Updated on April 18th, 2023

10 Facts About Business Before Starting A Business

1) More than 50% of new businesses survive their first year in business. 2) Less than 50% of family-owned businesses are passed to their children. 3) 40% of business experience challenges in the supply chain…

Brad Nakase, Attorney

Email  |  Call (888) 600-8654

There are stories of successful businesses starting based on an entrepreneur’s hunch or a mere chance that they took. While these success stories do indeed happen, and can be inspiring, in general aspiring business owners should rely on data and facts to run a company in the modern age. Statistical facts about businesses businesses can offer insight on various topics, such as surviving the difficult first year in business, managing a labor shortage, and maintaining cash flow. By relying on hard facts, an entrepreneur may enter the business world with open and eyes and controlled expectations. This balanced, measured outlook is more likely to result in sustainable success.

That said, it can be difficult to identify facts about businesses amidst all the noise and nonsense on the internet. A quick Google can bring up seemingly legitimate business facts, but some of these sources may not provide accurate, up-to-date information.

This article will provide aspiring business owners with the facts about small business and trends related to running small businesses in the United States as follows:

1. What percentage of small businesses survive first year?

According to the Bureau of Labor Statistics, approximately twenty percent of small businesses fail within the first year, 30 percent fail by the second year, and fifty percent of small businesses failed by the fifth year.

The most common reasons small businesses fail include poor business models, poor marketing, and inexperienced management. Likewise, according to our business clients, their businesses failed because they ran out of money, had the wrong business partners, or needed to understand their industry.

The fact about businesses is that it is difficult for small businesses to survive long-term. Most owners of small to medium-sized businesses, therefore, have legitimate concerns about making their company stable enough to survive over many years.

For this reason, it is important for small business owners to plan for the long-term. While it is tempting to focus on surviving in the short-term, certain practices can risk the health of the company long-term. For instance, it might not be wise to pour all of one’s resources into a venture in the first few months. Without the proper planning and caution, a business may burn bright in the beginning, then fade away as money and resources run out.

2. What percentage of family owned businesses survive beyond the first generation?

A fact about small business is that less than one-third of family businesses survive the transition from the first generation to the second, and then 50% percent of those businesses don’t make it to the third generation.

In the United States, approximately 40% of family survive through a second generation. However, this number drops down to a meager 13% when it comes to passing the business onto a third generation. Only 3% of family-owned businesses survive into a fourth generation or beyond.

As these statistics show, the odds of passing down a family business over multiple generations are not great. To overcome these poor odds, a business owner should engage in careful planning and take early action. He or she should talk with potential heirs to the business and begin putting in place the necessary legal mechanisms.

3. Almost 40% of Small Businesses Are Currently Experiencing Supplier Delays

Covid-19 pandemic, Russia and Ukraine war, and labor strikes caused large and small business disrupted supply chains in 2020 to 2023. In general, supply chain problems lead to a lack of product availability. Because supply chains play a critical role in our economy, disruptions in shipping and storage affect almost all small businesses.

During times of recession, international crisis, or labor shortages, businesses can suffer from supplier delays. In additions to problems with supply chains, entrepreneurs also have to worry about an increase in the cost of commodities. It is important that small business owners stay focused on changes in commodity prices. These owners should think ahead and be prepared to adapt so they are not caught off guard by economic crises beyond their control.

4. Small Businesses Have Borne the Brunt of Recent Job Loss

A fact about small businesses is that over the past two years, private employment has dropped by more than 15%. While companies with over a thousand employees witnessed a 13.6% drop, companies with between 20 to 49 employees experienced a decline of 21.5%.

Small business that are in retail, wholesale, durable goods manufacturing have a labor shortage. These industries have more unfilled job openings than unemployed workers with experience in their respective industry. Workers are demanding remote work and flexibility and taking time to find jobs that they’ll enjoy.

5. Most Entrepreneurs Use Personal Savings or Loans to Cover Startup Costs

A fact about small businesses is that nearly seventy percent of entrepreneurs said they used personal funds to start their businesses. According to the U.S. Census Bureau, 64% of small business owners use their personal savings and money from their families to start a business, while 16.5% take out a business loan. Three of the most common sources of capital used to fund startups include the following:

  • An entrepreneur’s personal or family savings – 64%
  • Business loans from banks or other financial institutions – 17%
  • Personal credit cards – 9%

Only half a percent of entrepreneurs use venture capital as a way of funding their startups. An aspiring small business owner should therefore be realistic about gathering startup funds. However brilliant one’s idea, it is highly unlikely an investor will offer the funding required. If an entrepreneur does not have personal savings from which to draw money, then loans or credit cards would be the best option.

6. Most High-Tech Workers Are Employed by Big Companies

Large companies with over 500 employees employ almost 65% of high-tech workers. A large firm has the economic scale to support high salaries, meaning that small businesses will have difficulty competing with more prominent companies’ compensation abilities. This means that entrepreneurs must determine how to compete for highly skilled workers using means other than salary. A small business may offer a positive company culture. This might include giving Fridays off, allowing employees to bring their pets to work, or offering gym memberships. These benefits can be just as attractive to skilled employees as high salaries.

7. Sixty Percent of Small Businesses Have a Hard Time with Cash Flow for Various Reasons

One of the significant challenges a small business faces is maintaining a steady cash flow. A fact in small businesses is that cash flow issues can arise from the inability to collect payments, over-investment in capacity or inventory, and low profit margins. The main reasons why a small business might suffer from a cash flow shortage include the following:

  • Decreasing margins or sales
  • Not getting paid according to an agreement’s terms
  • Lack of cash reserves
  • Seasonal demand changes
  • Outstanding receivables

Cash flow issues can present a particularly dangerous problem because they can cause a company to become insolvent. A business owner can anticipate a cash flow issue by managing a simple budget and following it closely. By following a budget, a business owner will have time to respond to a cash flow issue by pursuing financing or by limiting spending.

8. Business Ownership is a Major Source of Family Wealth

According to 2019 to the Federal Reserve, business ownership is an important source of family wealth, representing 34% of non-financial assets. According to JP Morgan, the median net worth of self-employed families was nearly $400,000 and over four times greater than the $95,000 in net worth held by the typical working family. According to the US Census Bureau, family firms comprise 90 percent of all business enterprises. The greatest part of America’s wealth lies with family-owned businesses.

9. Veterans Are the Majority of Successful Businesses

A fact about business is that veterans own almost two million businesses and employ over five million Americans. While veterans make up only seven percent of the United States adult population, their businesses represent about six percent of all businesses. These businesses bring in an extraordinary $950 billion, employing almost 4 million employees with $178 billion in payroll per year.

10. Knowledge and Service Businesses Are Most Likely to Be Based at Home

Some types of small businesses are more likely to be run from an entrepreneur’s home than others. The primary business industries that fall into this category include the following:

  • Information (70%)
  • Professional, technical, and scientific services (65%)

If an individual is considering beginning a home-based small business, then they should take a look at these specific industries.

Summary

There is a lot of information on small businesses on the internet. By paying attention to legitimate sources of data and facts, an entrepreneur can become aware of business trends and stay up to date. This, in turn, can help a small business owner improve his or her operations and make their business a success.

Please tell us your story:

2 + 6 = ?

See all blogs: Business | Corporate | Employment

How to Sell Yourself

Learning how to sell yourself for any situation can benefit you financially.

eBay vs Amazon

A comparison between eBay and Amazon on their pros and cons of selling online.

14 Best Self Employed Jobs

This article will give ideas for leaving your dead-end job or exploring self-employed jobs for extra income.

Community Involvement: Benefits and Ideas

Community involvement is consistent and meaningful participation in community activities that support and bring measurable positive improvements to the community in which your business operates.

What is fiduciary duty?

Fiduciary duty is a legal obligation of the highest degree for the person in trust to act in the beneficiary's best interest.

Responsibility of a Trustee

A trustee assumes the fiduciary responsibility of a trustee by managing the assets and distributing the profits to the beneficiaries according to the trust terms.

When to Hire a Business Attorney

It is prudent for business owners to hire an attorney specializing in business law before facing a lawsuit or issues with employees.

How to Pay Myself as a Sole Proprietor

Sole proprietors pay themselves by withdrawing cash from the business. The cash withdrawals are counted as income and are taxed at the end of the year. 

What Does A Trustee Do?

The trustee acts as the legal owner of trust assets and is responsible for managing the trust's assets, distributing the assets to beneficiaries, and filing tax returns.

How To Make Your Business Stand Out

For companies to stand out, the best team that goes beyond their customers' expectations in happiness and satisfaction can make the business stand out among mediocrity.

Right of Rescission

Under the Truth in Lending Act, the right of rescission refers to the right of a consumer to cancel certain types of loans.

10 Best Credit Card Reader for Small Business

The best credit card reader for small business depends on whether your business does in person sales or online sales. Credit card scanner app for online sales generally has higher rates.

Characteristics of an Entrepreneur Mindset

An entrepreneurial mindset is determined, creative, resourceful, and resilient in the most adverse circumstances. An entrepreneur mindset is often positive thinking and comfortable with discomfort.

How To Start Drive Through Coffee Kiosk

Learn steps to start a drive-thru coffee stand begins with a concept or theme on what the coffee kiosk will look like to the public. Then, you must draft a business plan on how the drive through coffee stand will succeed.

What are the components of a marketing plan?

A marketing plan is a strategic outline businesses use to organize, execute, outreach to specific customers, and track their advertising strategy based on a schedule that includes weekly, monthly and yearly activities.

How to transfer LLC ownership?

Two common ways to transfer LLC ownership are to conduct a partial sale to a third party or sell your entire LLC to a third party.

Why Do Companies Incorporate in Delaware?

The State of Delaware offers companies lenient tax benefits and liability protection. Also, companies that incorporate in Delaware do not have to do business in the state.

What Is Business Communication?

Business communication is exchanging information between employees within the workplace and people outside a company.

What Does a Business Lawyer Do?

A business lawyer provides legal services and educates companies on legal matters, including litigation, best practices, applicable laws, creating legal documents, business formation, conflict resolution, business dealings, business transactions, and best business practices.

See all blog: Business | Corporate | Employment