While the number of sole proprietorships has exploded over the past three decades, their revenues and income have remained largely constant in inflation-adjusted terms. The end result has been a decline in real sales and income at the average sole proprietorship, Internal Revenue Service (IRS) statistics reveal.
Between 1980 and 2007, Americans dramatically increased the rate at which they run sole proprietorships, moving from 39.2 for every thousand people in 1980 to 76.7 in 2007. While the per capita number of Schedule C filers declined slightly during the Great Recession and then increased slightly during the recovery that followed, the overall pattern remains one of an upward trend in the per capita number of sole proprietorships over the past 31 years.
The large increase in number of proprietorships was not met with a comparable rise in their revenues, which increased only 12.7 percent in inflation-adjusted terms over the three-plus decade period. The inevitable result was a dramatic decline in sales at the average proprietorship, which dropped from $122,000 to $52,400 when measured in inflation-adjusted terms, as the figure below shows.
Real income at the average sole proprietorship follows a similar long-term downward trend. After rising from 1982 to 1988, it declined from $16,990 per year in 1988 to a low of $11,020 in 2009 and then subsequently recovered to $11,700 in 2011. (All income figures are measured in 2010 dollars.)
The rise in sole proprietorships resulted primarily from an increase in the number of businesses in the economy, rather than a shift by owners towards the proprietorship legal form. Between 1980 and 2011, the per capita number of American businesses increased from 57.1 businesses per thousand people to 104.5 businesses per thousand, a rise of 82.7 percent.
IRS statistics show that sole proprietorships have maintained a roughly constant share of American businesses for the past decade. They did increase from 68.6 percent of U.S. businesses in 1980 to 74.5 percent in 1993, but then declined to 71.6 percent by 2000. (Sole proprietorships comprised 72.0 percent of American businesses in 2011.)
Sole proprietorships’ share of business revenues and income follow different patterns. Sole proprietors’ share of business receipts were largely constant between 1980 and 1992. But from 1992 to 2011, they declined from 5.7 percent to 3.6 percent of total business revenues.
Sole proprietorships’ share of business income rose in the early 1980s and then was (noisily) constant until 1991. Since then it has fluctuated, but trended downward, from 27.0 percent in 1991 to 12.9 percent in 2011.
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Hey Scott, thanks for picking up on these trends. I knew that sole proprietorship numbers were growing, but had no idea that income per business was actually going down. Thanks for sharing!
With the recession comes the sudden rise in sole proprieterships. This is because so many people have gotten into a small business or an online business to cope.