The Small-Business Economy
Small business produces roughly half of the private Gross Domestic Product and between 60 percent and 80 percent of net new jobs.
- American small business is the world's third-largest economy, trailing only the U.S. as a whole and Japan.
- The United States has almost 6 million small employers, 90 percent of which employ fewer than 20 people. Small firms represent 99.7 percent of all employers, and small firms with fewer than 500 employees represent 99.9 percent of the 26.8 million businesses in the country, both large and small.
- There are 29 million tax returns filed reporting some business income.
- In 2005, the number of new employing small businesses increased 4.5 percent from 2004.
- About 6 percent to 7 percent of the U.S. population is in the process of starting a business at any given time.
- About 53 percent of new small businesses begin in the home with less than $10,000. Many start with leased or used capital and equipment. About 3 percent are franchises.
- Small businesses have developed a significant number of this nation's most important inventions and innovations such as heart valves and the airplane. Small firms are twice as innovative per employee as larger firms.
- Small, innovative firms produce 13 times more patents per employee than large patenting firms, and their patents are twice as likely as large firm patents to be among the 1 percent most cited.
- More than 90 percent of adult Americans would either strongly approve or approve of their son/daughter starting a business.
- Women and minorities are starting small businesses in record numbers.
Cost and Availability of Health Insurance
- The cost of health insurance has been the single most important small business problem since the mid-1980s. Health insurance premiums continue to rise. Since 2000, premiums for firms employing three-to-199 people have risen at an annual average of 11.7 percent.
- Sixty percent of businesses employing three-to-199 people offered employee health insurance. However, the figure is 48 percent among those employing three to nine. Both have trended lower over the last five years.
- Twenty-seven percent of the 14 million self-employed, i.e., persons who primary occupation in a year is working for oneself with or without employees, do not have health insurance. Just 25 percent obtain it through their businesses.
- The principal reasons that some small business owners do not sponsor an employee health insurance plan are that the business cannot afford one; revenues are too uncertain; employees have coverage elsewhere; employees cannot afford their share; a large portion of the labor force is seasonal; part-time or subject to high turnover; and employees often prefer wages to benefits. There is a direct relationship between employer income from the business and the provision of employee health insurance.
- Small-business owners (defined as owners of businesses employing three-to-199 people) who can still afford to offer employee health insurance are three times as likely to pay the entire health insurance premium for both individual and family policies as are larger employers. Forty-three percent of small employers who offer health insurance pay the entire premium for individual coverage.
- The federal Family and Medical Leave Act exempts firms with fewer than 50 employees. Yet, virtually all small business owners
accommodate employee requests for short periods of time off, including non-emergency requests. - Insurers of small health plans have higher administrative expenses than those that insure larger group plans.
- Employees at small firms are less likely to have coverage than the employees of larger entities.
Impact of Regulations
- Federal regulations cost small firms (under 20 employees) $2,400 more per employee in 2005--or 45 percent more per employee than
in large firms with 500 or more employees. - Tax compliance regulations cost small firms with fewer than 20 employees 67 percent more per employee than large firms in 2005.
- In 2005, small manufacturing firms paid twice as much per employee complying with federal regulations as medium and large manufacturing firms.
- In 2005, seven states enacted regulatory flexibility legislation modeled after the 1996 Federal Small Business Regulatory Enforcement and Fairness Act (SBREFA). The state laws require analysis of regulatory costs by firm size.
- IRS assistance programs for business owners are too broad for the specific needs of small businesses; yet more small business owners are more likely to seek assistance from the IRS than larger businesses.
- Since the bankruptcy laws were revised in October 2005, small business bankruptcies have declined dramatically. In 2005, 39,000 small firms filed for bankruptcy. In the first two quarters of 2006, only 9,000 small firms had done so.
The Public's View of Small Business
- A net (favorable minus unfavorable answers) 66 percent of the Americans think that small business "exerts a positive influence on the way things are going in the country today."
- A net 55 percent of Americans think that small business has too little influence "on the way things are going in the country."
- Only 15 percent of the U.S. population has not directly or indirectly been exposed to small business ownership. The other 85 percent have been business owners, know small business owners as friends or acquaintances or worked or invested in a small business.
- The American public recognizes the efforts of small business owners. Eighty-one percent believe that small business owners work harder (or much harder) than people like themselves.
Small-Business Employers and Job Creation
- Small businesses employ more than half of private sector employees.
- Small firms created on average about two-thirds of net new jobs, depending on the point in the business cycle. That has been true for several years. Some have found this fact inconvenient and/or controversial, but recent data from the Bureau of Labor Statistics and the Census Bureau make it incontrovertible.
- Small firms provide the first job for most entrants to the labor force. Many of the skills learned in these first jobs, such as showing up on time, learning respect for owners and customers, and learning how to get along with co-workers, last a lifetime.
