CHAPTER 9
BUSINESS OPPORTUNITIES

Starting or acquiring a business has long been considered an American dream. For many, this dream is reality, whether it is a part-time venture with annual receipts of less than $25,000 or a corporate entity with receipts of more than $1,000,000 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 homebased business from a variety of sources, including the U.S. Census Bureau and the U.S. Small Business Administration (SBA).

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 persons), 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 report to be compiled is the 2002 Economic Report. However, the business owner survey and other small business–related reports associated with this document were scheduled to be released throughout 2004 and 2005 according to a calendar published at the U.S. Census Bureau's Internet Web site (http://www.census.gov/econ/census02/). As these are released and posted on the Web site, they will become the most accurate data available concerning the state of small business at the turn of the twenty-first century.

As of April 2004 the most current U.S. Census Bureau economic survey with fully available data on small business and homebased business is the 1997 Economic Census. In some instances, this five-year census report does not analyze the data for the same criteria used previously. Therefore, data derived from the 1992 census and published in 1997 as Characteristics of Business Owners Survey, is also used in this chapter.

BUSINESS STARTS

According to the U.S. Census Bureau, more than one-half million businesses started (employer births) each year between 1990 and 2002. (See Table 9.1.) In the years between 1990 and 2002, the highest number of business starts in one year occurred in 1996, with 597,792; the lowest number for one year occurred in 1991 (541,141).

The annual rate of business starts varies from state to state. Table 9.2 provides a state-by-state listing of the number of "employer firm" business starts between 1990 and 2002. These constitute businesses that employ one or more workers. In 2002 the state with the most employer firm business starts was California, with 130,840 business start-ups. However, the states with the highest year-to-year increase in business starts were Arkansas, with an increase of 34.9 percent from 2001 (3,990 starts) to 2002 (5,381 starts); Georgia, with an increase of 23.9 percent (23,211 starts in 2001 and 28,756 in 2002); and Florida, with an increase of 20.5 percent (60,370 in 2001 and 72,720 in 2002). (See Table 9.2.)

Reasons for Becoming a Business Owner

In the Characteristics of Business Owners Survey, one-fifth (21.3 percent) of business owners reported that they became an owner to have a primary source of income, while one-fourth (25.6 percent) wanted to have a secondary source of income. (See Table 9.3.) Another one-fifth (21.5 percent) wanted to be their own boss. Less than 3 percent wanted to bring a new idea to the marketplace. Approximately 8 percent wanted to have more freedom to meet family responsibilities.

According to the Small Business Administration, the receipts of women-owned companies constitute 100 percent of personal income for 19 percent of those with homebased businesses and 26 percent of those with firms not based at home. Among nonminority men who own businesses, 28 percent derive all of their personal income from a homebased business, while 36 percent do the same with their non-homebased companies. (See Table 9.4.)

BUSINESS SIZE

Most business start-ups are very small. In a January 2002 report, Nonemployer Statistics: 1999, the U.S. Census Bureau stated that in 1999 more than 16 million businesses were nonemployer businesses, meaning they had no paid employees. This figure was up 2.8 percent from 1998. This represents just a portion of the small business startups over that period, since many small businesses have some employees. Nearly 60 percent of nonemployer sales were from four sectors of the economy: real estate and rental and leasing ($125 billion); construction ($103 billion); professional, scientific and technical services ($85 billion); and retail trade ($73 billion).

An analysis of 24.1 million full- and part-time business enterprises conducted by BizStats.com revealed that nearly 60 percent had annual revenues of less than $25,000. (See Table 9.5.) The number of businesses reporting revenues of less than $25,000 was 67.6 percent among sole proprietorships, which is the largest category of small business owners.

Another indicator of small business size is whether or not a firm hires employees. Among small businesses surveyed in 1996 and 1997 for the SBA report Homebased Business: The Hidden Economy, only 9 percent of homebased businesses had paid employees, while 32 percent of nonhomebased small businesses reported having paid employees. (See Table 9.6.) According to the SBA report, sole proprietors accounted for 90 percent of all homebased business owners and 74 percent of all nonhomebased small business owners. (See Table 9.6.)

BUSINESS FAILURES

Table 9.1 provides a two-decade overview of business bankruptcies in the United States, as reported by the Administrative Office of the U.S. Courts. The highest number of bankruptcies in one year of this time period occurred in 1987, when more than 81,000 businesses filed for bankruptcy. The lowest rate occurred in 2000, with just over 35,000 businesses filing for bankruptcy.

Bankruptcy is one measure of business failure. Business owners may also choose to terminate their business without declaring bankruptcy. Since 1990, the highest number of employer terminations, meaning business closings that were not due to bankruptcy, occurred during

2001 and 2002. (See Table 9.1.) The years from 1990 to 2002 saw an overall decline in both business bankruptcies and in the number of business start-ups.

The 1992 Economic Census reported that 71.7 percent of discontinued businesses attributed their failure to inadequate cash flow or low sales. Another 8.2 percent thought they were unsuccessful due to lack of access to business loans or credit.

Table 9.7 offers a state-by-state analysis of business bankruptcies between 1990 and 2002. Twenty-five states experienced a decrease in the number of bankruptcies from 2001 to 2002, including Delaware, which saw a 52.8 percent drop, and New Hampshire, which had 36.5 percent fewer bankruptcies. Of the states that experienced an increase in bankruptcies from 2001 to 2002, Utah saw the highest jump, 26.7 percent, with Colorado experiencing a 26.3 percent increase.

Table 9.8 offers a state-by-state analysis of employer firm terminations for the same years. Minnesota had the greatest increase from 2001 to 2002, experiencing 89.8 percent more business closures. Alabama, on the other hand, had an 18.1 percent decrease in employer terminations during the same period.

An analysis of 120 categories of sole proprietorships (single-owner businesses) provides an overview of safest and riskiest small businesses in 2002, based solely on which categories had the highest number of sole proprietorships with profits. (See Table 9.9.) Four health care–related businesses appear among the top ten safest businesses to start: optometrists have a 93 percent likelihood of profitability; dentists, 91.8 percent; mental health practitioners, 87.8 percent; and physicians, 87.1 percent. Also among the top ten are two construction-related categories: special trade contractors, with an 88.2 percent chance of profitability, and residential building construction, with 85.9 percent.

Sole proprietorships experiencing less than 50 percent profitability included health and personal care stores

(49.5 percent); video tape and disc rental stores (48.4 percent); computer and electronic products manufacturing (35.4 percent); and scenic and sightseeing transportation (33.8 percent). (See Table 9.9.)

NUMBER OF BUSINESSES

The U.S. Census Bureau identified 20.8 million firms in 1997 with sales and receipts of $18.6 trillion. Of these businesses, 14.6 percent (over three million businesses) were owned by minorities, generating more than $591 billion in revenues. (See Table 9.10.) According to the Census Bureau's 1997 Economic Census Survey of Minority-Owned Business Enterprises (Washington, DC, 2001), between 1992 and 1997, minority businesses increased in number four times as fast as the number of total businesses in the United States. Although Hispanics

owned the largest number of minority-owned businesses, Asian-owned firms brought in the largest share of revenues. Women owned 5.4 million businesses in 1997, with sales and receipts of $819 billion.

The U.S. Census Bureau also reported that most of the firms were concentrated in the service industries. Forty-three percent of all U.S. firms, 47 percent of the minority-owned firms, and 56 percent of the firms owned by women were classified as services. Retail trade had the next largest share—14 percent of all U.S. firms, 15 percent of the minority-owned firms, and 17 percent of the women-owned firms.

Table 9.11 provides a view of the spectrum of U.S. sole proprietorships in 2000 by number within broad business type category, and by monetary receipts. Broad categories include professional, scientific, and technical services; health care and social assistance; wholesale trade; retail trade; information; finance and insurance; agriculture, forestry and fishing; accommodation and food services; manufacturing; construction; real estate and rental industries; transportation and warehousing; and other services.

HOMEBASED BUSINESSES

The 1999 SBA report Homebased Business: The Hidden Economy gathered information from 125,000 businesses and included two gender categories, as well as three ethnic or racial categories. Included in the sample were businesses owned by women (33 percent); by nonminority men (59 percent); by blacks (3 percent); by Hispanics (4 percent); and by "other minorities," mainly Asian and Pacific Islander, American Indian, or Alaskan Native individuals (4 percent).

Based on 24.8 million nonfarm business tax forms filed in 1998, the SBA estimated in 2000 that the number of homebased businesses had increased between 11 and 33 percent (from nine million to 10–12 million) between 1992 and 1999. Table 9.6 provides a look at characteristics of homebased businesses as compared to nonhomebased small businesses. Among homebased businesses, 90 percent are sole proprietorships. Only 2.1 percent are franchises. More than 86 percent of homebased businesses are likely to be run by the founder, as compared to 72 percent of nonhomebased businesses. Homebased businesses typically generate lower monetary receipts ($37,000) than do nonhomebased businesses ($353,000). (See Table 9.6.)

The SBA reported that while only 6.7 percent of homebased businesses operating in the early 1990s required $25,000 or more in capital, slightly more than one-quarter (25.5 percent) of nonhomebased businesses required that level of start-up capital. (See Table 9.6.)

According to the SBA, there is a measurable gender difference in the use of home for business tasks among full-time self-employed businesspersons. Full-time self-employed women were most likely to engage in production (60 percent), followed by clerical work (29 percent). (See Figure 9.1.) Production refers to the creation of

goods and services. Full-time self-employed male business owners report a higher level of clerical work (51 percent) and lower level of production (28 percent). (See Figure 9.2.) Full-time self-employed women were less likely than men to telecommute to employment outside the home (11 percent of women and 20 percent of men).

Homebased businesses are found in all 50 states, but in some states they represent a higher percentage of all small businesses than in others. (See Figure 9.3.) The nationwide average of homebased to nonhomebased small business was 54 percent according to the SBA study. New Jersey is the state with the lowest percentage of homebased businesses (40 percent of those surveyed by the SBA). Hawaii (64 percent), and Utah and Wyoming (each 63 percent) have the highest percentage of homebased businesses. Research does not quantify reasons for the

differences among states, but some possible factors include variances among state business and tax laws and differences in employment opportunities.

OWNER CHARACTERISTICS

As reported in Homebased Business: The Hidden Economy, small business owners are likely to be male (about 64 percent of homebased businesses; 70 percent of non-homebased businesses); married (76 percent of homebased business owners; 72.2 percent of nonhomebased business owners); and in their mid-40s. (See Table 9.12.)

About half of all small business owners have had some family business experience, and about 25 percent of those who have a college degree majored in business. Homebased business owners were somewhat more likely to have a college degree (21.4 percent) than nonhome-based

business owners (15.6 percent). Approximately 10 percent of business owners have had between 10 and 19 years of prior management experience, and about 20 percent had previous employment by a relative prior to their own business ownership. (See Table 9.12.)

Gender Differences

Among women who own small businesses, the average number of hours worked per week in a homebased business is 32; the average number of hours worked in a nonhomebased business is 38 per week. For men these average hours are 36 per week and 44 per week, respectively. (See Table 9.4.) Women-owned businesses are less likely than those owned by men to have employees.

Minority Business Owners

In general, men own more than two-thirds of all small businesses. (See Figure 9.4.) Across ethnicity and racial groups, the proportion changes, but men continue to own businesses at a higher rate than women. This is particularly noticeable among Hispanic business owners; women own 30 percent of Hispanic-run homebased- and 28 percent of Hispanic-run nonhomebased small businesses. (See Figure 9.4.) Black women on the other hand, are close to equality in black-owned homebased businesses, owning 48 percent of this type of small businesses.

IMPACT OF THE INTERNET

E-Biz: Strategies for Small Business Success, a study published in 2002 by the SBA, reports that the gender differences

associated with Internet use during the mid-1990s have disappeared. Now more women than men report using the Internet for both business and personal use. (See Table 9.13.) Among both men and women, about two-thirds of business owners report that they use the Internet for business. Approximately half of all business owners reported having a Web site for their business (50 percent of women; 54 percent of men).

E-mail is the most frequently used feature of the Internet among business owners. Thirty-six percent of women and 38 percent of men say they use e-mail very frequently. More than half of both men and women characterize their e-mail use as either occasional or somewhat frequent. Less than 10 percent of business owners say they never use e-mail. (See Table 9.14.) After e-mail, the most common reason that business owners say they use the Internet is to transmit files or documents; 22 percent of women and 25 percent of men report 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 is 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 include conducting online meetings (more than 80 percent say "never") and recruiting or hiring employees. (See Table 9.14.)