Business Demographics

By Handler, Douglas P. | Business Economics, April 1990 | Go to article overview
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Business Demographics

Handler, Douglas P., Business Economics

*Douglas P. Handler is Manager, Econometric Analysis, Economic Analysis Department, The Dun & Bradstreet Corporation, New York, N.Y. The author wishes to acknowledge the expert database management of Jeff Relkin, Manager of Special Databases, and the contributions of the many National Business Information Center and DunsCenter personnel who assembled the data.

This article provides an overview of issues pertaining to business demographics" by concentrating on an in-depth analysis of Dun & Bradstreet's U.S. database. Important aspects of D&Bs database are compared with data from other sources, and additional results from D&Bs files are presented. Lastly, a subset of D&B's database involving all firms that, according to Dun & Bradstreet began operations in 1985, are examined to determine these firms' current status. The data for this project were extracted from D&Bs database in December 1988.

THE TERM "business demographics" is used here to create analogies with the Commerce Department's decennial census of population in the United States, which documents the demographics of individuals. Unlike counting people, tabulating the number of businesses is not as clear-cut because the definition of what constitutes a business is not explicit. When an individual is born, a birth certificate is filed. When a firm is born, start-up papers may or may not be filed or even required. In other cases, businesses may actually file start-up documents, but may not begin functioning as a firm. Likewise, when a business ceases to exist, documentation may not always follow, or may follow years later. Add to this the complexities of merger and acquisition activity, joint ventures, part ownership and cross-ownership, and the task of counting firms becomes quite daunting.

There are many ways to characterize exactly which set of entities comprise the population of businesses. For example, one way to define a business is whether it actively trades goods or services. However, if a firm indeed exists but sells no product, it will be excluded from the set of businesses under this definition. One such example is a firm whose products are only in the development stage. Another criterion is whether a firm files a business tax return. This, too, may be imperfect because many inactive or out-of-business firms are required to document themselves to tax authorities, even when no business is transacted during the tax period. Additionally, most tax shelters are required to file tax returns. Other ambiguities can be found. For example, is an independent doctor in business for himself or just self-employed? It should now be apparent that the specific definition of each business population will significantly affect that population's demographic characteristics.

The Yellow Pages, Internal Revenue Service and other private firms also provide entire populations of businesses, each with vastly disparate attributes. For Dun & Bradstreet, this population consists of all firms that actively participate in the marketplace through credit transactions, payments (or lack thereof) to third parties for goods or services, or through other financial or public activities. Records are also kept on firms that have ceased functioning, because this information is often as important as data on currently active businesses.

There are four principle published sources of data for the study of business demographics:

  1. The Handbook of Small Business Data 1988
     issued by the Small Business Administration,
      which includes the Small Business Data Base
      (SBDB). 1
   2. The Internal Revenue Service's Statistics of
      Income publications. 2
   3. The County Business Patterns (CBP) data
      published by the Bureau of the Census. 3
   4. The Dun & Bradstreet Business Information
      Group's database at D&B's National Business
      Information Center.

Each of these sources collect similar data, but for different purposes.

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