Small Businesses are Here to Stay
To better help our clients and to continue adapting to the ever changing business market, Northwest studies start up data gathered from our filing and formation records‒without jeopardizing or pulling any individual details about our clients. The information we’ve gathered was even recently used by the Wall Street Journal. To help business owners still on the fence about whether or not to start their company, we thought it’d be helpful to share some of the data we’ve gathered.
Business formation data
Rise of the Pint-Size Startup Is Reshaping the U.S. Economy quoted Northwest’s Chief Product Officer, “Roughly 60% of businesses formed in 2021 or later were still active after one year, and 45% were still around after two years … that is an improvement from 2014 to 2018, when failure rates were ticking up …” The Wall Street Journal’s article was all about a new trend of small business owners starting with less employees, creating a pint-size start up culture.
Our data, however, shows a much bigger picture than that. We’ve noticed more business formation and retention over the years since the pandemic.
Data by state
While business formation was up across the board by more than 50% from 3.5 million in 2019 to over 5 million yearly since 2020, some states have been better for formation than others. It’s not a surprise to us that our data showed that states with friendlier tax structures, increased privacy protection, and incentives for startups have led the charge. Those top states include:
- Wyoming +85%
- New Mexico +35%
- Montana +35%
States that have seen a decline are southern states, like Louisiana and Mississippi that both saw double-digit declines, followed by Georgia with a decrease of nearly 7%.
Start up retention
The biggest takeaway we gathered from our data is how start ups are thriving more than predicted since the pandemic. Leading up to 2020, there was a 5+ year trend of steadily increasing failure rates. As you can see in our chart below, that’s not been the case over the last few years with more businesses staying in operation.
| Year of Formation | 1st Year | 2nd Year |
| 2020 | 72.2% | 56.4% |
| 2021 | 66.8% | 50.2% |
| 2022 | 68.2% | 53% |
| 2023* | 60.2% | 45.6% |
We attribute the growth in business formation and retention to direct government support in 2020 & 2021. The numbers have been relatively stable for the last 3+ years: 60% of businesses formed in 2021 or later have still been active after 1 year, and 45% after 2 years.
*We have incomplete set of information for 2023.
Smart data, smart choices
2024 is tracking slightly below 2023, but nothing like a return to pre-pandemic levels and not as part of a discernible trend. As an entrepreneur with an idea for a business or project, making the leap to forming an LLC or corporation is a big decision to make. From our data, the life span of a business is growing and people are feeling more empowered to start and stick with their business.
Done sitting on that business idea and ready to get your LLC or corporation off the ground? With Privacy by Default® being the backbone of Northwest’s operation, and safety options like SSL security offered with our web hosting and email hosting services, we’ve got the tools to empower you from formation to function.
