THE BLOG

More People Are Going It Alone in Business These Days

06/02/2015 11:31 am ET | Updated Jun 02, 2016

The smallest U.S. firms -- the so-called non-employer firms that have at least $1,000 in annual receipts but no employees -- are on the increase, and so are their revenues, albeit minimally, according to the most recent Census Bureau data on these types of businesses.

Firms without paid employees, which the Census bureau says include small "mom and pop" stores, independent contractors and Internet-based retailers, numbered 23 million in 2013, according to the Census Bureau's data release this month. That's a 1.2 percent increase from the 22.7 million non-employers in 2012 and a nearly eight percent improvement from 2008.

2015-06-02-1433258179-4812660-nonemployersnumbercensus.png

Some of the largest increases came in a broad industry category that includes people who run hair salons and provide repairs, maintenance and non-medical pet care. Other industries with some of the biggest gains included real estate and transportation, which includes people who drive limos and taxis. Non-employers, which are often home-based, represent about 80 percent of all U.S. firms, according to Census data, but they account for only about three percent of total receipts among employers and non-employers combined.

Finance and insurance industries lost the most non-employers, followed by mining/quarrying/oil and gas extraction, wholesalers and manufacturers.

"Nonemployer businesses run the gamut from old-fashioned family-run corner stores to home-based bloggers," William Bostic Jr., the Census Bureau's associate director for economic programs, said in a recent press release.

In some cases, the business may be the owner's primary source of income, such as with real estate agents and physicians, but in other instances, they may operate the business as a side job, such as with babysitting and tutoring.

In 2013, these firms collectively increased receipts by 2.1 percent, but their sales average indicates how small these firms are. The average non-employer had receipts totaling $45,729, or nearly $400 more than in 2012, according to the Census data, which is derived primarily from business income tax returns filed with the Internal Revenue Service (IRS). The Census Bureau has said the non-employer data may include many self-employed people whose earnings may not necessarily represent their primary source of income.

Indeed, the largest numbers of non-employer firms are those with 2013 income of less than $25,000, and less than one percent of non-employers have incomes topping $1 million.

Total receipts for this group were $1.05 trillion in 2013, compared with $1.03 trillion in 2012.

2015-06-02-1433258112-8036245-nonemployerssmallercensus.png

2015-06-02-1433258152-4000638-nonemployerslargerreceiptscensus.png

Non-employers are privately held firms, but not all private firms are small, and many grew more quickly than the non-employers, according to data from Sageworks, a financial information company. Privately held firms of all sizes increased revenue by 7.9 percent in 2013, based on a financial statement analysis by Sageworks. Through its cooperative data model, Sageworks collects and aggregates financial statements for private companies from accounting firms, banks and credit unions.

Among the smallest firms in Sageworks' database, those with $1 million or less in annual revenues, sales increased 4.3 percent in 2013, according to the financial statement analysis.

"The Census data release for non-employer firms is not all that surprising, given the trends we see in our broader private-company data," according to Libby Bierman, an analyst at Sageworks.

For the smaller sized firms in the Sageworks database -- those with revenues most comparable to non-employers -- revenue has grown more slowly than at larger, privately held companies. And, that may be partially due to economies of scale that the smaller firms aren't able to achieve at their current state.

One example Bierman pointed to was a limo driver: Without adding staff, it can be difficult for a limo driver to grow the business significantly. "The driver only has so many hours in the day, so growing revenues would be difficult, outside of price increases," she said.

Another factor that may be contributing to slower-than-average revenue growth is the secondary nature of some non-employer businesses. "If this is a second job for someone, they may be happy with earning just X extra dollars each month," she said. "Growth may not be the goal, like it is for many other, larger businesses."