Why Small Businesses are Important to the Economy

Tap to Read ➤ Urvashi Pokharna

Every economy needs entrepreneurial skills to fully exploit its human resources and prosper. During the times of down-sizing and recession when everyone in big companies is running around like headless chickens, do small businesses really make a difference in an economy?

Did you know? The Bank of America was initially established as a small business and has grown to its glorious position as a corporate giant. There are an estimated 29.2 million small business enterprises in America.

As inconspicuous as they may seem, small-scale businesses are vital to bring innovation and drive competition in an economy. They increase national GDP. Clients now have more trust in small-sized businesses than they do in larger companies. These businesses have successfully developed a sense of trust and security in people around them.

Irrespective of the fact that they do not generate turnovers in millions, small-sized businesses provide sustainability to the economy. They are easy to manage, very flexible and easily adapt to economic changes.

Creating More Employment

Although a small business may typically employ fewer than five hundred people, they help generate employment opportunities.

While multinational corporates focus on recruiting people with laudable educational qualifications, small enterprises hire people even with most unimpressive resumes along with providing training and development.

In the American economy, such businesses have alone provided employment to almost half of those engaged in the private sector. If you were to compare the total number of people employed by all small business firms as compared to big businesses, you will observe that percentage of employment generated by small companies or businesses is higher.

This is evident in the fact that annually, small-sized businesses have generated more than 60% of total new employment opportunities in the U.S. economy in the last ten years.

Also, these jobs are created at a faster pace too, because many small enterprises are more inclined towards increasing their work force, while big corporates concentrate on wealth generation through higher investments.

During periods of lay-offs prevailing in the entire economy, the number of small-business start-ups will go up even though big corporates will downsize. The banks will fund these new businesses and stimulate the velocity of money.

Small Businesses are the Backbone of Our Economy

The oft-repeated statement "small businesses are the backbone of our economy" stands true in modern-day economies. Although many such businesses in the economy may depend on outsourcing by larger companies, if they did not exist, so wouldn't the big businesses.

While, small-sized businesses create more products and services, they also help circulate money in the economy quickly. They are also more enthusiastic and willing to create strong customer relationships and reliability amongst the employees.

They work at the micro-level of economics and create a base for the macro-economic stage through the multiplier effect. They cater not only to households directly but also aid multinationals with their products and services.

However, many huge clients are now turning to small enterprises to contract financially significant projects fascinated with the friendly and reliable work environment.

Also, the scope for growth of innovation for an employee is much higher when employed by a small business, evident statistically that they generate 13 times more patents per employee than any large patenting enterprise.

Thus, small companies or businesses encourage growth and development. In fact, during times of recession, the turnover of these businesses is least affected. You wouldn't expect a small business to quickly downsize and cut back on its workforce in a depressive economy.

If you have been gloomy about not being able to find a job, exploit your skills and interests and learn how to start a small business from your fellow small-sized business entrepreneurs, 53% of whom run a home-based business and need very low investment.