The majority of small business owners who work solo struggle to make their companies profitable.
That’s one of the findings of a report released last week by the Federal Reserve Bank of New York that gave a snapshot of non-employer firms, those that have no employees other than the sole proprietor and that comprise 81% of the more than 30 million small businesses in the U.S. The report also found that nearly two-thirds of these owners depend on their businesses as a primary source of their income, but nearly three-quarters have no more than $100,000 in annual revenue.
The report was compiled from a survey of more than 5,800 business owners across the country in the second half of 2018; they included people who have companies that produce goods and services as well as those who are freelancers and those who had jobs but ran a business to provide them with supplemental income. One out of five owners surveyed said they started or bought a business because they couldn’t find work elsewhere.
The report found that running a business is a struggle for many owners. Sixty-two percent reported having financial challenges in the preceding 12 months, with early-stage companies, or startups, the group that reported the most challenges. Nearly half said they had outstanding debt.
One of the challenges the owners face is rising costs; 53% reported their expenses had increased. But only a third said they were passing their costs along to clients or customers — a sign that small businesses remain under competitive pressures a decade after the end of the Great Recession.
And while nearly three-quarters hope to expand their businesses in the next 12 months, nearly 60% expect their revenue to grow. Not surprisingly, nearly all of early-stage companies expect their revenue to increase — new entrepreneurs are often the most optimistic of business owners.
Only one in four of the owners said they plan to hire full or part-time employees. However, that low number is to be expected given that many sole proprietors are freelancers or contract with freelancers to help complete their work.
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