Management & Labor

Where New Businesses Are Starting Up

New Census data show the areas of the country where more businesses are being established.
by | December 28, 2015
Much of the growth in new businesses stems from an increase in minority-owned firms.
Much of the growth in new businesses stems from an increase in minority-owned firms. (Portland Development Commission)

More than half a million new businesses were established over the five-year period that ended in 2012, according to new data released by the Census Bureau that show the types of businesses being created and where they’re opening up.

Among the findings: Several cities registered sizable gains in new businesses, fueled in large part by growth in minority-owned companies. Most local jurisdictions added businesses since the last time the Survey of Business Owners was conducted in 2007, although small firms with no employees account for much of the growth. At the same time, the national tally of firms with paid employees has dropped 5 percent since 2007. (Estimates published from the Survey of Business Owners, conducted once every five years, are current as of 2012 and cover all nonfarm businesses filing IRS tax returns.)

New Orleans, which was only a couple years removed from Hurricane Katrina when the last survey was taken, saw its total number of firms increase by 53 percent -- the top growth of any city with at least 10,000 businesses. Newark, N.J., +38 percent; Memphis, Tenn., +36 percent; and Laredo, Texas, +34 percent, similarly recorded large gains over the five-year period. By comparison, the national tally of all businesses rose 2 percent from 27.1 million in 2007 to 27.6 million in 2012.

What’s behind increases in individual cities could be explained by a number of factors. Some areas, for instance, benefit from strong regional economies or industries that support many small businesses, such as construction and real estate.

This table shows changes in total and racial and ethnic minority-owned businesses between 2007 and 2012 for all cities and towns with at least 10,000 firms:

NOTE: Minority businesses are owned by those not identified as Non-Hispanic white.

SOURCE: Governing analysis of U.S. Census Bureau 2012 Survey of Business Owners, 2007 Survey of Business Owners

Interestingly, much of the growth stems from new minority-owned firms, the vast majority of which are self-employed individuals operating unincorporated businesses. The number of black-owned firms grew about 34 percent, while Asian-owned firms climbed 24 percent from 2007 levels, according to national Census estimates. An even larger increase -- 46 percent -- was recorded for Hispanic firms, prevalent in places like El Paso and Miami. Data suggests Hispanic-owned businesses are overrepresented in certain industries, such as the sector that encompasses administrative support, waste management and remediation services.

In addition, the number of businesses owned by women climbed 27 percent to nearly 10 million in 2012. These firms, the vast majority of which are without paid employees, currently account for just over a third of all businesses nationally and are most prevalent in the health care and educational services sectors.

Veteran-owned businesses also increased 3 percent from 2007. They account for about 9 percent of all U.S. firms.

For non-Hispanic whites, the 2012 estimates suggest a loss of 1.1 million firms nationally, or a decline of 6 percent. This is most likely due to a survey methodology change, however. In the 2007 survey, respondents writing in Hispanic or Latino ethnicity in the race write-in boxes were categorized as "white." In the latest survey, the Census Bureau treated these responses as "some other race." As a result, the total number of firms for the "some other race" category jumped from 80,777 in 2007 to 1,174,340 in 2012.

The tally of total businesses alone, though, isn't the best gauge of how a local economy might be expanding. It's important to note that only about one-fifth of all businesses reported having paid employees. Most of the new businesses are small firms operated by self-employed individuals, providing them with a primary or secondary source of income. The Census Bureau's estimated count of these nonemployer firms climbed 4 percent from 2007 to 2012, while the number of businesses with paid employees actually declined 5 percent.

One explanation for the difference is that the 2007 survey occurred just before the official start of the Great Recession, while the latest snapshot of business ownership was taken at a time when the national unemployment rate still topped 8 percent. Some nonemployer firms likely reflect self-employed individuals who couldn't find jobs and started small businesses to make up for lost income.

At the local level, a review of the data show that a slight majority of larger cities lost businesses with paid employees, with the decline averaging -1.6 percent over the five-year period. Phoenix, hit hard in the housing market crash, lost an estimated 3,578 employers, the most of any city.

McKinney, Texas, (+49 percent) and Frisco, Texas, (+38 percent) -- two of the nation’s fastest growing cities -- recorded the steepest percentage increases in total employers. Austin added an impressive 1,800 employers over the five-year period, and several cities home to many retirees also saw notable increases in new businesses.

This table compares 2007 and 2012 estimated total and minority ownership for only businesses that reported employing paid workers:

Data shown for jurisdictions with 10,000 or more total firms. Minority businesses are owned by those not identified as Non-Hispanic white.

SOURCE: Governing analysis of U.S. Census Bureau 2012 Survey of Business Owners, 2007 Survey of Business Owners

The latest estimates also suggest a near across-the-board decline in employers for major sectors. Industries shrinking the most nationally between 2007 and 2012 include:

  • Construction: -152,976 employers (-19%)
  • Finance and insurance: -28,223 employers (-11%)
  • Real estate and rental and leasing: -34,032 employers (-11%)
  • Manufacturing: -30,988 employers (-11%)
  • Retail trade: -61,751 employers (-9%)

Business Ownership Data For All Cities

Data Notes

  • Results for some cities were either not published or were suppressed.
  • The Survey of Business Owners is conducted for companies or firms rather than for individual establishments (locations).
  • The Census Bureau estimates numbers of businesses from a sample of different datasets; a complete census of all businesses is not conducted.
  • A change to the methodology affects comparability from prior surveys for “white” and “some other race” ownership categories.
  • See a list of definitions used.
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