How Important Are Small Businesses to Local Economies?

While small businesses may not generate as much money as large corporations, they are a critical component of and major contributor to the strength of local economies. Small businesses present new employment opportunities and serve as the building blocks of the United States' largest corporations.

Contributions

A small business is defined as a business (corporation, limited liability company or proprietorship) with 500 employees or less. According to the U.S. Small Business Administration (SBA), small businesses represent 99.7 percent of all employer firms. Since 1995, small businesses have generated 64 percent of new jobs, and paid 44 percent of the total United States private payroll, according to the SBA.

Economic Growth

Small businesses contribute to local economies by bringing growth and innovation to the community in which the business is established. Small businesses also help stimulate economic growth by providing employment opportunities to people who may not be employable by larger corporations. Small businesses tend to attract talent who invent new products or implement new solutions for existing ideas. Larger businesses also often benefit from small businesses within the same local community, as many large corporations depend on small businesses for the completion of various business functions through outsourcing.

Adaptability to Changing Climates

Many small businesses also possess the ability to respond and adapt quickly to changing economic climates. This is due to the fact that small businesses are often very customer-oriented. Many local customers will remain loyal to their favorite small businesses in the midst of an economic crisis. This loyalty means that small businesses are often able to stay afloat during tough times, which can further strengthen local economies. Small businesses also accumulate less revenue than larger corporations, meaning they may have less to lose in times of economic crisis.

Schools and Local Government Offices

When consumers patronize local small businesses, they are essentially giving money back to their local community. A thriving local business will generate high levels of revenue, which means that the business will pay higher taxes, including local taxes. This money is then used for local police and fire departments as well as schools.

Future Growth

Small businesses do not always stay small. Large corporations, such as Nike and Ben and Jerry’s, started off as small businesses that grew to become major players in the national and international marketplace. Many computer-industry leaders began as “tinkerers,” working on hand-assembled machines out of their garages. Microsoft is a prime example of how a small business idea can change the world. Small businesses that grow into large businesses often remain in the community in which the business was first established. Having a large corporation headquartered in a community can further help provide employment and stimulate the local economy.

About the Author

J. Mariah Brown is the owner and editor-in-chief of Writings by Design, a comprehensive business writing service company. She is a formally trained, seasoned journalist, and has worked in a variety of fields, which has equipped her with the experience needed to write and edit for an eclectic audience base on virtually any topic.

Photo Credits

• store image by andrej pol from Fotolia.com