4 Ways Small Businesses Empower Their Communities

Business.com / Industry / Last Modified: June 2, 2017
Photo credit: Kinga/Shutterstock

Small businesses inject jobs and revenue back into local communities while helping to spark innovation, and provide opportunities for women, minorities and immigrants.

You’ve heard it from nearly every politician to slap their name on a voting ballot: "Small businesses are the backbone of the U.S. economy." And it’s true. Small businesses employ half of the nation’s private sector workforce and in recent decades, SMBs have generated 45 - 50 percent of the US GDP. Small businesses inject jobs and revenue back into local communities while helping to spark innovation, and provide opportunities for women, minorities and immigrants.

Small businesses inject jobs and revenue back into local communities while helping to spark innovation, and provide opportunities for women, minorities, and immigrants.

No matter how you parse the data, it’s clear that small businesses have a significant impact on the greater economy and are vitally important to helping local communities thrive. Here is a rundown on how Small Businesses empower local communities:

1. Small business creates jobs for local residents

According to the Small Business Administration (SBA) Office of Advocacy, a small business is an independent company with fewer than 500 employees. While that might not seem like much compared to international corporations, who employ tens of thousands, those numbers add up.Overall, small businesses create 64 percent of all new private-sector jobs, which means they’re absolutely essential to getting people working. This is why it’s not hard to see the impact of small businesses on job creation. In fact, it can be seen throughout towns and cities in America.

Overall, small businesses create 64 percent of all new private-sector jobs, which means they’re absolutely essential to getting people working. This is why it’s not hard to see the impact of small businesses on job creation. In fact, it can be seen throughout towns and cities in America.The National Community Reinvestment Coalition (NCRC) says that small businesses are key to alleviating poverty and promoting economic self-sufficiency. It’s why they focus on helping small businesses in low- to moderate-income areas. “Powering small businesses to thrive in these communities creates jobs and develops neighborhood wealth and financial stability.”

The National Community Reinvestment Coalition (NCRC) says that small businesses are key to alleviating poverty and promoting economic self-sufficiency. It’s why they focus on helping small businesses in low- to moderate-income areas. “Powering small businesses to thrive in these communities creates jobs and develops neighborhood wealth and financial stability.”

2. Small business generates revenue that stays in local communities

In recent decades, everyone from politicians to entrepreneurs has complained that government policies benefit the biggest corporations and there isn’t enough support for small businesses to compete. Perhaps this is why entrepreneurship has been declining in recent years. In fact, the entrepreneurship rate dropped from 14 percent in 2014 to 12 percent in 2015. Here’s an unfortunate truth about big business: corporations don’t always reinvest the money they make into the local economy. Instead, they return it to shareholders or invest in other regions. Local communities would benefit more if that money were recirculated back into the neighborhood – precisely what many small businesses do on a daily basis.

In recent decades, everyone from politicians to entrepreneurs has complained that government policies benefit the biggest corporations and there isn’t enough support for small businesses to compete. Perhaps this is why entrepreneurship has been declining in recent years. In fact, the entrepreneurship rate dropped from 14 percent in 2014 to 12 percent in 2015. Here’s an unfortunate truth about big business: corporations don’t always reinvest the money they make into the local economy. Instead, they return it to shareholders or invest in other regions. Local communities would benefit more if that money were recirculated back into the neighborhood – precisely what many small businesses do on a daily basis.

Here’s an unfortunate truth about big business: corporations don’t always reinvest the money they make into the local economy. Instead, they return it to shareholders or invest in other regions. Local communities would benefit more if that money were recirculated back into the neighborhood – precisely what many small businesses do on a daily basis.The Institute for Local Self-Reliance highlights some important findings on how small businesses keep local economies humming:

The Institute for Local Self-Reliance highlights some important findings on how small businesses keep local economies humming: Small businesses are linked to faster income growth than big companies.

  • Small businesses are linked to faster income growth than big companies.
  • Small businesses recirculate a greater share into the local economy than large corporations.
  • Small businesses do not have a negative impact on other local businesses that big corporations may have.

Small businesses are often tied up with their local communities as well. Tulane University examined the economic recovery of New Orleans post-Hurricane Katrina. After 15 months, researchers found that 75 percent of locally owned businesses had reopened, while only 59 percent of national chains had.

3. Small business sparks innovation

In recent years, big companies around the country have been trying to make their teams operate more like startups in order to maintain a competitive edge. Given the huge discrepancy in resources and capital between a large corporation and a small startup, this may seem like odd behavior.

But the numbers show that small companies are much more efficient innovators. According to SBA research on high patenting firms (those that have 15 or more patents over four years), small businesses produce 16 times more patents per employee than large corporations.  

When important innovations come from a small business, neighborhoods, towns, and cities can be transformed. For instance, when the Wright Brothers invented the first flying machine, they not only revolutionized transportation, they also put their town on the map. Over 100 years later, the benefits of their invention are still being enjoyed by the city of Dayton, their hometown, as well as Kitty Hawk, where the first flight took place.

4. Small business creates opportunities for women, minorities, and immigrants

Economic data from recent years shows that women, minorities and immigrants are pursuing their dreams of building their own business more often than ever before.

For example, between 2002 and 2007, minority-owned companies increased 46 percent. In 2011, immigrants started 28 percent of new businesses, despite accounting for 13 percent of the total US population. And in 2015, women-owned businesses saw a 12 percent rise in revenue from the previous year.

Clearly, many women, minorities and immigrants have realized that starting a business may be the most pragmatic route to financial independence and prosperity. And since entrepreneurship from these groups has been on the rise, the communities in which they live have felt the positive impact.

For example, César Melgoza, founder and CEO of Geoscape, notes that for many Hispanic Americans, especially immigrants, starting a business is the best option they have to climb the financial ladder. This is because many “might not have access to corporate network jobs that are out there.” When their own business ventures succeed, their communities reap the rewards in the form of jobs, increased tax revenue, neighborhood leadership and more.

Small business has a big impact

Arguably, the best way for neighborhoods to become financially successful is to create an environment which supports and nurtures small business growth.

But for that to happen, entrepreneurship must be encouraged through education, local leadership, lending practices, and government policy. This will incentivize and motivate all sorts of talented people to actually start their own business – and build a better tomorrow for their communities.

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