Research and surveys continue to show that small businesses struggle to thrive, and even survive, for a number of reasons. High among these are lack of access to capital, extensive and expensive government regulations, and taxes.

Of equal or possibly even greater concern is that new research is starting to show that the first two challenges (lack of access to capital and government regulations) are not only making it difficult for existing small businesses to survive and grow, but also actually leading to a reduction in the number of businesses being launched.

The survival of existing businesses and the opening of new businesses, of course, are vitally important to the U.S. as a whole, since businesses are the "engines" of employment and the sources of government tax bases. For example, businesses pay many types of taxes directly, many of them contribute sales taxes (which are paid by individuals with disposable income, who tend to be individuals who are employed), and employees of the businesses pay income taxes on their employment earnings.

According to Jim Clifton, chairman and CEO of Gallup, in a January 13, 2015 article in Gallup Business Journal, the U.S. now ranks 12th among developed nations in terms of business startups. In addition, in 2008, for the first time since measurement of these numbers began 35 years ago, U.S. business deaths began to outnumber business births. In 2011 (the most recent year for which data is available), 400,000 new businesses were launched, but 470,000 died. Prior to that, new business startups outpaced dying businesses by at least 100,000 per year.

Decades ago, starting a small business was a popular thing to do. In 1977, for example, 16.5 percent of businesses were under one year old. In 2011, only half that number (8.2 percent) of businesses were under one year old.

And, of course, every large business started out as a small business. While many small businesses don't become extremely large, some do. According to Clifton, here is the breakdown of employment:

- 5-9 employees: 1,000,000 businesses

- 10-19 employees: 600,000 businesses

- 20-99 employees: 500,000 businesses

- 100-499 employees: 90,000 businesses

- 500-9,999 employees: 17,000 businesses

- 10,000+ employees: 1,000 businesses

Research conducted by Gallup into the drivers of entrepreneurship has been able to provide an explanation for the continuing decline in the number of new businesses being started and the continuing increase in the number of existing businesses dying. That crucial factor, according to Gallup, is the decline in the personal savings rate. Securing adequate financing is vital for existing business owners, as well as for new entrepreneurs seeking to open businesses, and that financing comes predominantly from personal savings.

In addition, the availability of personal savings also directly affects business owners' ability to secure and sustain loans and lines of credit. That is, those wanting to start or continue a small business, but who have little or no personal savings, are less likely to be able to provide collateral and/or convince banks that they can take on extra loan payments.

U.S. Census Bureau data shows that, while the personal savings rate was 13 percent in 1973, it dropped to less than half of that (six percent) by 2011 (the latest year available).

When Gallup first asked entrepreneurs about their sources of startup funding in 2006, 73 percent of them mentioned personal savings as a source, while 37 percent cited a loan or line of credit as the next most common source. (Numbers could total more than 100 percent, since respondents could report two or more sources.)

Savings, loans, and lines of credit have become even more important to business owners and startups since 2006. When Gallup asked this same question in 2014, 77 percent of respondents cited personal savings as a source of start-up funding, and 41 percent cited a loan or line of credit as the next most common source. And, as noted earlier, the number of new businesses being launched decreased consistently over that time period.

A September 17, 2014 Washington Post article suggested one of the reasons that personal savings may be decreasing. That reason is the increasing cost of education, which has been leading to mounting levels of student debt that are facing college graduates who would like to start their own businesses, but who have more debt than savings.

The Washington Post article cited another threat to new business births - that being that the federal government's "current maze of outdated and often contradictory regulations has become enormously detrimental to entrepreneurs." The article added, "The stifling effect of regulatory burden, complexity, and uncertainty is particularly acute for new businesses, because they lack the resources and scale of larger firms over which to absorb and amortize the costs of compliance."

Instant Insights /

Small business challenges affect not only existing businesses, but also startups

More From HR Executive

Related Stories

Recommended For You