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September 17, 2021

10 Small Business Facts Every Entrepreneur Should Know

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Fora Financial

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However, it can be hard to find the most reliable and important facts among all the noise. After all, a quick trip to a search engine will provide plenty of top business facts. To ensure that you're aware of the latest trends, let's review 10 small business facts that every entrepreneur should know about.

The Top Business Facts You Should Be Aware Of:

1. The majority of small businesses survive their first year, but not their fifth

The majority of small to medium sized business owners have concerns about the longevity of their company. In 2017, over 79 percent of the small businesses created made it to 2018. Yet in the decade from 2008 to 2018, only 45 to 51 percent of businesses made it to their fifth year. For small business owners, this is yet another reason to think long-term. While you may have to make decisions that ensure short-term survival, that doesn’t mean you should risk your future. Source: SBA Office of Advocacy

2. Most family businesses aren’t successfully passed down

About 40 percent of U.S. family businesses transition into a second generation business. Only 13 percent are passed down successfully to a third generation and 3 percent survive to a fourth or beyond. As you can see, the odds of a passing down a business over multiple generations aren’t good. Overcoming those odds requires careful planning and early action. If passing the business down is a priority, talk with potential heirs and start putting the proper legal mechanisms in place. Source: Cornell School of Business

3. 37.3 percent of small businesses are experiencing supplier delays

Shutdown, labor shortages, and other complications caused by the COVID-19 pandemic are still impacting businesses. In addition to supply chain issues, many entrepreneurs are increasingly concerned about commodity cost increases. Small business owners should keep a close eye on changes in commodity prices to ensure they’re ready to adapt. Source: SBA Office of Advocacy

4. Small businesses have born the brunt of job loss caused by COVID-19

Since March 13, 2020, total private employment dropped by more than 15 percent. Companies with 20 to 49 employees saw declines of 21.5 percent, while companies with 1000+ employees saw a 13.6 percent decline. Entrepreneurs should use statistics like this to educate their local policy makers about how serious this crisis is for small businesses. Source: SBA Office of Advocacy

5. Most entrepreneurs use loans or personal savings for their startup costs

The top three sources of capital used for business startup costs are:
  • Personal/family savings of the entrepreneur: 64.4 percent
  • Business loans from banks or financial institutions: 16.5 percent
  • Personal credit cards: 9.1 percent
Just 0.5 percent of entrepreneurs use venture capital. So if you’re looking to start or acquire a business, adjust your expectations accordingly. Venture capital is very hard to acquire and unless you have savings, loans or credit cards are likely your best option. Source: The Kauffman Institute Capital Report New call-to-action

6. Most high-tech workers are employed by large companies

Well over half (63 percent) of high-tech workers are employed by firms with over 500 employees. Without the economies of scale of a large firm, small businesses are hard-pressed to compete with large firms’ compensation plans. Therefore, it’s up to entrepreneurs to learn how to compete for highly skilled workers using factors other than salary. Source: SBA Office of Advocacy

7. 60 percent of small businesses struggle with cash flow, and the reasons vary

One of the biggest challenges that small business owners face is cash flow shortages. The top five causes for cash flow issues are:
  1. Decreasing sales or margins
  2. Not getting paid according to terms
  3. Lack of cash reserves
  4. Seasonal demand fluctuations
  5. Outstanding receivables.
Cash flow issues are especially dangerous because they can cause your business to become insolvent. By creating a simple budget and paying attention to it, most of these issues can be anticipated. That gives you the time you need to pursue financing or limit spending. Source: Quickbooks 2021 State of Small Business Payments and Cash Flow

8. Business ownership is an important source of family wealth

For non-Hispanic White families, business equity represents about one out of every three dollars of non-financial assets. For Black or Hispanic families, it’s one out of every eight dollars of nonfinancial assets. Due to this, entrepreneurs should advocate for more people of color to be given business ownership opportunities. Source: SBA Office of Advocacy

9. Veterans are ideal candidates for small business ownership

Despite representing just seven percent of the adult population, veteran-owned businesses make up about 5.9 percent of all businesses. These businesses generate an estimated $947.7 billion in receipts, approximately 3.9 million employees, and about $177.7 billion in annual payroll. Clearly, this shows that business ownership is a great potential career path for veterans. With so many veterans struggling to integrate into society, it’s important to increase awareness about their business opportunities. Source: United States Census Annual Business Survey

10. Knowledge and service businesses are most likely to be home-based

The business industries that are most likely to be home-based are:
  • Information (70 percent)
  • Professional, scientific, and technical services (65 percent)
Therefore, if you’re considering starting a home-based business, these industries are your best bet. Source: Small Business Administration (SBA) Office of Advocacy

Conclusion: Continue Researching The Latest Business Facts

The Internet abounds with reams of data and statistics relevant to your business. Due to this, when you start a business, you should commit to staying up-to-date on the latest business facts. By being aware of business trends, you can improve your operations and avoid business failure.