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Surprise: Business startups skyrocketed during 2020

It was a challenging year for businesses across the U.S., and it certainly seemed as if business startups would be down for the year. Indeed, new business filings dropped off by 30% after the lockdowns began in March. But by June, according to an analysis of federal tax records by the U.S. Census Bureau, filings began to grow. By the end of the year, the number of U.S. startups exceeded those of 2019 by nearly a quarter.

One economist told Bloomberg that the total number of startups hit its highest annual total on record.

Consider that against the backdrop of overall jeopardy for businesses. The National Restaurant Association estimates that around 17% of all U.S. restaurants have closed long-term or permanently. That’s about 110,000 restaurants. The current national unemployment rate is 6.7%, doubled since February.

Yet the IRS says around 4.3 million business startups filed for employer identification numbers in 2020. That’s up 24% over 2019 even with the shutdown period included. What the IRS calls “high-propensity” applications — those indicating the future business will have employees — rose by 16% last year.

The Census Bureau estimates that there were 600,000 new business applications through early October over the same period of 2019. Of those, nearly 200,000 were for online retailers.

“The increase in applications to start new businesses is broad-based across sectors,” says the director of research for the Economic Innovation Group, “but we’re seeing real spikes exactly where you would expect: in the sectors that are experiencing real step-changes in demand, from e-commerce websites to home delivery to truck transportation.”

Interested in starting a business? There is good reason to believe that this business formation boom is legitimate. It might even replace your old 9-to-5 job.

If you are, it is important to get started on the right footing. For help developing a business plan, performing due diligence or choosing the best business entity for your new company, talk to an experienced business law attorney.