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Insight • Data • Economics • Analysis
The Rate of Success Among New Businesses is Declining
New business formations in Wisconsin increased during the pandemic. Nearly 500 new businesses formed per month since the summer of 2020, based on projections from the U.S. Census. In a typical month before the pandemic new business formations were between 300 and 400 per month. Businesses are counted as newly formed when they hire their first employees and begin filing payroll taxes. These employer businesses are important to economic recovery and growth as they provide jobs and income in their communities.
Figure 1. Business Formations are Expected to Increase…
Though the number of new businesses seems to have increased during the pandemic, the rate of successful business formation has been declining. Businesses are tracked from when they apply for an Employer Identification Number, an early indicator of entrepreneurial intent, until they hire their first employee and count as a fully formed business. In the early 2000s, when these data were first collected, 12-14% of business applications resulted in a formation within two years. In 2022, between 8 and 10% of applications resulted in formation. Importantly, many businesses will operate as businesses without paid employees but not be included in formations.
Figure 2. …but the Rate of Formation is Declining.
Helping entrepreneurs with unrealized intentions as well as supporting new businesses with and without paid employees presents an opportunity for economic development professionals to encourage vibrant dynamic communities.