Small Business FAQ

How do regulations affect small firms?
Very small firms with fewer than 20 employees spend 45 percent more per employee than larger firms to comply with federal regulations. These very small firms spend 4.5 times as much per employee to comply with environmental regulations and 67 percent more per employee on tax compliance than their larger counterparts.

How many businesses open and close each year?
Estimates for businesses with employees indicate there were 580,900 new firms and 576,200 closures (both about 10 percent of the total) in 2004.

What is the survival rate for new firms?
Two-thirds of new employer establishments survive at least two years, and 44 percent survive at least four years, according to a new study. These results were similar for different industries. Firms that began in the second quarter of 1998 were tracked for the next 16 quarters to determine their survival rate. Despite conventional wisdom that restaurants fail much more frequently than firms in other industries, leisure and hospitality establishments, which would include restaurants, survived at rates only slightly below the average.

Earlier research has explored the reasons for a new business’s survivability. Major factors in a firm’s remaining open include an ample supply of capital, the fact that a firm is large enough to have employees, the owner’s education level and the owner’s reason for starting the firm in the first place, such as freedom for family life or wanting to be one’s own boss.

Sources: “Survival and Longevity in the Business Employment Dynamics Database” by Amy E. Knaup, Monthly Labor Review, Volume 128, Number 5 (May 2005), p. 50-6; “Redefining Business Success: Distinguishing Between Closure and Failure” by Brian Headd, Small Business Economics, Volume 21, Number 1 (August 2003), pp. 51-61.

How can I get more information?
For more detailed information visit www.sba.gov/advo/. Sign up at http://web.sba.gov/list for email delivery of news releases, The Small Business Advocate newsletter, small business research findings and statistics and regulatory communications. Office of Advocacy economic research can be found at www.sba.gov/advo/research.

Is there a PDF version of the FAQ?
Yes, it is located at http://www.sba.gov/advo/stats/sbfaq.pdf.

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