Business Opportunities

BUSINESS OPPORTUNITIES

Starting or acquiring a business has long been valued as part of the American dream. For many Americans, this dream is a reality, whether the business is a part-time venture with annual receipts of less than $25,000 or a corporate entity with receipts of millions of dollars per year. For the purpose of discussing the present and future of self-ownership business opportunities in the United States, the material in this chapter will focus primarily on what has been published about small business and home-based business from a variety of sources, including the U.S. Census Bureau (http://www.census.gov/) and the U.S. Small Business Administration (SBA; http://www.sba.gov/).

In its efforts to estimate the number of small businesses in the country, the U.S. Census Bureau counts Schedule C businesses (individual proprietorship or self-employed individuals), partnerships, and Subchapter S corporations (usually small corporations in which the profits pass through to the owners without being taxed first). It does not count the large number of small businesses incorporated as standard corporations.

Every five years, in years ending in 2 and 7, the U.S. Census Bureau surveys business enterprises and publishes an Economic Census that compiles and analyzes a wide variety of statistical data about business and industry. The entire report is published in stages, starting two years after the designated census date. The most recent reports available are taken from the Economic Census of 2002, and these reports provide the most accurate data available concerning the state of small business at the turn of the twenty-first century.

STARTING A BUSINESS

How Many Americans Are Beginning Small Businesses?

Self-employment is on the rise. In 2005, 10.1% of all workers were self-employed. (See Table 9.1.) This was a 13.1% increase since 1995. The self-employment rate of some groups is rising faster than others. Asians and Native Americans had a self-employment rate of 10.6% in 2005, a 60.6% increase since 1995. African-Americans, while having a relatively low self-employment rate of 4.5% in 2005, are increasing their numbers quickly; the number of self-employed African-Americans increased by 26.6% between 1995 and 2005. Hispanics increased their self-employment rate by 95.7% over the course of that decade; by 2005, 6.7% of Hispanics were self-employed. Although women had a lower self-employment rate than did men in 2005 (7.2% and 12.7%, respectively), their rate rose faster in the 19952005 period than did men's (13.3% and 12.9%, respectively).

According to the SBA, more than five hundred thousand businesses started (called employer births) each year between 1990 and 2006. (See Table 9.2.) In the years between 1990 and 2006, the highest number of business starts in one year occurred in 2005, with 653,100 small business starts that year, followed closely by 2006, which saw 649,700 small business starts.

Why Start a Business?

In the Characteristics of Business Owners Survey conducted by the U.S. Census Bureau in 1992 (http://www.census.gov/prod/3/97pubs/cbo-9201.pdf), business owners were queried on the reasons for embarking on their own business ventures. These particular statistics were not updated in the 1997 or 2002 surveys. The 1992 survey revealed that one-fifth (21.3%) of business owners reported that they became an owner to have a primary source of income, while one-fourth (25.6%) wanted to have a secondary source of income. Another one-fifth (21.5%) wanted to be their own boss. Less than 3% said their primary reason was to bring a new idea to the marketplace. Approximately 8% wanted to have more freedom to meet family responsibilities.

TABLE 9.1
Self-employment demographics, 19952005
Self-employment rate, 2005 Percent change 19952005
NA = Not available.
Notes: Self-employment (incorporated and unincorporated) was the primary occupation during the year. Self-employment figures presented here differ from the published monthly annual averages. Asian/American Indian = Asian, Pacific, Hawaiian, American Indian and Aleut Eskimo. The rate is the self-employment divided by the number of individuals that had any job during the year.
SOURCE: Table 1.3. Self-Employment Demographics, 19952005, in The Small Business Economy 2007, U.S. Small Business Administration, Office of Advocacy, December 2007, http://www.sba.gov/advo/research/sb_econ2007.pdf (accessed February 21, 2008)
Total 10.1 13.1
Female 7.2 13.3
Male 12.7 12.9
Asian/American Indian 10.6 60.6
Black 4.5 26.6
White 10.9 8.7
Multiple race 9.3 NA
Hispanic origin 6.7 95.7
Veteran status 15.1 22.3
TABLE 9.2
Business turnover, 19902006
Year Employer births Employer terminations Business bankruptcies
Note: e.=estimate.
SOURCE: Adapted from Table A.2. Business Turnover, 19852006, in The Small Business Economy 2007, U.S. Small Business Administration, Office of Advocacy, December 2007, http://www.sba.gov/advo/research/sb_econ2007.pdf (accessed February 21, 2008)
2006 649,700 e. 564,900 e. 19,695
2005 653,100 e. 543,700 e. 39,201
2004 628,917 541,047 34,317
2003 612,296 540,658 35,037
2002 569,750 586,890 38,540
2001 585,140 553,291 40,099
2000 574,300 542,831 35,472
1999 579,609 544,487 37,884
1998 589,982 540,601 44,367
1997 590,644 530,003 54,027
1996 597,792 512,402 53,549
1995 594,369 497,246 51,959
1994 570,587 503,563 52,374
1993 564,504 492,651 62,304
1992 544,596 521,606 70,643
1991 541,141 546,518 71,549
1990 584,892 531,400 64,853

The SBA, in Is Entrepreneurship for You? (http://www.sba.gov/smallbusinessplanner/plan/getready/SERV_SBPLANNER_ISENTFORU.html), suggests that potential entrepreneurs assess their strengths and weaknesses as they prepare to start a small business in order to minimize the risks involved. The organization suggests answering questions such as: Are you a self starter? Are you able to get along with people with different personalities? Are you able to make decisions quickly and under pressure? Do you have the ability to commit to long workdays and work-weeks? Are you able to plan? Are you organized? Do you have the emotional stamina and drive to shoulder all the responsibility for your business's success or failure? Are you prepared for the business's effects on your family life? After honestly considering these questions, a potential small business owner may decide to move forward, or not.

Business Plan

All entrepreneurs need a business plan. This document should be a work-in-progress and be updated periodically as the business grows and changes. In Write a Business Plan (http://www.sba.gov/smallbusinessplanner/plan/writeabusinessplan/SERV_ESSENTIAL.html), the SBA outlines essential elements of the process:

  • Executive Summary: Although this section appears first in a business plan, it should be the last section written. This section provides both an overview of the entire plan and a history of the company. It illustrates where the company is and where the owner wants to take it.
  • A Market Analysis: This section should give an overview of the industry the business is in, the outlook of the industry, the business's target market, any marketing test results, and an overview of the competition
  • Company Description: This is a summary of the business, and how different parts of the business fit together. What is the nature of the business? Why will it be successful?
  • Organization and Management: Here is a description of the structure of the business, its ownership, and profiles of all managers and anyone sitting on a board of directors. This section should include a description of the salaries and benefits of any paid managers or board members.
  • Marketing and Sales Strategies: What is the business's marketing strategy? This part includes a strategy for growing the business, distributing the product, and communicating with customers. This section should be very detailed, including whether or not salespeople will be employed, how they will be recruited and what they will be paid, and what specific sales activities the business will conduct.
  • Service or Product Line: This section should include a detailed description of the service or product provided and its benefits to customers. It should also include a summary of any plans to develop new products.
  • Funding Request: This section should detail any funding needed to start or expand the business. It should include current funding requirements, funding requirements for the next five years, long-range financial strategies, and how funds will be used.
  • Financials: If a business is already established, this section should include historical data on the company's finances for the past five years, including income, balance sheets, and cash flow statements. Start-ups as well as established businesses will need to provide prospective financial data for the next five years. Each year's documents should include expected income statements, balance sheets, cash flow statements, and capital expenditures.

What Type of Business?

STRUCTURE. Most small businesses begin as sole proprietorships. In this type of business structure, one person owns the business, usually the person who has the responsibility for its day-to-day operations. Sole proprietors own all of the business's assets and all of its profits, but they also have complete responsibility for its debts. Basically, the owner and the business are one and the same. This is the easiest and least expensive way to organize a business that is just starting out, and this structure gives the owner unlimited control over the business and its profits. However, sole proprietors put both their businesses and personal assets at risk.

In partnerships, two or more people own a single business. Just like in sole proprietorships, the law does not distinguish between the business and its owners. If deciding to set up a business as a partnership, the owners should have a legal agreement that specifies how decisions will be made, profits shared, disputes resolved, and other partners admitted or bought out. Although a business with more than one owner has increased ability to raise funds, each partner is legally liable for the actions of other partners.

Corporations are considered to be a separate entity from the business's owners and therefore can be taxed, sued, and can enter into contracts separately from its owners, called its shareholders. Corporations are chartered by the state in which they are headquartered. This type of structure is more complicated to set up than sole proprietorships or partnerships, but shareholders have only limited liability for the debts of the corporation.

A limited liability company (LLC) is a hybrid business structure that can be set up in most states. It provides both the limited liability protection of incorporation and the flexibility of a partnership. The owners are members of the LLC. This business structure is more costly to set up than sole proprietorships or partnerships, as papers must be filed at the time of setup. The limited liability is time limited, although it can be extended at its expiration.

SIZE. Most business start-ups are very small. The U.S. Census Bureau, in Nonemployer Statistics, 2005 (June 21, 2007, http://www.census.gov/epcd/nonemployer/2005/us/US000.HTM), found that in 2005 there were almost 20.4 million nonemployer businesses in the United States, meaning they had no paid employees. The leading sector for nonemployer businesses in 2005, with approximately 2.9 million, was other services, which included those employed in machinery repair, administering religious activities, personal care services, death care services, pet care services, photofinishing services, temporary parking services, and dating services. Closely following this sector, with almost 2.9 million businesses, was professional, technical, and scientific services, including legal advice and representation, accounting and payroll services, architectural and engineering services, computer services, consulting services, research services, and veterinary services, among others. Other leading sectors included construction (2.5 million) and real estate and rental/leasing (2.4 million).

A 2003 analysis of 24.1 million full- and part-time business enterprises conducted by Patrick O'Rourke in Useful Business Statistics for BizStats (Number of Business by Annual Revenue, http://www.bizstats.com/) revealed that 57.9% had annual revenues of less than $25,000. The proportion of businesses reporting revenues of less than $25,000 was 67.6% among sole proprietorships, which is the largest category of small business owners.

BUSINESS START-UP TYPES. Prospective entrepreneurs may decide to either start a business or buy an existing business. New start-ups can be particularly risky and difficult. Owners must create business plans, attract investors or attain other financing, and deal with the legal issues involved with new start-ups. However, people who choose to start a business have complete control over the entire process.

Buying an existing business may be appealing to entrepreneurs because there will be a drastic reduction in the time and energy needed to start the business, and cash flow may start immediately. If the business has been successful in the past, it may be easier to obtain financing. However, the large initial cost of purchasing an existing business may be a distinct disadvantage.

One way to become a small business owner is to buy a franchise. This is a legal relationship between the owner of a trademark or trade name and an individual who will use that trademark in a business. The franchise governs how the business will be run. Usually a franchisee sells goods or services provided by the franchiser. Franchising has distinct advantages to a prospective entrepreneur: The franchiser provides business expertise in the form of business and marketing plans, training, and the like to the small business owner, while the franchisee brings the energy and drive needed to build a successful small business. Entrepreneurs who choose to go this route will have less control over their businesses than they would if they bought existing businesses or began businesses of their own.

Safest and Riskiest Businesses

O'Rourke, in Useful Business Statistics for BizStats (The Safest and Riskiest Small Business), analyzes 120 categories of sole proprietorships and provides an overview of the safest and riskiest small businesses as of 2002, based on which categories had the highest number of sole proprietorships with profits. Four health care-related businesses appeared among the top ten safest businesses to start: optometrists had a 93% likelihood of profitability; dentists, 91.8%; mental health practitioners, 87.8%; and physicians, 87.1%. Also among the top ten were two construction-related categories: special trade contractors, with an 88.2% chance of profitability, and residential building construction, with 85.9%. Sole proprietorships experiencing less than 50% profitability and therefore were considered high risk included health and personal care stores (49.5%); videotape and disc rental stores (48.4%); computer and electronic products manufacturing (35.4%); and scenic and sightseeing transportation (33.8%).

Data from the Bureau of Labor Statistics (BLS) can also help evaluate the risk inherent in a proposed business. The BLS estimates that, overall, 81.2% of businesses begun in 1999 survived their first year. (See Table 9.3.) Businesses in certain sectors were more likely than others to survive. Businesses in education and health services were most likely to survive their first year (85.6%) as well as the subsequent four years, with manufacturing (84.2% survived their first year) and financial activities (84.1% survived their first year) also having high survival rates. Sectors that had lower than average survival rates included construction (80.7% survived their first year) and information services (80.8% survived their first year).

Perceptions of Success

A 2006 Gallup Poll found that despite the difficulties facing small business owners, most feel successful and say they would do it over again. When asked, Overall, how successful do you feel you have been as a small business owner? eight percent replied they had been extremely successful and another 39% said they had been very successful. (See Figure 9.1.) Nearly half (45%) answered that they had been at least somewhat successful. Only 7% said they had been not too successful or not at all successful.

In addition, according to Dennis Jacobe in the same Gallup Poll (Most Small Business Owners Feel Successful, The Gallup Organization, August 14, 2006, http://www.gallup.com/poll/24103/Most-Small-Business-Owners-Feel-Successful.aspx), 56% of small business owners surveyed

TABLE 9.3
Survival rates of new businesses, by sector and years since birth 19992002
NAICS* supersector First year
(1999)
Second year
(2000)
Third year
(2001)
Fourth year
(2002)
*North American Industry Classification System.
SOURCE: Amy E. Knaup, Table 1. Survival Rates of Previous Year's Survivors, by Sector and Years Since Birth, 19992002, in Survival and Longevity in the Business Employment Dynamics Data, Monthly Labor Review, vol. 128, no. 5, May 2005,http://www.bls.gov/opub/mlr/2005/05/ressum.pdf (accessed February 28, 2008)
National 81.2 81.0 82.6 81.7
Natural resources and mining 82.3 84.5 85.4 83.4
Construction 80.7 81.5 81.5 79.5
Manufacturing 84.2 81.6 83.0 83.2
Trade, transportation, and utilities 82.6 80.9 81.9 81.7
Information 80.8 77.8 78.7 76.2
Financial activities 84.1 82.7 84.2 84.1
Professional and business services 82.3 81.2 82.5 80.3
Education and health services 85.6 85.1 87.5 86.9
Leisure and hospitality 81.2 80.1 82.5 81.6
Other services 80.7 80.3 82.3 82.3

said they were extremely or very satisfied with being a small business owner, and only 12% said they were not too satisfied or not at all satisfied. Four out of five (83%) said they would become a small business owner all over again if given a chance to do something else.

BUSINESS FAILURES AND TERMINATIONS

Business Bankruptcies

Bankruptcy is one measure of business failure. According to statistics from the SBA, between 1990 and 2006 the largest number of business bankruptcies occurred in 1991, when 71,549 businesses filed for bankruptcy. (See Table 9.2.) Since that time, the number of business bankruptcies has declined markedly. In 2006 the number of business bankruptcies was down drastically from the year before; in 2005, 39,201 businesses went bankrupt, while in 2006, only 19,695 businesses met this end.

Table 9.4 offers a state-by-state analysis of business bankruptcies in 2005 and 2006. Only two states, Connecticut and Delaware, saw a rise in business bankruptcies between 2005 and 2006. Some states saw especially dramatic decreases in bankruptcies, including California, which dropped from 4,236 in 2005 to 2,098 in 2006, a 50.5% decrease; Georgia, which dropped from 2,232 in 2005 to 1,148 in 2006, a 48.6% decrease; Minnesota, which dropped from 1,721 in 2005 to 381 in 2006, a 77.9% decrease; Ohio, which dropped from 2,099 in 2005 to 957 in 2006, a 54.4% decrease; Oklahoma, which dropped from 944 in 2005 to 236 in 2006, a 75% decrease; Oregon, which dropped from 1,160 in 2005 to 301 in 2006, a 74.1% decrease; and Utah, which dropped from 449 in 2006 to only 148 in 2006, a 67% decrease.

Business Closures

Business owners may also choose to terminate their businesses without declaring bankruptcy, and it should be noted that business owners may decide to terminate a business for a variety of reasons, including success that leads to a sale of the business, retirement, or merely the decision to pursue another line of workin other words, a business closure does not mean the business was a failure. In 2005 nationwide, 543,700 businesses closed; in 2006, 564,900 businesses closed. Table 9.4 offers a state-by-state analysis of employer firm terminations for those years. Some states saw a decline in the number of businesses closed, including Alaska, California, Delaware, the District of Columbia, Illinois, Indiana, Kansas, Louisiana, Maryland, Michigan, Minnesota, Missouri, Nevada, New Mexico, New York, North Dakota, Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia, Washington, and Wisconsin. Arizona saw a dramatic rise in the number of business closures, from 18,249 in 2005 to 52,375 in 2006, a 187% increase.

DEMOGRAPHICS OF SMALL BUSINESSES

O'Rourke, in Useful Business Statistics for BizStats (Industry Sales by Type of Firm [Sole Proprietorship]), provides a view of the spectrum of the 17.6 million sole proprietorships operating in the United States during 2003 by number within broad business type category and by monetary receipts. When taken together, these businesses had receipts totaling $969.3 billion in 2003. Broad categories include professional, scientific, and technical services; health care and social assistance; information; wholesale trade; retail trade; accommodation and food services; construction; manufacturing; transportation and warehousing; finance and insurance; real estate and rental industries; other services; and agriculture, forestry, and fishing.

The most numerous sole proprietorships in 2003 were special trade construction contractors, with nearly 1.8 million businesses; administrative and support services operators, with 1.4 million sole proprietorships; personal and laundry services operators (1.1. million); and nonstore retailers, operating more than one million businesses. Businesses with the most receipts included special trade contractors ($101.1 billion), residential building construction ($38 billion), investment advice and other investment activities ($37.8 billion), administrative and support services ($36.1 billion), and real estate agents, brokers, managers, and appraisers ($34 billion).

Nonemployer Businesses

The U.S. Census Bureau, in Nonemployer Statistics, 2005, reported that nearly 20.4 million businesses in the United States were operated that year by the owners alone with no other workers. (Sole proprietorships, discussed above, are businesses with a single owner that can have few or many employees.) As defined by the Census Bureau, nonemployer businesses have no paid employees, have annual receipts of at least $1,000, and are subject to federal income taxes. The 2005 national total represented a growth of about 4.6% over the 19.5 million nonemployer businesses counted the previous year.

Nonemployer Statistics, 2005 reported that these businesses accounted for over $951 billion in receipts during 2005. Sectors that provided the largest shares of receipts among nonemployer businesses in 2005 included real estate and rental and leasing ($207.7 billion, or 21.8%); construction ($153.8 billion, or 16.2%); professional, scientific, and technical services ($118.6 billion, or 12.5%); and retail trade ($83.6 billion, or 8.8%). The lowest receipts for nonemployer businesses were in utilities, with $671.3 million.

Home-based Businesses

A home-based business, as defined by the SBA, is a business that is conducted out of a residence with no other headquarters location. According to researcher Harry B. R. Beale of Microeconomic Applications Inc. in Home-Based Business and Government Regulation for the SBA (February 2004, http://www.sba.gov/advo/research/rs235tot.pdf), home-based businesses make up about half of all U.S. businesses. More than two-thirds of

TABLE 9.4
Business turnover by state, 200506
Firm births Firm terminations Business bankruptcies
2005 2006 2005 2006 2005 2006
Notes: State birth and termination totals do not add to he U.S. figure as firms can be in more than one state. U.S. estimates are based on U.S. Census Bureau and Department of Labor, Employment and Training Administration data. Some terminations reflected in the state data may result in successor firms not listed as new firms. Data for total bankruptcies includen territories.
e.=estimate.
SOURCE: Table A.5. Business Turnover by State, 20052006, in The Small Business Economy 2007, U.S. Small Business Administration, Office of Advocacy, December 2007, http://www.sba.gov/advo/research/sb_econ2007.pdf (accessed February 21, 2008)
U.S. total 653,100 e. 649,700 e. 543,700 e. 564,900 e. 39.201 19.695
Alabama 10,575 10,096 10,168 11,128 331 219
Alaska 1,982 1,904 2,294 2,239 83 45
Arizona 21,339 21,555 18,249 52,375 525 261
Arkansas 7,591 9,551 7,021 7,289 426 276
California 121,482 115,684 151,944 149,212 4,236 2,098
Colorado 26,610 22,708 14,035 24,158 1,120 435
Connecticut 9,220 9,516 11,131 11,214 156 219
Delaware 3,299 3,153 3,355 3,295 218 244
District of Columbia 4,316 4,232 3,952 3,111 46 27
Florida 84,890 79,870 58,737 64,423 1,622 991
Georgia 29,804 31,677 29,315 29,787 2,232 1,148
Hawaii 3,763 3,813 3,794 3,789 81 25
Idaho 9,312 9,159 6,334 6,713 141 56
Illinois 30,445 30,230 32,846 33,426 1,042 669
Indiana 14,545 14,653 16,504 13,851 758 376
Iowa 6,004 5,877 6,802 7,248 455 208
Kansas 7,095 6,973 7,330 7,000 410 158
Kentucky 9,617 8,973 8,515 10,230 409 200
Louisiana 9,393 11,034 9,123 8,972 718 476
Maine 4,251 4,497 4,711 4,769 144 85
Maryland 22,083 21,535 21,769 20,745 760 333
Massachusetts 19,723 17,800 18,878 22,376 406 253
Michigan 24,642 23,508 26,971 21,268 1,071 753
Minnesota 12,555 13,739 15,302 14,403 1,721 381
Mississippi 6,071 6,862 6,823 7,898 200 187
Missouri 17,239 15,805 20,109 18,124 438 284
Montana 4,768 4,727 4,394 4,469 129 39
Nebraska 5,127 4,820 4,982 5,117 296 182
Nevada 11,299 10,743 8,485 8,423 333 178
New Hampshire 4,758 4,703 5,406 5,481 586 218
New Jersey 33,022 36,258 32,751 32,959 765 493
New Mexico 5,272 5,536 5,670 5,274 828 95
New York 62,045 61,718 62,667 61,190 2,112 1,201
North Carolina 25,906 26,729 22,867 23,165 612 403
North Dakota 1,893 1,821 2,512 2,181 95 32
Ohio 22,542 22,213 23,429 25,412 2,099 957
Oklahoma 8,609 9,962 7,231 7,829 944 236
Oregon 14,445 15,085 14,804 14,039 1,160 301
Pennsylvania 36,609 34,928 36,989 35,805 1,356 742
Rhode Island 3,677 3,739 4,164 4,572 136 48
South Carolina 12,341 12,373 10,681 11,661 176 82
South Dakota 2,102 2,003 2,354 2,449 196 47
Tennessee 17,484 17,207 17,135 16,395 574 397
Texas 55,858 58,943 55,039 54,479 3,590 2,081
Utah 11,536 13,379 11,871 11,190 449 148
Vermont 1,911 1,957 2,346 2,365 78 36
Virginia 25,061 23,686 21,359 20,972 476 283
Washington 30,353 32,726 40,944 36,331 786 401
West Virginia 3,493 3,823 4,869 4,854 282 114
Wisconsin 13,656 13,371 13,397 13,060 820 307
Wyoming 2,632 2,570 2,689 2,773 84 40

sole proprietorships, partnerships, and S corporations are based in owners' homes.

The BLS, in Work at Home in 2004 (September 22, 2005, http://www.bls.gov/news.release/pdf/homey.pdf), found that in 2004 approximately seven million Americans had home-based businesses. About 1.7 million (23.8%) were in professional or business services, 1.1 million (15.6%) were in construction, and one million were in wholesale and retail trade (14.5%). Smaller numbers of people were employed in education and health services (885,000, or 12.7%), financial activities (848,000, or 12.2%), leisure and hospitality (452,000, or 6.5%), manufacturing (271,000, or 3.9%), transportation and utilities (181,000, or 1%), and information services (181,000, or 1%).

According to Beale, most home-based business owners work alone. Nine out of ten home-based businesses have no employees; 7.2% have between one and five employees; 1% report having five to nineteen employees; and 0.2% have twenty employees or more. In addition, most of these businesses are quite small in terms of receipts. Most (77%) have gross receipts less than $25,000, and 96% have gross receipts less than $50,000. Only 3.5% report receipts of $100,000 or more.

The 1999 U.S. Small Business Advocacy report Home-based Business: The Hidden Economy by Joanne H. Pratt (http://www.sba.gov/advo/research/rs194tot.pdf) gathered information from 125,000 businesses and remains the most extensive consideration of the demographics of home-based business in the United States. Included in the sample were businesses owned by women (33%); by non-Hispanic white men (59%); by African-Americans (3%); by Hispanics (4%); and by other minorities, mainly Asian and Pacific Islanders and Native Americans or Alaska Natives (4%).

Based on 24.8 million nonfarm business tax forms filed in 1998, the SBA report estimated that the number of home-based businesses had increased between 11% and 33% (from nine million to tentwelve million) between 1992 and 1999. Among home-based businesses, 90% were sole proprietorships; only 2.1% were franchises. More than 86% of home-based businesses were run by the founder, compared with 72% of businesses run by the founder that were not based in homes. According to Pratt in the SBA report The Impact of Location on Net Income: A Comparison of Homebased and Non-Homebased Sole Proprietors, May 2006, http://www.sba.gov/advo/research/rs275tot.pdf), home-based sole proprietors earned, on average, less than nonhome-based sole proprietors, although they generated $102 billion in 2002.

Minority Businesses

According to a report within the U.S. Census Bureau's 2002 Survey of Business Owners (Characteristics of Businesses: 2002, September 2006,http://www.census.gov/csd/sbo/cbsummaryoffindings.htm), most business owners in the United States were white, non-Hispanic individuals. Only 6.8% of business owners were of Hispanic origin, even though, as reported in the Census Bureau's national population estimates (May 17, 2007, http://www.census.gov/popest/national/asrh/NC-EST2006-srh.html), the U.S. population was 11.1% Hispanic. African-Americans represented only 5.2% of business owners, while 11.6% of the U.S. population was African-American. Only 0.9% of business owners were Native American or Alaska Native, compared with 1.3% of the U.S. population. Among minority groups, only Asian-Americans, who represented 4.8% of business owners, were overrepresented in comparison with their presence in the U.S. population (4.4%). Minorities were even more underrepresented among business owners who owned firms with paid employees.

Impact of the Internet

The ability of consultants, graphic designers, writers, editors, and others to provide their services via the Internet, and of employees to perform some or all of their work from home, has created a new business category: telecommuting. It has been difficult to determine the exact number of telecommuters in the United States, but various estimates indicate that within the first decade of the twenty-first century, tens of millions of Americans worked exclusively via telecommuting. In 2003, according to data from the BLS in Computer and Internet Use at Work in 2003 (August 10, 2005, http://www.bls.gov/news.release/pdf/ciuaw.pdf), 55.5% of American workers reported using a computer during their job, with approximately 40% of employed Americans using the Internet as part of their job.

Pratt, writing again for the SBA in E-Biz: Strategies for Small Business Success (October 2002,http://www.sba.gov/advo/research/rs220tot.pdf), reported that e-mail is the most frequently used feature of the Internet among business owners. Thirty-six percent of women and 38% of men say they use e-mail very frequently. More than half of both men and women characterized their e-mail use as either occasional or somewhat frequent. Less than 10% of business owners said they never used e-mail. After e-mail, the most common reason that business owners said they used the Internet was to transmit files or documents; 22% of women and 25% of men reported that they use the Internet for this purpose very frequently.

For most other business-related activities, including conducting fact-finding research, selling products or services, purchasing products or services, and seeking business opportunities, Internet usage was generally rated as occasional or somewhat frequent, if at all, by business owners surveyed by the SBA. The Internet capabilities least likely to be used by business owners included conducting online meetings (more than 80% said never) and recruiting or hiring employees.

WEB-BASED BUSINESSES. According to Plunkett Research Inc. (http://www.plunkettresearch.com/Industries/AdvertisingandBranding/advertisingandbrandingtrends/tabid/84/Default.aspx), in December 2007 there were ninety million home and business broadband Internet connections in the United States. Broadband connections enable the rapid transmission and use of text and graphics from the Internet. With this expanding popularity of high speed connections and use of the Internet, businesses that cater to Internet users and to people or companies running a business over the Internetknown as e-commercehave grown. Examples of goods and services available to help Internet users include Web-hosting Internet sites (which provide storage, connectivity, and services needed to manage the files of a Web site), Internet software, virtual assistants (where services such as accounting, meeting organization, secretarial, and even some administration are provided to an existing business), e-mail marketing, and Web-site design. Because some of these services can be provided using home-based computer systems, Web-based businesses designed to serve Internet users have become very popular as a part-time occupation for homemakers or as a full-time, home-based occupation.

Maintaining an Internet site is not a complex undertaking. If the site is popular and is visited by many people, it provides an attractive forum for advertisers, which increases revenue for the site owner/business owner. In 2007 online advertising revenues on Internet sites in the United States generated close to $25 billion, according to Plunkett Research. Furthermore, retail sales over the Internet are rising. According to figures from the Department of Commerce in the U.S. Census Bureau News (Quarterly Retail E-Commerce Sales, February 15, 2008, http://www.census.gov/mrts/www/data/pdf/07Q4.pdf), U.S. retail e-commerce sales in the last quarter of 2007 were $36.2 billion, an increase of 4.6% over the previous quarter and an increase of 18% from the fourth quarter of 2006. Such figures indicated an area of the American economy that offered favorable opportunities to small business operators working through the Internet.

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