Annual Survey of Entrepreneurs OMB Supporting Statement Part A 5.28.15

SUPPORTING STATEMENT

U.S. Department of Commerce

U.S. Census Bureau

2014 Annual Survey of Entrepreneurs

OMB Control Number 0607-XXXX

Part A – Justification

1. Necessity of Information Collection

In an effort to improve the timely measurement of business dynamics in the United States, the U.S. Census Bureau plans to conduct a new annual survey focused on employer businesses.  The new survey will be known as the Annual Survey of Entrepreneurs (ASE) and will collect information to assess characteristics of businesses and business owners. The survey was going to be called the Annual Survey of Business Owners, but that name was changed to fit the survey's focus on assessing entrepreneurial business practices and demographics. The ASE will be a supplement to the Survey of Business Owners and Self-Employed Persons (SBO), which provides economic and demographic characteristics for businesses and business owners by gender, ethnicity, race, and veteran status every 5 years. The ASE is a joint effort funded by the Ewing Marion Kauffman Foundation, the Minority Business Development Agency (MBDA), and the Census Bureau.  On behalf of the Secretary of Commerce, pursuant to section 1(a)(3) of Executive Order 11625, the MBDA may enter into this agreement with the Census Bureau to establish a center for the development, collection, summation, and dissemination of information that will be helpful to persons and organizations throughout the nation in undertaking or promoting the establishment and successful operation of minority business enterprises. The Census Bureau will collaborate with the Kauffman Foundation, the MBDA, and other agencies to ensure the ASE is as robust and effective as possible. The ASE will help assess the health of the economy and provide detailed statistics on businesses and business owners more frequently.

The Census Bureau will collect data starting with the 2014 reference year, with corresponding estimates released in 2016. Estimates will include number of firms, sales/receipts, annual payroll, and employment by gender, ethnicity, race, and veteran status. The ASE includes questions from the 2012 SBO long form SBO – 1 (see pg. 9) with additional questions to collect data on entrepreneurs’ access to capital. The ASE will introduce a new module each year focusing on an important component related to business growth.  Proposed module topics include innovation, research and development, technological advances, Internet usage, management and business practices, exporting practices, and globalization. The 2014 ASE module covers innovation and research and development. The survey will be a sample of 290,000 employer businesses stratified by metropolitan statistical area (MSA), state, frame, and age of business. By oversampling young businesses, this survey will help assess the impact young firms have on the growth of the economy. Additionally, the survey will implement a longitudinal component that will allow the growth of the firms in the sample to be tracked and analyzed over time.

 

This collection will allow the Census Bureau to collaborate on the implementation of a key National Academies recommendation for improving the measurement of business dynamics in the U.S. economy, which recommended:

“The Census Bureau Survey of Business Owners (SBO) should be conducted on an annual basis. The survey should include both a longitudinal component and a flexible, modular design that allows survey content to change over time. In addition, the Census Bureau should explore the possibility of creating a public-use (anonymized) SBO or a restricted access version of the data file.”

-Lynch, Lisa M., John Haltiwanger, and Christopher Mackie, eds. Understanding Business Dynamics: An Integrated Data System for America’s Future. National Academies Press, 2007.

The additional sources of capital and financing questions will provide information on the financial trends and financial challenges faced by entrepreneurs. Tabulation of the financing questions will offer insight into the type of funding acquired and used by women-, minority-, and veteran-owned businesses. The 2014 ASE module will allow for a better understanding of the innovation and research and development activities conducted by entrepreneurs. Additionally, it will allow for an assessment on the competitiveness of businesses by ownership characteristics. The longitudinal component will help track and assess the growth of firms in the sample over time. This will also allow for research into the changes to the characteristics of businesses over time.

The ASE will be conducted annually as an intercensal economic census program based on the SBO required by law under Title 13, United States Code, Sections 131, 182, 224, and 225.

Government program officials, industry organization leaders, economic and social analysts and researchers, and business entrepreneurs are anticipated users of ASE statistics. Examples of data use include:

• The Small Business Administration (SBA) and the Minority Business Development Agency (MBDA) to assess business assistance needs and allocate available program resources.

• Local government commissions on small and disadvantaged businesses to establish and evaluate contract procurement practices.

• Federal, state and local government agencies as a framework for planning, directing and assessing programs that promote the activities of disadvantaged groups.

• The National Women’s Business Council to assess the state of women’s business ownership for policymakers, researchers, and the public at large.

• Consultants and researchers to analyze long-term economic and demographic shifts, and differences in ownership and performance among geographic areas.

• Individual business owners to analyze their operations in comparison to similar firms, compute their market share, and assess their growth and future prospects.

Businesses which reported any business activity on any one of the following Internal Revenue Service (IRS) tax forms will be eligible for survey selection: 1040 (Schedule C), “Profit or Loss from Business” (Sole Proprietorship); 1065, “U.S. Return of Partnership Income”; 941, “Employer’s Quarterly Federal Tax Return”; 944 “Employer’s Annual Federal Tax Return”; or any one of the 1120 corporate tax forms. Current plans will only request responses from businesses filing the 941, 944, or 1120 tax forms. Estimates for businesses filing the 1040 or 1065 tax returns will be created using statistical modeling of administrative data and will only provide data by gender, ethnicity, race, and veteran status by geography, industry, and size of firm.

The 2014 ASE collection is electronic only. An initial letter that informs the respondents of their requirement to complete the survey and provides survey access instructions will be mailed from the Census Bureau’s processing headquarters in Jeffersonville, Indiana. There will be 290,000 letters mailed to employer businesses that were in business during 2014. Initial mailout will occur in September 2015, with a due date of November 4, 2015. There will be two follow-up letter mailings to nonrespondents after the due date. Closeout of mail operations is scheduled for January 2016. Upon the close of the collection period, the response data will be processed, edited, reviewed, tabulated, and released publically.

2. Needs and Uses

The survey will collect data on the gender, ethnicity, race, and veteran status for up to four persons owning the majority of rights, equity, or interest in the business. These data are needed to evaluate the extent and growth of business ownership by women, minorities, and veterans in order to provide a framework for assessing and directing federal, state, and local government programs designed to promote the activities of disadvantaged groups.

The SBA and the MBDA will use the data to allocate resources for their business assistance programs.

The data will also be widely used by private firms and individuals to evaluate their own businesses and markets. Additionally, the data will be used by entrepreneurs to write business plans and loan application letters, by the media for news stories, by researchers and academia for determining firm characteristics, and by the legal profession in evaluating the concentration of minority businesses in particular industries and/or geographic areas.

Information quality is an integral part of the pre-dissemination review of the information disseminated by the Census Bureau (fully described in the Census Bureau’s Information Quality Guidelines). Information quality is also integral to the information collections conducted by the Census Bureau and is incorporated into the clearance process required by the Paperwork Reduction Act.

3. Use of Information Technology

The ASE will only be available in an electronic reporting tool. Businesses will be provided an initial letter with log-in information to access the secure electronic reporting tool (in English language only) known as the Centurion – Internet Data Collection System. Once a respondent has completed the online survey, a PDF copy of the responses may be printed or saved for business records.

By implementing an electronic-only collection, the Census Bureau will reduce the cost of mailing this annual survey. Additionally, electronic responses allow for better response data by utilizing edits in the electronic reporting tool. The SBO program found that employer businesses preferred to respond to the survey via an electronic reporting tool. This is based on a 90 percent electronic check-in rate for the 2012 SBO. That is, 90 percent of respondents to the 2012 SBO reported electronically. The ASE anticipates a similar sentiment for this employer-only survey collection.

4. Efforts to Identify Duplication

The staff of the Census Bureau routinely monitors the content, coverage, and detail provided by other statistical programs in an effort to identify and eliminate unnecessary duplication. The ASE will be modeled after the SBO program and will offer comprehensive, regularly collected information on selected economic and demographic characteristics for businesses and business owners by gender, ethnicity, race, and veteran status. While there are a number of lists identifying women-, minority-, and veteran-owned businesses, none are comprehensive, and many are comprised of self-designated firms.

For the 2014 reference year, the ASE universe will be matched to publicly available datasets from the U.S. Securities and Exchange Commission (SEC) and the IRS. This universe will identify publicly held and nonprofit organizations whose ownership by gender, ethnicity, race, and veteran status is unable to be determined and who should not be mailed to report for the ASE. In addition, the ASE universe will be matched to internal American Community Survey (ACS) and other Decennial datasets on the gender, ethnicity, race and veteran status of individuals.

For the 2014 reference year, the module selected covers innovation and research and development. Questions for the 2014 module are based on the Microbusiness Innovation Science and Technology Survey (MIST) conducted by the National Center for Science and Engineering Statistics (NCSES). The NCSES is currently conducting a pilot for the MIST during 2015. The MIST only focuses on microbusinesses defined as companies with five or fewer employees. The ASE will not limit collection to only microbusinesses. The sample size for the MIST is limited to 4,000 businesses while the ASE will mail to 290,000 businesses. The MIST only covers select industries, including manufacturing, information, and professional and technical services. While it is likely that a higher number of ASE respondents in these industries will respond to the 2014 innovation and research and development module, the ASE will cover all NAICS industries except Crop Production (NAICS 111); Animal Production (NAICS 112); Scheduled Passenger Air Transportation (NAICS 481111); Rail Transportation (NAICS 482); Postal Service (NAICS 491); Funds, Trusts, and Other Financial Vehicles (NAICS 525); Religious, Grantmaking, Civic, Professional, and Similar Organizations (NAICS 813); Private Households (NAICS 814); and Public Administration (NAICS 92). A new module will be introduced for the 2015 and 2016 surveys. This module is yet to be determined but will cover questions from the proposed topics in Section 1 above.

5. Minimizing Burden

The Census Bureau makes every effort to minimize the burden placed on businesses from data collections. For the ASE, we will select a sample of approximately 290,000 employer businesses from a universe of about 5.6 million. The ASE will use the following methods to minimize the burden:

• Predetermining the likelihood that a business is minority- or women-owned: Several sources of information are used to stratify the universe. Administrative data from the Social Security Administration (SSA), and lists of minority- and women-owned businesses published in syndicated magazines, located on the Internet, or disseminated by trade or special interest groups are used to identify individual proprietorships that are potentially owned by women or minorities; then this information is used to stratify the universe.

• Survey instrument design: All questions have been successfully tested through personal interviews. In addition, the electronic reporting instrument includes skip patterns throughout so that respondents will only read and answer questions pertaining to their specific owner and business characteristics.

• Use of existing business data: To further reduce respondent burden, rather than collect information directly, we will obtain data on sales/receipts, annual payroll, and employment from IRS administrative records and the Census Bureau’s 2012 Economic Census. In addition, the ASE universe will be matched to publicly available datasets from the SEC and the IRS identifying publicly held and nonprofit organizations. The ASE universe will also be matched to internal ACS and Decennial datasets on the gender, ethnicity, race, and veteran status of individuals. Only a small sample of these matched businesses will be asked to complete the electronic reporting instrument.

6. Consequences of Less Frequent Collection

The ASE will improve the measurement of business dynamics in the United States. If this collection were not conducted, the federal government would miss an opportunity to expand federal economic statistics in the area of entrepreneurship.

A less frequent collection would impact government agencies’ access to information used to monitor and maintain assistance programs for women-, minority-, and veteran-owned businesses.

7. Special Circumstances

There are no special circumstances.

8. Consultations Outside the Agency

For the 2014 ASE, the Census Bureau consulted the following officials and agencies:

E.J. Reedy, Director of Research and Policy

Ewing Marion Kauffman Foundation

4801 Rockhill Road

Kansas City, MO 64112

Dr. Alicia M. Robb, Senior Research Fellow

Ewing Marion Kauffman Foundation

59 Driftwood Court

San Rafael, CA 94901

Ivonne Cunarro, Past Senior Program Manager

Minority Business Development Agency

Office of Legislative, Education, & Intergovernmental Affairs

1401 Constitution Ave N.W.
Washington, DC 20230

Adam Goldman, Past Researcher

Minority Business Development Agency, Office of Legislative, Education, & Intergovernmental Affairs

1401 Constitution Ave N.W.
Washington, DC 20230

Kimberly Marcus, Associate Director

Minority Business Development Agency, Office of Legislative, Education, & Intergovernmental Affairs

1401 Constitution Ave N.W.
Washington, DC 20230

John Jankowski, Program Director

National Science Foundation

National Center for Science and Engineering Statistics

4201 Wilson Boulevard

Arlington, VA 22230

Audrey Kindlon, Survey Statistician

National Science Foundation

National Center for Science and Engineering Statistics

4201 Wilson Boulevard

Arlington, VA 22230

Ben Pugsley, Economist
Macroeconomic and Monetary Studies Function
Federal Reserve Bank of New York
33 Liberty Street
New York, NY 10045

Chad Syverson, Professor

University of Chicago

Booth School of Business
5807 S. Woodlawn Ave
Chicago, IL 60637

David Robinson, Professor

Duke University

The Fuqua School of Business
100 Fuqua Drive
Durham, NC 27708

Jason Owen Smith, Professor

University of Michigan

Department of Sociology

500 S. State St., # 3001

Ann Arbor, MI 48103-1382

John Haltiwagner, Professor

University of Maryland
College Park, MD 20742-7211

Nicholas Bloom, Professor

Stanford University

579 Serra Mall

Stanford, CA 94305

Ramana Nanda, Professor

Harvard University

Harvard Business School

Soldiers Field
Boston, MA 02163

Rebecca Zarutskie, Senior Economist

Board of Governors of the Federal Reserve System

20th Street and Constitution Avenue N.W.
Washington, DC 20551

Robin Prager, Senior Adviser

Board of Governors of the Federal Reserve System

Division of Research and Statistics

20th Street and Constitution Avenue N.W.
Washington, DC 20551

Traci Mach, Senior Economist

Board of Governors of the Federal Reserve System

Financial Structure Section

20th Street and Constitution Avenue N.W.
Washington, DC 20551

Carol Carrado, Senior Advisor and Research Director

The Conference Board

845 Third Avenue
New York, NY 10022-6600

Dr. Sari Kerr, Senior Research Scientist

Wellesley College

106 Central Street

Wellesley, MA 02481

Dr. Robert W. Fairlie, Professor

University of California Santa Cruz

Department of Economics, Engineering 2 Building

1156 High Street

Santa Cruz, CA 95064-1077

Dane Stangler, Vice President of Research and Policy

Ewing Marion Kauffman Foundation
4801 Rockhill Road
Kansas City, MO 64110

Amanda Brown, Executive Director

National Women’s Business Council

409 Third Street SW
Washington, DC 20024

Miriam Segal, Research Analyst

National Women’s Business Council

409 Third Street, SW, 5th Floor

Washington, DC 20416

Emily Bruno, Director of Research and Policy

National Women’s Business Council

409 Third Street SW Suite 210
Washington, DC 20024

Brian Headd, Economist

Small Business Administration

Office of Advocacy

409 3rd St, SW
Washington, DC 20416

Christine Kym, Chief Economist

Small Business Administration

Office of Advocacy

409 3rd St, SW
Washington, DC 20416

Julie R. Weeks, President and CEO

Womenable

13601 S. Beaver Pond Road

Empire, MI 49630

Although the 2014 ASE uses questions from the SBO (form SBO-1), efforts were made to collaborate with officials and agencies to enhance the ASE content. When feasible, their suggestions were incorporated into the electronic reporting instrument design and content used for the cognitive testing process. Their efforts resulted in additional sources of capital questions, and the new innovation and research and development module. Additionally, the Ewing Marion Kauffman Foundation announced the planned ASE collection on an external blog and allowed comments from subscribers.

A presubmission notice was published in the Federal Register, Vol. 80, No. 27, Tuesday, February 10, 2015, pages 7411-7413, inviting public comments on our plans to submit this request. The presubmission notice generated a response from the National Women’s Business Council (NWBC). The NWBC offered comments for the ASE, which included an array of additional topics to ask respondents in the survey. Although the ASE is presently unable to incorporate additional topics and questions, the Census Bureau will review and consider the recommendations in future survey design revisions. Please see Attachment E in Supporting Statement, Part B, for NWBC’s correspondence. The presubmission notice generated one additional response that we deemed irrelevant to the submission. That notice referred to the collection as the Annual Survey of Business Owners. We have since changed the name of the collection to better describe the goal and uses of the data collected. Although the ASE is a supplement to the SBO, it is important to identify the surveys separately due to differences in scope, sample, and survey cycles.

9. Paying Respondents

The Census Bureau does not pay respondents and does not provide them with gifts in any form to report requested information on economic surveys.

10. Assurance of Confidentiality

The electronic reporting instrument provides respondents with the following assurance of confidentiality:

YOUR RESPONSE IS REQUIRED BY LAW. Title 13, United States Code, Sections 131, 182, 224, and 225, authorize this collection and require businesses and other organizations that receive this questionnaire to answer the questions and return the report to the U.S. Census Bureau. By Section 9 of the same law, YOUR CENSUS REPORT IS CONFIDENTIAL. It may be seen only by persons sworn to uphold the confidentiality of Census Bureau information and may be used only for statistical purposes. Further, copies retained in respondents’ files are immune from legal process.

Similar guarantees will be included in the initial mailout letters. All activities relating to the collection and dissemination of economic data satisfy the confidentiality requirements of Title 13, United States Code, Section 9.

11. Justification for Sensitive Questions

The Office of Management and Budget (OMB) has mandated the race and ethnicity categories and definitions listed on our survey electronic reporting instrument. Both the Executive Branch and Congress developed these standards.

Business owner characteristics are important for assisting program officials, industry organizations, economic and social analysts, and entrepreneurs. They are important to understanding conditions of business success and failure, showing census-to-census changes in business performance, and comparing minority-/nonminority-owned, women-/men-owned, and veteran-/nonveteran-owned businesses.

By law (Title 13 of the United States Code), all responses to the survey, including sensitive questions, are completely confidential and may be seen only by persons sworn to uphold the confidentiality of Census Bureau information. The data are used only for statistical purposes and the responses are summarized so that the confidentiality of individual respondents and their business activities is fully protected. The law also provides that copies retained in respondents’ files are immune from legal process.

12. Estimate of Hour Burden

This survey is scheduled to be conducted annually for three reference years, 2014, 2015 and 2016. Plans to continue this collection after 2016 have not been decided. For 2014, the estimated sample size is 290,000 employer businesses. Each year employer businesses will be surveyed for electronic responses. The average response time per respondent is 35 minutes. This estimate is based on previous SBO collections and the results of recent cognitive interviews conducted under the Census Bureau’s generic clearance for Questionnaire Pretesting Research. The estimated total annual response burden is 169,167 hours. The Federal Register notice dated February 10, 2015, showed the number of respondents as 200,000 and the total annual burden as 116,667 hours. The figures presented in this request supersede those earlier estimates and reflect a recalculation of the sample size due to the acquisition of additional funding.

Based on the Occupational Employment Statistics from the Bureau of Labor Statistics, the median hourly wage for accountants was $31.29 in 2013. In fiscal year 2015, the annual cost to respondents for their time to respond is estimated to be $5,293,235.

13. Estimate of Cost Burden

We do not expect respondents to incur any costs other than that of their time to respond. The information requested is of the type and scope normally known by respondents or carried in company records and no special hardware or accounting software or system is necessary to provide answers to this information collection. Therefore, respondents are not expected to incur any capital and start-up costs or system maintenance costs in responding. Further, purchasing of outside accounting or information collection services, if performed by the respondent, is part of usual and customary business practices and not specifically required for this information collection.

14. Cost to Federal Government

The Census Bureau, the Ewing Marion Kauffman Foundation, and the MBDA jointly fund this collection. The cost to the Census Bureau for three survey years (2014-2016) is estimated to be $3.4 million. The MBDA will contribute another $200,000 towards this collection. The Census Bureau has planned and allocated resources for the effective and efficient management of this information collection.

15. Reason for Change in Burden

The increase in burden is attributable to the information collection being submitted as new.

16. Project Milestones

Milestone	2014 Reference Year Planned Completion Date	2015 Reference Year Planned Completion Date	2016 Reference Year Planned Completion Date
Content Drafted for Cognitive Testing	December 2014	October 2015	October 2016
Cognitive Testing Complete	March 2015	December 2015	December 2016
Content Final/Centurion Requirements Final	March 2015	January 2016	January 2017
Presubmission Notice Published in Federal Register	March 2015	October 2015	October 2016
Approval Request Submitted to OMB	May 2015	March 2016	March 2017
Usability Testing	August 2015	May 2016	May 2017
Initial Mailout	September 2015	June 2016	June 2017
1st Follow-up	October 2015	July 2016	July 2017
2nd Follow-up	November 2015	August 2016	August 2017
Closeout	January 2016	September 2016	September 2017
Micro Data Review Complete	February 2016	October 2016	October 2017
Production Processing	April 2016	November 2016	November 2017
Macro Data Review Complete	June 2016	January 2017	January 2018
Dissemination Processing	July 2016	March 2017	March 2018
All Publications Released	August 2016	April 2017	April 2018
Public-Use Microdata File Released (Pending IRS Approval)	September 2016	June 2017	June 2018

17. Request Not to Display Expiration Date

The assigned expiration date will be displayed on the collection instrument, the initial mailout letter, and the follow-up letters mailed to respondents.

18. Exceptions to the Certification

There are no exceptions to the certification.

19. NAICS Codes Affected

This information collection is not industry-specific and covers nearly all U.S. nonfarm businesses. Economic activities that have the following NAICS classifications are out of scope of the ASE:

• Crop Production (NAICS 111)

• Animal Production (NAICS 112)

• Scheduled Passenger Air Transportation (NAICS 481111)

• Rail Transportation (NAICS 482)

• Postal Service (NAICS 491)

• Funds, Trusts, and Other Financial Vehicles (NAICS 525)

• Religious, Grantmaking, Civic, Professional, and Similar Organizations (NAICS 813)

• Private Households (NAICS 814)

• Public Administration (NAICS 92)

Additionally, companies owned by American Indian and Alaska Native tribal governments are out of scope to the ASE collection.

The 2014 ASE will include a module on innovation and research and development. Businesses included in the following industries are expected to provide the most response in this module for 2014:

• Manufacturing – Sector 31

• Information – Sector 51

• Professional and Technical Services – Sector 54

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