Arizona is one of America’s most powerful economic engines. Due to the state government’s pro-business approach, business operating costs lower than most states, a comparatively large workforce, low and competitive tax incentives, and a fantastic quality of life, it has consistently been voted as one of the best states for business over the past several years.
When it comes to economic production, Arizona’s small businesses aren’t so small. In fact, before the pandemic, they employed more than half of the state’s workforce and generated $191.4 billion in yearly economic activity, accounting for over half of the state’s annual gross domestic product.
Below is a list of 10 small business statistics that should help entrepreneurs understand the business landscape in the Grand Canyon State.
Quick Arizona Small Business Statistics for Entrepreneurs
- There are 611,097 small businesses in Arizona.
- 42.9% of all Arizona employees work for small businesses.
- Racial minorities make up 19.1% of workers and own 10.7% of businesses.
- Women in Arizona own 45.3% of small businesses.
- Veterans make up 6.4% of workers and own 8.1% of businesses.
- Every year, small businesses in Arizona contribute $10 billion in tax income for state and local governments.
- Small businesses create $71.3 billion in annual wages and income.
- Small businesses generate $71.3 billion in wages and income each year.
- Approximately 486,000 of small businesses in Arizona are run by self-employed individuals.
- In November 2021, the unemployment rate in Arizona was 6.2%.
Arizona Small Business Statistics
1. What is considered a small business in Arizona?
According to the Arizona Department of Revenue, a qualified small business is defined as a corporation, limited liability company, partnership, or other business entity with at least two full-time equivalent employees who are Arizona residents and whose sole responsibilities are not administrative, and conducts at least a portion of its operations in Arizona.
There are currently 611,097 small businesses in Arizona that represent 99.5% of all businesses in the state.
2. How many people are employed by small businesses in Arizona?
There are approximately 1.1 million Arizonans employed by small businesses in the state. They represent 42.9% of all employees in the state.
Arizona’s minimum wage has increased incrementally since 2016, when the state’s voters approved a law that gradually increases the bottom rate employers are allowed to pay. On January 1, 2022, the minimum wage rose to $12.80 per hour, up from $12.15.
3. Arizona small business statistics by industry
The professional, scientific, and technical services sectors account for 88,875 of the 611,097 small businesses in Arizona. They are the largest sectors in the state. They are followed by the real estate and rental and leasing sectors (72,827), other services except public administration (65,964), and the administrative, support, and waste management sectors (56,028).
The management of companies and enterprises is the smallest acknowledged industry in the state, with only 350 small businesses operating within it.
4. Arizona small business ownership by ethnicity
According to data from the 2019 Census, Arizona has a population of 7.28 million people. White/Caucasian Americans account for 54.1% of the total number, followed by Hispanic Americans (31.7%), Black/African American (4.5%), American Indian/Alaska Native (3.6%), and Asian/Pacific Islander (3.6%).
The data below show how small business ownership is distributed among these ethnicities:
- White/Caucasian — 515,103
- Hispanic — 106,665
- Black/African American — 24,147
- Asian — 31,790
- American Indian and Alaska Native — 4,010
- Native Hawaiian and Other Pacific Islander — 1,049
5. Arizona small business ownership by gender
In Arizona, there are currently 203,000 women-owned small businesses with no employees and 21,252 women-owned small businesses with employees. Men own 259,000 small businesses without employees and 56,902 more with employees.
6. How COVID-19 has affected small businesses across Arizona
According to data from the University of Arizona, small businesses in Arizona and the Phoenix Metropolitan Statistical Area (MSA) posted declines in employment at 26.8% and 25% respectively at the height of the COVID-19 pandemic. Businesses in the state had to come up with ingenious and creative ways to stay afloat, including suspending or terminating the services of nonessential staff. Other business owners asked their staff to work from home so as to save on recurring expenses and also mitigate the spread of the disease.
7. Arizona small business financing
Lending institutions in Arizona disbursed 109,754 loans (under $100,000) totaling roughly $1.5 billion to small businesses during the most recent financial year.
According to the Census Bureau’s Small Business Pulse Survey (published in May 2021), disaster loans (14.3%), paid sick and family leave credits (9.1%), and debt forgiveness under the Paycheck Protection Program (27.4%) were requested at greater rates in Arizona than the national average by firms with less than 500 workers. This was after the state was put under mandatory lockdown to slow down the spread of COVID-19. Many small businesses suffered losses as foot traffic reduced.
The program provided money to 70% of qualified Arizona small businesses, totaling 96,043 loans and $9.3 billion.
8. Arizona small business export numbers
In 2019, a total of 7,848 recognized businesses exported items worth $23.2 billion from Arizona. Small businesses accounted for 6,812 of the exporters, or 86.8%. Small businesses shipped items totaling $5.6 billion, accounting for 24% of all exports by identifiable businesses.
9. Arizona small business taxes
The sales tax in Arizona is in the middle of the road at 5.6%, but the flat corporate income tax of 6.968% and the five-bracket personal income tax ranging from 2.59% to 4.5% keep the entire tax burden bearable. Like most states, extra property and sales taxes are charged at different rates from municipality to municipality and from county to county, thus a business’s overall tax burden might vary depending on where it is situated in the state.
10. Challenges that plague small businesses in Arizona
Apart from problems brought about by the COVID-19 pandemic, Arizona small businesses face myriad other challenges:
- Access to water: A 22-year megadrought and ever growing demand for water in the Colorado River Basin have drained the river, driving western reservoirs to historic lows and resulting in the first-ever legally declared water shortages. Arizona will make the most drastic reduction in 2022, losing 20% of its Colorado River water.
- Hiring new employees: Many small companies around the state are having difficulty finding qualified employees. Unfortunately, the expense of recruiting additional staff (equipment, benefits, taxes, incentives, and so on) continues to rise. All of these factors must be considered before determining the position’s compensation package.
- Tax compliance: This has been a major hurdle during the COVID-19 pandemic, as most businesses started operating from homes. When your small business is run from home, home-office deductions are critical to maximizing revenues. However, record-keeping rules are time consuming and, if you don’t enjoy bookkeeping, annoying.
- Per-capita income: Despite a 4.3% increase in per capita personal income in Arizona in 2018 (before adjusting for inflation) this is still less than the national rate of 4.9%. Individuals’ lack of discretionary finances is causing problems for Arizona’s small businesses. This is a huge problem for many small enterprises that rely heavily on Arizonans’ disposable cash.
To mitigate some of these challenges, such as tax compliance and finding qualified employees for your business in Arizona, you need to find a good registered agent in the state that’ll make sure your business is in compliance with the Arizona Secretary of State.
Read my review of the best registered agents in Arizona to find out which company is the best choice for your business.
The Final Word
There you have it! These small business statistics from the Grand Canyon State should help any aspiring business owner understand the ins-and-outs of the state’s business landscape.
Entrepreneurs from all over the world continue to relocate to Arizona because of its manageable taxation, access to large consumer markets, international access by land and air, world-class infrastructure, low cost of living compared to other metropolitan areas in the US, strong and ever-growing economy, and expanding labor market.
- US SBA small business profiles
- Arizona Commerce Authority
- Arizona Department of Revenue
- Making Action Possible (MAP)
- University of Arizona
- Greater Phoenix Economic Council
- SBA Express Loans
- 91.5 KJZZ
- Trading Economics
- March of Dimes