Small Businesses Struggle to Add More Jobs

New JPMorgan Chase Institute data reveals the challenges U.S. small businesses continue to face.

January 26, 2017

WASHINGTON – A recent JPMorgan Chase Institute report uncovers the financial health of small businesses and the employment challenges they continue to face. The report reveals new information about small business employment growth and the volatility small business owners experience when managing payroll expenses.

The Ups and Downs of Small Business Employment” reports that most small businesses experience substantial volatility in payroll expenses. Moreover, more than two-thirds (68%) of small employer businesses either reduced their number of employees or added less than the equivalent of one full-time employee in a calendar year. The typical small business saw payroll expenses grow by 8.5% per year. These payroll expenses were significant for small employer businesses, with the typical owner paying $18,700 in payroll expenses a month, or 18% of all outflows for their business. Making their financial situation even more difficult to manage, small businesses with employees had only 18 cash buffer days, compared to 27 cash buffer days for small businesses overall.

“Payroll is a significant expense for employer small businesses and managing it has an impact on not only the health of their business, but also the people they employ,” said Diana Farrell, president and CEO, JPMorgan Chase Institute. “With increased focus on the positive impact small businesses can have on the economy, it’s critical to understand what these new insights mean for job creation and policies that aim to support both small businesses and their employees.”

Key findings:

  • Payroll for most small employer businesses grew by less than the equivalent of one full-time employee in a calendar year, with median annualized payroll growth of 8.5%.
  • Payroll expenses were a material outflow for employer small businesses, which held fewer cash buffer days than nonemployer small businesses.
  • Most employer small businesses experienced unstable payroll and employment volatility, including job gains and losses and other spikes and dips in payroll.
  • The typical small employer business experienced substantial volatility in payroll outflows, and volatility was highest for younger small employer businesses.
  • Small employer businesses with more volatile payroll patterns tended to have fewer cash buffer days.

The Institute analyzed 65 million anonymized transactions from 45,260 small business customer accounts over the nine non-holiday months from February 2015 to October 2015. This dataset offers a granular view of payroll growth and volatility and their impact on employment at the individual business level.

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