In the latest small business report from the JPMorgan Chase Institute, analysts chose to further segment the small business population in order to provide an improved outlook on the way small business owners manage their finances on a daily basis. 1.3 million small businesses — and 3.1 billion transactions — with Chase Business Banking accounts were studied over the period between October 2012 and February 2018. Data analysts reviewed the daily revenues, expenses, and cash flows for each business. All data was anonymous.
The analyzed segment was further broken down into the following categories:
- Financed Growth: Companies in this category sought to attain a scale-based competitive advantage, and utilized outside financing to support their assets. Even though many companies in this category will fail, they could make a great impact on the economy. Imperial Advance has been helping financed growth companies in all industries with a range of customized lending solutions for small business, including early-stage financing; a business line of credit; short-term small business loan; working capital loan; purchase order financing; bad credit business loans; unsecured business loans; and inventory loans.
- Stable Small Employers: Usually, these companies employ five to 20 individuals. While small in size, they are stable and sustainable. They also are likely to utilize an electronic payroll system to pay their employees.
- Organic Growth: These companies try hard to not use external financing, but when they do it’s specifically for growth purposes. These companies sit on the edge of growth and decline, and some businesses in this category vacillate between employer and non-employer status.
- Stable Micro: This is the second largest category of small businesses. Usually, there are zero to a handful of employees. They typically economically support large quantities of households of small business owners.
Now that the segments have been analyzed and defined, let’s take a look at the findings from the “Growth, Vitality, and Cash Flows: High-Frequency Evidence from 1 Million Small Businesses” report.
Organic Growth Businesses Generate Most Revenue/Payroll — But Also Most Likely to Close Down
JPMorgan found that six out of 10 small businesses fall into either the organic growth or financed growth categories. As such, these companies take big risks — which has the potential to lead to big fails. In fact, 31% of organic growth companies and 20% of financed growth companies close by their fourth year of business. Organic growth firms find great success when they can, accounting for the majority of revenue and payroll among their small business peers.
Organic Growth Firms are Found in Every City and Industry, While Financed Growth Companies are Typically Concentrated in a Few Industries and/or Cities
Every American city has large proportions of organic growth firms. Also, organic growth firms typically are built within every industry — and they are a sizeable portion of each industry. On the other hand, financed growth firms are typically found in the high-tech manufacturing industry above all other industries.
Businesses Without Employees Typically Close Down vs. Hire Employees
JPMorgan realized that small businesses without any employees typically exited the market when facing challenges, versus hiring employees to help out. A very small percentage of non-employers hired employees, and as these types of companies matured, that percentage became even lower.