Business formation is the process of legally establishing a company that may operate in a given market or sector.
The process includes selecting a business structure, registering a business name, getting licenses and permits, and adhering to tax and legal duties.
Entrepreneurs who wish to start, expand, or scale their businesses must first establish their businesses.
Based on the most recent data and trends, this article will look at some of the most essential figures and facts concerning business creation in 2023.
These insights will help you understand the present situation and future perspective of business formation in various industries, locations, and demographics.
Top Business Formation Stats
Before diving into the full statistics and facts, let’s have a look at the key stats for business formation:
- The World Bank has awarded the United States a rating of 91.6 out of 100 for the ease of starting a business.
- The most significant growth in business formation since the last decade occurred in 2020, with a remarkable 24.6% surge, reaching 4.38 million new business applications.
- 469,557 business applications were submitted in July 2023, an increase of 0.5% compared to June 2023.
- Between 2020 to 2022, the average annual number of business applications rose to 4.9 million, representing an 89% increase compared to the 2005-2016 period.
- The monthly average of high-propensity business applications between June 2020 and January 2023 was 36% higher than between July 2004 and May 2020.
Business formation is an essential measure of entrepreneurial activity, innovation, and economic vitality.
Based on data from the IRS Form SS-4, these statistics calculate the number and characteristics of new business applications and formations in the United States.
469,557 business applications were submitted in July 2023, an increase of 0.5% compared to June 2023. (U.S. Census)
This is the second highest monthly number of business applications in 2023, after May’s 472,135 applications.
It also represents a growth of 9.8% compared to July 2022, when 427,842 applications were submitted.
41,826 projected business formations within 8 quarters were reported in July 2023, an increase of 0.2% compared to June 2023. (U.S. Census)
Projected business formations within 8 quarters are based on a similar model as the previous statistic, but with a longer time horizon.
This is just another proxy for the creation of employer-owned businesses. The rise in June 2023 reflects a larger number of business applications from firms and those with pay plans.
From 2020 to 2022, the average yearly number of business applications increased by 89% compared to the 2017-2019 period. (U.S. Census)
This surge in business applications from 2020 to 2022 can be attributed to various factors.
Some entrepreneurs replaced closed businesses due to the pandemic, while widespread layoffs in 2020 prompted others to start new ventures.
The concentrated challenges of the COVID-19 pandemic also spurred entrepreneurial solutions, and changing consumer preferences, such as the growth of e-commerce, contributed to the increase in business applications.
Business Formation Market Statistics
The business formation market consists of various types of business applications and formations, depending on their likelihood of becoming employer businesses, their legal form, and their industry sector.
The following statistics provide some insights into the composition and trends of the business formation market in the U.S.
In July 2023, the count of high-propensity business applications, which are likely to hire more employees, recorded 149,734. (U.S. Census)
This figure, though showing a slight 0.1% decline, continues to play a pivotal role in driving the establishment of new businesses.
The sustained interest in high-propensity ventures underscores their importance within the broader landscape of business formation.
The business landscape witnessed a noteworthy development in July 2023, as business applications originating from corporations displayed substantial growth, with a notable 1.8% increase. (U.S. Census)
This statistic suggests that well-established companies are actively engaged in expanding their business portfolios.
Their increased involvement underscores their commitment to diversification and growth, potentially influencing various sectors of the economy.
How Small Businesses are Using Business Formation
Understanding how small businesses are leveraging business formation can shed light on the broader economic impact and the motivations driving individuals to start their own ventures.
48,354 business applications with planned wages were submitted in June 2023, an increase of 3.9% compared to May 2023. (U.S. Census)
Business applications with planned wages are those that indicate they are hiring employees and provide a first wages-paid date on their IRS Form SS-4.
This is a sign of small businesses’ intention to create jobs and grow their workforce.
There are many factors behind the surge in business formation. (National Bureau of Economic Research)
The surge in business formation is attributed to various factors, including the economic uncertainty triggered by the COVID-19 pandemic.
Layoffs in 2020 may have pushed many individuals toward entrepreneurship while changing consumer preferences and emerging economic needs have created opportunities for new businesses.
These statistics highlight the role of external events and shifting market dynamics in driving entrepreneurial activity.
Business Formation Recent Trends
Business formation statistics let us capture the recent trends and developments that affect the business environment and the entrepreneurial landscape in the US.
The following statistics highlight some of the factors that influence business formation.
Business applications in the retail trade sector increased by 77,604, a 2.1% in July 2023 compared to July 2022, reflecting the shift to online shopping. (U.S. Census)
The retail trade sector includes both brick-and-mortar and online retailers. The pandemic accelerated the shift to online shopping, as consumers preferred convenience, safety, and variety.
This encouraged more entrepreneurs to enter the e-commerce market or to adopt digital platforms for their existing businesses.
Technology has enabled more accessible and affordable business formation, especially for online businesses. (PLOS ONE Study)
Technology has played a significant role in facilitating and decreasing the barriers to forming a business, especially for online businesses.
Advances in digital platforms, cloud computing, e-commerce, social networking, and mobile devices have enabled entrepreneurs to set up and operate businesses from anywhere with minimal investment and resources.
In conclusion, business formation statistics reveal a dynamic entrepreneurial landscape in the United States.
Despite challenges posed by the pandemic, businesses have shown resilience and growth in recent years.
High-propensity applications and the changing nature of consumer demands have played a crucial role in shaping these trends, and this is only set to continue into 2024.
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