The state of small businesses in 2025

By definition, a small business has less than 500 employees and annual revenue less than $7.5 million. Businesses that fall under this category account for 61.7 million employees, or 46.4% of the private sector workforce.

A DEEPER DIVE

According to the Pew Research Center, among the approximately 6 million small businesses with employees, 49% have just one to four workers. Broken down further, about a quarter (27%) have between five and 19 employees; 8% have 20 to 99; and just 1% have 100 to 499 workers. The remaining 14% had paid employees at some point during the year.

FAMILY-OWNED BUSINESSES

The numbers are not as bleak as we may think.

According to recent studies, family-owned businesses represent a significant portion of the American and global economy:

• There are 32.4 million family businesses in the United States, accounting for 87% of all business tax returns (FEUSA, 2021)
• They contribute 54% of private sector GDP (approximately $7.7 trillion) and employ 59% of the private sector workforce (83.3 million jobs) (FEUSA, 2021)
• 35% of Fortune 500 companies are family-controlled (Astrachan & Shanker, 2003)
• Family firms generate 64% of U.S. GDP and employ 62% of the workforce (Astrachan, Kellermans & Pieper, 2021)

Looking at the numbers, it becomes apparent that family-owned businesses are still the foundation of the American economy.

According to the Business Initiative, family-owned businesses have advantages that other businesses don’t have.

Family-owned businesses also have unique troubles that others don’t. First and foremost is longevity, or succession.

• Only 30% transition to the second generation, 12% survive to the third generation, and only 3% make it to the fourth generation or beyond (Astrachan, 2003)
• 72% of family businesses want to ensure the business stays in the family, but only 34% have a robust and documented succession plan (PwC, 2023)
• 31.4% have no estate plan beyond a will, while 37.4% have buy-sell agreements (MassMutual, 2007)

ISSUES FOR ALL SMALL BUSINESSES

Whether family-owned, a corporation, publicly traded, or privately owned, as reported in a March 6, 2025, Goldman Sachs article, fully 69% of small businesses are optimistic regarding business in 2025, with 78% having plans to grow their business this year.

HIRING REMAINS A CHALLENGE

According to the same Goldman Sachs article, 4% of small businesses are currently hiring full-time or part-time employees, but 89% of small businesses hiring are finding it difficult to recruit qualified employees.

• They cite competition with larger employers on pay and benefits (62%), lack of qualified workers (53%), and high labor costs (52%) as their top challenges recruiting qualified candidates.
• 33% of small businesses have lost employees or potential employees because their company doesn’t offer the same types of benefits that larger employers provide, such as paid leave, retirement, healthcare, and child care.

ACCESS TO AFFORDABLE CAPITAL

More than half (53%) of small businesses cannot afford to take out a loan given current interest rates, and 88% said it would help their business if interest rates were to fall.

In the past year, 35% have applied for a new business loan or line of credit, and 80% report that it was difficult to access affordable capital.

INFLATION, RED TAPE, AND BENEFITS

More than half (57%) of small business owners said their business is being held back by regulatory red tape and compliance.

Ninety-five percent of small business owners believe the federal government should do more to tailor programs and services that reflect small business owners’ realities and needs. Top 3 small business priorities for the new administration

1.  Address inflation (54%)

2.  Expand healthcare, retirement, and paid leave benefits (37%)

3. Reform tax policy (34%).

Eighty-nine percent of small business owners say it is essential for Congress and the new SBA Administrator to comprehensively modernize the SBA, and they think the SBA should prioritize the following changes: Increase access to affordable capital (50%), decrease the regulatory burden and cut red tape for small businesses (47%), support more workforce development and training (34%), modernize communication systems and technology (34%), and increase small business procurement goals and accountability (32%).

DON’T PANIC

Wall Street is tumbling, tariffs are on and off again, recession fears are making the news, and everyone is waiting for the shoe to drop. How does a small business cope? Here are a few ideas:

·     Make no rash decisions. With an unsettled business environment, the best advice is to wait before making big changes.

·     Develop a financial resilience plan. There will be more economic challenges in 2025, including (possibly) rising interest rates, inflation, and supply chain disruptions.

·     Stay informed. Regulatory changes are coming fast and furious, and you need to stay on top of them, and have a plan to respond.

·     As a result of DOGE’s access to sensitive government databases, the potential for data breaches will increase. Protecting your data and that of your clients should be a priority.

·     Employee morale. Communication will be critical. Keeping your employees informed about company changes and their rationale will go a long way towards easing employee anxiety.

HOW CAN ASN HELP?

During turbulent times, having a trusted source of information is critical. Our professionals at ASN are continually monitoring the changing business dynamics and are available to advise you regarding your specific business needs and challenges. Just give us a call – we would love to talk.