With the Shutdown Looming Again, Lawmakers Should Remember Microbusinesses are Resilient, not Unbreakable
February 12, 2019
A recent CNBC article detailed how many small businesses that were adversely affected by the shutdown are struggling to move on. The backlog of SBA loans received a lot of ink, but the impact was much more than that. Technical assistance providers such as the Women’s Business Center, which can help entrepreneurs with anything from accounting and tax aid to training on subjects like exporting, lead generation, or e-commerce were forced to close temporarily or offer reduced hours, limiting their ability to provide much needed services. $500 billion in government procurement was at a complete standstill, so not only did contractors go unpaid but all of their supply chains suffered as well. 41,000 small contractors had their work halted, and a majority are either unable or ineligible to receive back payment. We can put together a laundry list of how the shutdown negatively impacted business owners but the reality is, it will just be the tip of the iceberg. And a significant portion of the damage done will be to the microbusinesses whose open doors help propel the American economy.
Most Americans will be surprised to learn that the vast majority of all private firms in the U.S. (91%) are microbusinesses. My organization, the Association for Enterprise Opportunity (AEO), defines a microbusiness as a firm that employs 0-4 people, plus an owner. Microbusinesses don’t dominate the news headlines the way companies like Walmart, Apple, Google, and Ford do. But overlooking them can be perilous, considering they are a crucial part of our economy. Consider these figures:
• 24.7 million microbusinesses provide over 30 million jobs for their owners and staff, and pump $2 trillion into the economy (U.S. Census Bureau).
• One-third of all nonemployer firms, and 50% of one-person firms earning over $100K, say they hire contractors, adding millions of more jobs to the economy (Federal Reserve Small Business Credit Survey).
• Two-thirds of net new jobs in the U.S. come from new businesses (SBA), and micros tend to be the youngest of all firms.
Nonemployer firms in particular are often ignored due to their size. But 81% of all private firms — 22 million — are nonemployers, contributing nearly $1 trillion to the U.S. economy. Nonemployers earn, on average, $45,000 in revenue annually, which can be significantly higher if the business is older (US Census Bureau). Many of these nonemployer firms are young and at a critical stage in their growth; almost half are less than five years old. With the right support, they have the capacity to command solid revenue streams and create jobs. New nonemployer firms average $22,000 in annual revenue, but nonemployer firms that are more than five years old earn three times that figure. Moreover, about a third of nonemployers will hire an employee in the first year after startup. (Fairlie, Robert. Crossing the Employer Threshold: Determinants of Firms hiring Their First Employee, for SBA Office Advocacy, 2013). For underserved microbusinesses, the right support can become nonexistent in a shutdown.
The numbers get even stronger with microbusinesses that have 1-4 employees — these businesses are older than nonemployers and earn nearly 10 times the revenue. There are 2.6 million of these firms, 10% of all U.S. firms, and they average $408,000 in annual revenue each, adding up to another $1 trillion to our economy. Micros in total, both employer and nonemployer firms, account for 36% of private sector jobs for owners and staff, and create 17% of private sector revenue generated in the United States. They provide essential sources of income for individuals, either as the sole source of all earnings or critical supplemental income that helps pay the bills. So imagine what happens to them and the economy when their ability to function slows to a trickle as they deplete reserves or in worse cases comes to a shuddering halt?
It’s a given that microbusinesses do not thrive in countries where there is a dysfunctional government. On February 6, the House Small Business Committee held a hearing regarding the effects that the recent 35-day government shutdown has had on America’s small business sector, and business owners shared their stories of economic pain. With the February 15thdeadline for the potential continuation of the shutdown looming, it is AEO’s hope that our leadership hears their voices, and those of other imperiled businesses, and sees how much an extended shutdown threatens entrepreneurship in our country.Microbusinesses will survive almost anything you throw at them but they are not invincible.