A Closer Look at Personal Business Numbers 2

I’ve posted from time to time about the 20 million (or so) businesses in the United States with no employees. I like to think of these as the core, the bedrock foundation of entrepreneurship, the home-office and one-person businesses of today that will generate the growth businesses of tomorrow.

While that’s a nice notion, Steve King of Small Business Labs has an interesting post picking up on some SBA statistics that bring me quickly back to reality. If you rule out the businesses that report less than $50,000 in annual revenue, that number goes down to only about 4 million, not 20 million.

The SBA study is from 2002, six years ago, so the numbers don’t match exactly; their total is less than 18 million, while the more recent total is more than 20 million. Still, you can apply these percentages: 43 percent of the personal businesses had sales of less than $10,000 and 37 percent had less than $50,000. That’s 80 percent–that would be 16 million of the 20 million–that are probably more like hobby businesses, tax-related businesses or part-time businesses. That’s a good thing to keep in mind, for me at least, because I keep thinking 20 million.

True, the $50,000 cutoff is artificial, and there might be another 2 million or 3 million businesses that sell less than $50,000 per year but are still full and complete businesses. Some of these businesspeople make minimum wage or near that now but still hope for the future and keep going. Others undervalue revenue in tax-related tax planning–I don’t mean cheating, just, for example, living in the motel and drawing a wage that might seem lower than average wage because it includes food and shelter.

There’s also the phenomenon of tax-related businesses; businesses that spring up and last for a while and disappear, motivated more by tax law than by normal business practice.

About the Author Tim Berry is the founder of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry. Follow Tim on Google+ Read more »

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  • http://www.smallbizlabs.com Steve

    Tim: I think the number of “real personal businesses” is higher than 4 million – my estimate is 8-9 million.

    My main reason is median household income in the US was about $49,000 in 2002 with the median adult earning about $39,000.

    If you define a “real personal business” as a full time job replacement, then a lot of personal businesses earning between $10,000 and $50,000 accomplish this.

    Obviously this is just an estimate based on limited data. There is still a lot to learn about the self-employed and single person businesses.

    Steve

  • http://timberry.com Tim Berry

    Thanks Steve, I appreciate the addition. That makes a real difference too! Tim.