Small businesses keep the economy going, but they also face their fair share of challenges. Entrepreneurs must find funding, manage cash flow, pay employees, and cover taxes. We’ve put together 15 small business finance statistics to help you understand how small business owners manage finances and view other important factors related to money in their business.
1. 30% of businesses fail because the owner runs out of money
The number one reason why most businesses fail (42%) is actually due to lack of an available market. About 23% of businesses fail because they had the wrong team, 19% got outcompeted, and 18% said they encountered pricing or cost issues. Other top reasons why most businesses failed included poor marketing, user-unfriendly product, ignored customers and lost focus.
2. Big banks approved around 26.9% of small business loans
Smaller banks have a much higher approval rate around 50.2% Some are also going to credit unions and alternative lenders, which have approved more than 40% of applicants as of November 2018:
- Small banks approved 50.2% of applicants
- Institutional lenders approved 64.7%
- Alternative lenders approved 56.7% of applicants
3. 45% of business owners didn’t know they had a business credit score
According to Nav, 41% of business owners with a business credit score are more likely to get approved for loans. Most business loans that are denied get denied more than once, and it has a lot to do with the applicant’s business credit score.
If your business credit score is non-existent, it’s difficult for lenders to assess your risk level. Even though some businesses have established a credit score, an overwhelming 82% don’t know how to interpret their score, so this is important to prioritize before applying for a loan.
4. Most entrepreneurs feel the government isn’t supporting them as they seek to open or grow their businesses
Kauffman’s 2018 State of Entrepreneurship report found that entrepreneurs believe the government cares more about larger, more established companies over small businesses. About 79% of startup entrepreneurs stated they didn’t receive any support from the government to help them launch their business. About 60% said they didn’t believe the government cared about a business like theirs.
Loans that are backed by the Small Business Administration (SBA) are often viewed as less risky by lenders, but borrowers still need to repay the funds on time. About 17.4% of SBA loans awarded from 2006 through 2015 went into default. It took 4.5 years on average for the loans to go into default after borrowers took them out.
6. Most microbusinesses can get started for $3,000 or less
Determining a budget before you start your business is important so you can have a realistic idea of how much you’ll spend. According to the SBA, most home-based franchises can be started for as little as $1,000 to $5,000. The SBA and QuickBooks also stated that 64% of small businesses are started with less than $10,000.
7. 70% of prospective entrepreneurs believe a cofounder would allow them to take the leap and officially launch their own business
Having a business partner can provide more security ― with both parties making an investment ― and allow you to split the workload which can contribute to more success. The statistics also back this up showing that 87% of entrepreneurs with cofounded businesses say at least one of them have helped make the business more successful. Approximately 76% of business owners believe that a cofounder would have made their business more successful.
8. 40% of small businesses are profitable
While nearly half of small businesses that start to become profitable, 30% break even and 30% are losing money.
9. 86.3% of small business owners take a salary of less than $100,000 annually
While most business owners are earning an income, 30.1% said they don’t pay themselves at all. Most business owners say they pay themselves between $20,000 to $50,000 per year.
10. 19% of small businesses in 2018 generated between $200,000 to $499,999 in annual sales
This includes sales made by full-time business owners only. In 2018:
- 9% made more than $1 million
- 4% made $500,000 to $1 million
- 3% made $150,000 to $199,999
- 14% made $100,000 to $149,999
- 3% made $75,000 to $99,999
- 11% made $50,000 to $74,999
- 12% made $25,000 to $49,999
- 9% made $10,000 to $24,999
- 16% made less than $10,000
11. 60% of small business owners feel they aren’t knowledgeable about accounting or finance
Some of the top challenges businesses are facing when it comes to accounting include keeping track of receivables, managing cash flow, and organizing paperwork.
12. Small businesses overall pay an estimated tax rate of 19.8%
Businesses pay additional taxes for payroll, unemployment, and workers compensation taxes if they hire employees. They also pay for property taxes if they own a physical location.
13. 52% of small businesses owners feel they pay too much in taxes
As a result, 62% feel their accountant could do more to reduce taxes.
14. 28% of small business websites allow visitors to purchase goods or services
Having a website is a must for most small business owners, but you don’t just need to use a website for content marketing. Only 28% of small businesses sell products or services on their website so entrepreneurs could be missing out on a huge opportunity to raise profits.
15. More than one-third of small business owners have raised compensation for employees in the past year
It’s no secret that small businesses contribute to the economy’s growth. They employ more than half of all U.S. workers.
If you’re an entrepreneur, these are the small business finance statistics that you should keep in mind. What do you think about these numbers? Let us know in the comment section below.