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Despite being a key income source for their owners, nonemployer firms face acute profitability and financing challenges.

Report on Nonemployer Firms Based on the 2018 Small Business Credit Survey

Nonemployer firms—establishments without employees on payroll—are a dynamic and growing part of the U.S. economy. The number of nonemployer firms has grown during the last two decades and represents 81 percent of all small busi­nesses. Nonemployer firms are sources of primary and supplemental income for 17 percent of American workers, which un­derscores the importance of understanding the financial characteristics of these firms and their owners.

In this report, we find that, despite being a key income source for their owners, these firms face acute profitability and financing challenges. Our key findings include:

  • Nonemployer firms are an important income source for their owners. Nearly two-thirds of nonemployer firms (63%) serve as the primary source of income for their owner(s).
  • One in 5 nonemployer firms was started because the owner lacked other employment options.
  • Despite their owners’ reliance on the firm for income, a majority of nonemployer firms are either unprofitable or are operating at break even.
  • One in 4 nonemployers antici­pates hiring employees in the future.
  • Nonemployer firms seeking capital face significant obstacles, with more than half experiencing financing shortfalls.

The 2019 Report on Nonemployer Firms provides an in-depth look at the financial experiences and challenges of nonemployers. Fielded in Q3 and Q4 2018, the survey yielded 5,841 responses from nonemployer firms, businesses in the 50 states and the District of Columbia that have no full- or part-time employees.

The report is a deep-dive into five different categories of nonemployer firms based on the nature of their work, including "supplemental work" where the business is not the owner's primary source of income; "contract work" where firms are working as independent contractors or 1099 workers where the business is the owner's primary source of income and the owner has no plans to hire; "stable nonemployer" where the business is the owner's primary source of income and the owner has no plans to hire; "early-stage potential employer" where the firm is two years or younger with plans to add employees in the next 12 months; and "late-stage potential employer" where the firm is older than two years with plans to add employees in the next 12 months.