Small businesses, defined as those with fewer than 500 employees, are vital to the U.S. economy, accounting for nearly all businesses and close to half of private sector employees. Business formations serve as an indicator of job creation and productivity growth, with the 2020 COVID pandemic seeing a surge in new business formations due to factors such as increased household wealth, government stimulus checks, and more time spent at home. Higher savings rates allowed entrepreneurs to invest in new businesses, with increased lay-off rates providing people with the opportunity and time to start their own ventures.
In 2022, there were 5.5 million new business formations, almost double that of a decade ago. However, there has been a slight decrease in business births following the peak during the pandemic. States like Florida, Texas, and California, which had the highest number of business births during the pandemic, have also seen a decline in those numbers. Florida led the way with 669.6K new businesses, followed by Texas with 422.8K and California with 418.9K. Texas, in particular, has seen significant population growth, attracting both new and existing businesses with its business-friendly policies.
While California is the most populous state and has the largest economy, it experienced the largest decline in business births from the previous year. Other states with over 200K business births included Delaware, Georgia, and New York. In terms of productivity, Delaware, Florida, and Georgia were the most productive states relative to their populations. The top industries for new business formations in 2023 were professional services, healthcare, construction, manufacturing, and retail trade.
States with the highest year-over-year birth growth in 2022 were Idaho, Wyoming, New Mexico, and Colorado. Idaho saw a 40% increase in business births, with Wyoming close behind at 37%. However, most states experienced negative business birth growth from 2021 to 2022, with New Hampshire seeing the most significant decline at negative 68.9%. Supporting small business-friendly policies will be crucial in helping new businesses thrive and attracting more entrepreneurs to create jobs and contribute to the economy.
While the future of new business formations remains uncertain, the entrepreneurial spirit in the U.S. is strong. Policies that support small businesses will play a key role in ensuring the success of these new ventures and potentially encouraging more individuals to enter the market and spur economic growth. The data analyzed by BrightQuery from State and Federal agencies sheds light on the evolving landscape of small business formations in the U.S. amidst changing economic and social conditions.
