On an annual basis, small businesses account for half of the economic activity in the United States. They are much more important than headlines would lead people to believe. But how do small businesses boost economic growth?
David Shulick says that unlike large corporations, small businesses need to outsource things like accounting, marketing, maintenance, and legal services. They primarily choose local businesses for this purpose, and this is the main way they contribute to local economic growth. Small businesses are also responsible for the majority of job creation and innovation across many industries, further stimulating growth in the economy.
Small Businesses Impact the Local Economy in Big Ways
Small businesses are an integral component of local economies, but their influences often go unnoticed by the general public and industry experts alike. However, small businesses actually contribute more to the economy than large corporations. Here’s how.
Small business owners outsource many of their organization’s needs; they simply don’t have the internal structure to handle it all in-house. Services such as marketing, accounting, maintenance, and legal counsel are usually provided by other local businesses. Many of them may also be small businesses, and the shared benefits of the partnerships will improve the local economy for all.
Over the past 25 years, small businesses have been responsible for the creation of 12.7 million jobs; that’s 66% of all new jobs created during those years. After the coronavirus pandemic, small businesses alone were responsible for a 60% recovery rate from the 9.1 million jobs that were lost as a direct result of the pandemic.
As countries—and their economies—have rebounded in the wake of COVID-19, small businesses have become even more relevant than ever before. Many people turned to small business ownership as a source of income, and as they’ve grown, they have hired other individuals from their local community.
As small businesses earn more money and hire local individuals, those people will be able to contribute more significantly to the local community with their shopping habits.
Two defining characteristics of small businesses are flexibility and an entrepreneurial spirit. These two traits allow for fresh perspectives, operational changes, and innovative thinking without too much financial investment or community backlash.
As a result, small businesses are drivers of innovation in their industry. In their startup phase, small businesses have the flexibility to try new things and see how they work out, a luxury that is not afforded to large corporations. When these innovative ideas pay off, it not only benefits the entrepreneur and their business but also the local economy through media awareness.
Although the importance of small businesses is underrepresented in the media and overlooked by business tycoons, small businesses are more impactful than large corporations when it comes to both economic fundamentals like job creation and revolutionary advancements in various sectors of industry. On a local and national level, small businesses contribute to the economy in big ways.