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Weekend edition October 08, 2021 | Kailyn Lamb

Knoxville small business numbers rebounding after pandemic, signaling potential economic growth

By Kailyn Lamb, Marketing Content Writer and Editor, PYA

An increasing number of entity filings in Knoxville may point to a stronger economy, but some pressures on small businesses remain from the pandemic. With the numbers trending up, decided to look deeper into what role small businesses play in Knoxville.

Although the number of small businesses and the people they employ is important, Mark Brumbelow, PYA’s Managing Principal of Tax, said it is the benefits those businesses bring to their communities that are the key.

“You’re invested in your community on a more intimate level if you’re a small business,” he said. “Every one of the small businesses you lose, not only do you lose the employment, you lose that community benefit that’s a little bit harder to quantify.”

Looking at recent data, the number of business filings is making a comeback after the pandemic. During the second quarter of 2021, 1,183 new entity filings were recorded in Knox County, according to Larry Kessler, a Research Associate Professor at the Boyd Center for Business and Economic Research at the University of Tennessee, Knoxville. This is an increase of 23.4 percent compared to the same time in 2020. However, when Kessler compared the data to pre-pandemic numbers in the second quarter of 2019, he saw an increase of 41.2 percent.

“Growth in new business filings has historically been a good leading indicator for employment and tax revenue growth for the state as a whole,” Kessler said. “That is, gains in new business filings generally suggest positive employment and revenue growth in the near term.”

Kessler added the pandemic has distorted the relationship between economic growth and new business filings, but he still takes it as an encouraging sign. Because business filings are seasonal, he also said it’s important to focus on year-over-year comparisons instead of quarter-to-quarter.

As has covered recently, employment and supply chains continue to cause issues for businesses. Brumbelow said many of his clients are under pressure with low employment numbers. Some local businesses have restricted operating hours, even closing one day per week due to the shortage.

Brumbelow said some of the frustration likely stems from the past year, with people struggling to “shake out of the malaise,” or their discomfort with the pandemic.

Some businesses are expanding their customer base to survive, he added. But even when the profits come from outside of the region, local owners tend to put the money back into the community.

In the United States, small businesses are the fabric of the economy. The U.S. Small Business Administration (SBA) released “Small Business Profiles” on each state earlier this year. Nationally, the United States’ 32.5 million small businesses make up around 99.9 percent of total businesses in the country. Those businesses employ 61.2 million, or around 46.8 percent of workers. The business profiles can be found here.

Individual states had similar breakdowns of small business totals, with only six (including Washington, D.C.) falling in the 98 percent range. Three states (California, New York, and Texas) all had the highest total, with 99.8 percent of their total businesses falling in the small category.

Looking at Tennessee, the Volunteer State has 636,842 small businesses (99.5 percent of the total number of businesses in the state), that employ 1.1 million, or 42.4 percent of total workers. Nearly 540,000 of those businesses have no employees (that suggests sole proprietors that own an unincorporated business without employees). Around 82,500 businesses fall into the “1-19 Employees” category. Women own 42.6 percent of businesses in the state, while veterans own 8.1 percent, Hispanics own 3.7 percent, and racial minorities own 16.8 percent.

Tennessee’s profile can be found here.

Since the SBA defines a small business as one that has fewer than 1,500 employees and a maximum of $38.5 million in average annual receipts, it is not surprising the numbers nationally and in Tennessee are high. In Knox County, only 45 businesses have 500 or more employees, according to data compiled by the Knoxville Chamber. Of the 22,824 businesses in Knox County in 2020, more than half (12,979) had one to four employees.

The top two categories for small businesses in Knox County, according to the same data from the Chamber, are health services and retail trade.

While employment numbers are an important factor in having small businesses in a community, Brumbelow said it’s only part of the equation. The key is where those dollars go, “that’s where the small business supercharges the economy,” Brumbelow said.

“The profits generated from those purchases are employing local people, and that’s part of the story, but it’s also driving local ownership,” he said. “The real benefit of small business comes because small businesses can have local ownership, and local ownership means additional investment in the community that you live in.”

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