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STATEN ISLAND, N.Y. — Unprecedented layoffs, increased unemployment benefits and stimulus checks from the pandemic led to an uptick in new businesses, citing 5.4 million new business filings with the IRS in fiscal year 2021. .
“Failures often spur new businesses, but the recovery from the pandemic recession has been far deeper than anything seen since the longest recession in 2008,” said Stacker, a data journalism website that recently analyzed U.S. Census Bureau business formation. Statistical data from 2004 to 2022 to examine trends in new business applications.
“For perspective,” Stacker explained, “it took 2009 to 2016 (about seven years) for business applications to increase by 22 percent, but applications grew more than that in both 2020 and 2021.”
According to the report, the IRS received more than five million business applications in 2021—the most since the U.S. Census began compiling business formation statistics in 2004. The report showed that there are nearly 1 million more business applications in 2021 than in 2020. It was a record year.
“The first half of 2022 is slightly behind last year, with 2.5 million applications through June compared to 2.8 million in the same period last year,” Stecker said. “Although growth is slowing, entrepreneurs have started more businesses in recent years than in previous years.”
According to Bureau of Labor Statistics data that led all industries from 2016, most new business applications involve some form of retail business.
“Retail stores are temporarily closed, board up their windows and They laid off workers, many more retailers moved in,” Stecker reported, referring to a New York Times article that listed sole proprietorships — individuals selling their own goods primarily online — as replacements for stores that closed during the pandemic.
“Some retail subcategories will see sales growth in 2020, including online stores, food and beverage stores, and hobby stores,” Stecker continues. Online shopping has grown in popularity amid restrictions on businesses and gatherings during the Covid-19 pandemic, and sales have continued to grow since then, according to the Census Quarterly’s Retail E-Commerce Reports.
According to the U.S. Census Bureau, small businesses employ more than half of the U.S. workforce, so a larger increase could boost the economy.
The real test, however, will be how many apps actually convert into businesses with payroll.
“The census application determines the possibility of developing into a business with salary by looking for a few characteristics, which includes the plan to hire employees, the date planned to pay the first salary, a specific industry group and whether or not the application comes from a corporate legal entity,” explains Stecker. The number of applications has increased compared to previous years, but has not reached a record level.”
However, in the first half of 2022, only 32% of business applications were considered likely to convert to businesses with payroll, compared to 58% in 2005, and many applications came from employed individuals who may have been laid off and looking for a new one. For livelihoods rather than entrepreneurs with long-term dreams of creating growing businesses, these numbers may be even lower.
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