the NFIB Research Foundation. The poll studies the organizational structure of small businesses.
"The overwhelming majority of these small businesses have fewer than 10 employees," said William J. Dennis, Senior Research Fellow for the foundation. "But their main location could be the owner's garage, basement or spare room." Such businesses include contractors, insurance agencies and repair shops.
Even among those whose business is located outside the home, slightly more than one-quarter (26 percent) have home offices, such as a single room that is used solely for business purposes.
More than three-fourths of small employers (78 percent) reported having a single business location, while 14 percent said they have two sites. A majority of those who own multiple locations do not venture outside state borders. Only 1 percent indicated that they operated at least one location outside the United States.
Fifty-nine percent of American small businesses with employees are owned by a single individual; 27 percent have two owners. Respondents to the survey confirmed that the number of owners and the composition of ownership changes little over time.
Dennis said the data show 85 percent of small firms are operated by owner-managers. "Those positions begin to separate as firms get larger," he noted. Ownership and management is usually separated in large, publicly held firms.
Growth is a strong motivator for employee specialization. For example, more than one third of small employers have at least one person whose sole function is related to financial affairs such as accounting or bookkeeping. But researchers also found that small firms usually shift to a non-ownership management structure before employee specialization is introduced.
Management structures beyond the owner tend to appear when small businesses have relatively few employees, the data determined. More than one-third (35 percent) of all employing businesses have at least one employee-not including the owner-whose primary job is to direct, manage or supervise others.
Two-thirds of those firms with between 10 and 19 workers have at least one individual dedicated to management. Once small firms reach the 20-employee threshold, the share with at least one management person rises to 80 percent.
A majority of small, employing firms are corporations. The most common legal form is the Sub-chapter S-corporation (31 percent). Close behind at 26 percent are C-corporations, followed by proprietorships, the choice of legal structure for more than one-fifth (21 percent). Twelve percent designate themselves limited-liability corporations and just 6 percent operate as partnerships.
Once they select their legal structure, the study found, small firms rarely change. Of those who do shift, most move away from proprietorships to other forms. Changes are most frequently implemented by small-business owners to protect themselves from liability.
Boards of directors are more likely to serve simply to fulfill legal requirements, said nearly seven in 10, while 27 percent viewed them as advisory bodies.
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The executive interviewing group of the Gallup Organization collected the data for this National Small-Business Poll for the NFIB Research Foundation. The interviews were conducted in December from a national sample of small employers. "Small employer" was defined for purposes of this survey as a business owner employing no fewer than one individual and no more than 249. The National Federation of Independent Business (NFIB) is the nation's largest small-business advocacy group. A nonprofit, nonpartisan organization founded in 1943, NFIB represents the consensus views of its 600,000 members in Washington and all 50 state capitals.
