Small businesses are the backbone of the US economy. From local shops to innovative startups, they contribute almost 40% to the nation's economic value.1 In 2024, 1.75 million small businesses in the US submitted their applications for business registration.2 These ventures also play an important role in the sustainability and growth of society by providing jobs, driving innovation and supporting local communities.
How small businesses contribute
Small businesses employed nearly half of the nation's workforce in 2024 and account for nearly 40% of the total private sector payroll.3 These businesses have added over 12 million jobs in the last two decades cross-sectorally.4 Small businesses pay an average of $30.42 per hour, equating to an annual income of around $63,000.2
The leading industry sectors for small businesses include professional and financial services, wholesale and retail trade, and the construction industry, each with between 3.5 million and over 7 million businesses.2
Best states for starting a small business
Arkansas, Indiana, North Carolina, North Dakota and South Dakota and are among the most favorable states to launch a small business in the US, according to a 2024 report by Forbes.5 The states were assessed against various metrics, including costs, business climate, economy, workforce and financial accessibility.
What makes these states stand out?
Arkansas
- One of the lowest limited liability company (LLC) fees, easing initial business expenses
- A business-friendly environment offering an average of $23,463 in funding through grants and other programs
Indiana
- Affordable LLC formation fee
- Sustainable workforce strength with a growth-focused environment
North Dakota
- Affordable LLC formation fees and lower cost of living
- Supportive and resilient business environment with a high survival rate for new ventures (77%)
- A strong economy with a robust labor market
North Carolina
- Stable environment for launching and growing a business with access to various grants
- Large labor pool, with 65% of its population of working age
South Dakota
- Affordable LLC formation fee, with a well-connected business community
- Strong business survival rate and reasonable cost of living
- Robust labor force
Top challenges small businesses face today
As small companies strive to maximize their full potential, they may face various growth barriers. Understanding these risks will help business owners protect their ventures and navigate the future with confidence:
Maximizing productivity
Compared to larger firms, small companies often operate with tighter budgets and fewer resources, directly impacting their operations and profitability; small business owners lose a daily average of 1.5 hours of productivity.6
Rising costs and competitive pricing
Small businesses often have less flexibility to adjust prices to cover their higher operating expenses than larger operations. As raw materials, utilities and labor costs rise, smaller firms face difficulties managing operational costs and offering competitive prices for products and services.
Climate extremes
Recent wildfires in Los Angeles caused an estimated $250 billion to $275 billion in economic losses, affecting local businesses.7
With extreme weather events no longer limited to usual seasons and areas, unpredictable floods, wildfires and storms can damage storefronts, equipment and inventory. Disruptions to infrastructure and assets can result in higher operating costs and reduced operational efficiency and productivity.
Leveraging the potential of technologies like artificial intelligence (AI) at speed and scale can be daunting for small business owners.
A Gallagher study on AI adoption highlights that a small firm's lack of resources (30%) and technical infrastructure (26%), as well as rising regulatory hurdles (27%) are the top challenges faced while unlocking the full potential of emerging technologies.
Cyber threats
Without adequate budget and security controls, small businesses can struggle in the face of sophisticated phishing and social engineering attacks. Weak passwords and poor patch management can create easy entry points for attackers. Because small businesses lack the budget, skilled resources and technologies that larger companies can access, they face more significant risks and severe consequences from cyber attacks. A 2023 study revealed that 43% of all cyber attacks targeted small businesses. Despite the growing number of cyber threats, only 14% of small businesses had comprehensive measures in place to prevent breaches.8
Support for small businesses from the US government
The US government aims to actively support small businesses through various initiatives. The Small Business Administration (SBA) offers various resources to help entrepreneurs plan, launch, manage and grow their ventures.9
The SBA also supports small businesses through:
- Free business counseling
- SBA-guaranteed business loans
- Home and business disaster loans
- Federal government contracting
The government also celebrates the success and contributions of US small businesses with National Small Business Week every year in May. This annual event is held to showcase the government’s commitment to empowering small businesses with access to capital, entrepreneurial development, government contracting and advocacy.
Gallagher is here to help
The business risk landscape is changing at an unprecedented pace. For a small business owner, the risks depend on multiple unique factors, including sector, management style and location.
- The industry in which a business operates can face regulatory challenges and economic fluctuations.
- How a company operates can also expand its risk exposure, affecting operations and profitability.
- The geographical location presents unique challenges, such as access to a skilled workforce. It may also place a business in a highly competitive market, increase security concerns and raise the risk of natural disasters.
These factors can lead to operational interruptions and financial losses. Understanding these factors helps you manage risks better, navigate complex environments and ensure long-term success.
Gallagher's team of risk management professionals is here to advise small business owners on how to ensure tailored insurance protection and allow small companies to push forward with confidence.
Reach out to us to connect with an advisor.
Sources
1White, Olivia, et al. "America’s Small Businesses: Time to Think Big," McKinsey Global Institute, 2 Oct 2024.
2Melhorn, Stephanie Ferguson, et al. "Small Business Data Center," U.S. Chamber of Commerce, 20 May 2024.
3"Frequently Asked Questions About Small Business, 2024," Office of Advocacy (SBA), 23 Jul 2024.
4Main, Kelly. "Top Small Business Statistics," Forbes, 31 Jan 2024.
5Main, Kelly. "Ranked: The Best States to Start a Business," Forbes, 15 Oct 2024.
6"Small Business Owners Lose 1.5 Hours Daily to Wasted Time, Slack Survey Finds," Salesforce, 14 Aug 2024.
7"How Climate Hazards Are Reshaping Business Realities and Responses," World Economic Forum, 26 Mar 2025.
8Cin, Paolo Dal, et al. "State of Cybersecurity Resilience 2023," Accenture, 12 Jun 2023.
9"How We Help Small Businesses," U.S. Small Business Administration, accessed 3 Apr 2025.