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JP Morgan Chase Study – Understanding Opportunities and Life-Cycle of American Small Businesses

Today, every small-medium sized business shares an iconic status in the modern economy, and the owners of these businesses are the job creators, and righteous strivers who drive the economy of a country. But, for the enthusiasm and excitement surrounding small businesses, a central puzzle remains – what is the role of these businesses in the U.S economy? To understand the role, it’s crucial to explore the life cycle of businesses. While much of today’s conversation is focused on high-growth startups in the Silicon Valley, the reality is that many smaller companies that may never even hire employees are the economic drivers of the small business economy. According to a report by J.P Morgan Chase Institute on 1 million SMBs, these businesses are not considered as a uniform sector because they differ either in cash flow management, growth, or a number of employees. How are small businesses contributing to the American economy? As it is clear that new ventures and small businesses are having a significant impact on the economy, cash flow, and employment, policymakers need to look to SMBs as an engine for future economic growth. Even in the future, small companies are not going to rely too much on financing or hiring employees; they’re likely to generate significant revenue which helps in the growth of the economy. As per JP Morgan Chase, the average life expectancy of a U.S. SMB is 5.3 years. The real estate firms have the longest life expectancy of 9 years, whereas the restaurants have the shortest life expectancy of 3.7 years. In the industry, the non-employer firms are 5x more likely to go out of business than those firms which hire employees. Also, each year, a small percentage of non-employers become employers, but the likelihood of their transition decreases as firms mature. Different kinds of SMBs and how they contribute to the American economy JP Morgan Chase classifies SMBs into four segments depending upon their size, dynamism, and complexity to understand the impact of the SMBs on the Americal economy. 1) Financed Growth The share of the financed growth small businesses is 3%,…

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