Do Small Businesses Help Local Economies? Absolutely! Here is Why.

When you think of businesses and money, you probably think of the big companies that dominate the stock market. That’s natural because they’re highly visible owing to their powerful brands. However, small businesses punch far above their weight in terms of making a tangible, positive impact on the local economies they’re a part of.

Why?

One reason is that they employ about half of the nation’s private workforce. There’s a good chance you work for a small business (500 employees or less). The money you earn goes into local businesses like restaurants, clubs, bakeries, small grocery stores, and so many others. The net result is an economic boon for your community, also known as a “multiplier effect.”

What’s more, small businesses operate locally and therefore they hire locally. Think about your first job—was it at a small business? Is the business you work for now located in your community? There’s a good chance it is.

Author and economist Michael H. Shuman, who specializes in community economics, examined more than two dozen studies about the value of small businesses to local communities. Here’s what he found:

“Every single one of them shows that every single dollar spent at a local business leads to two to four times the amount of jobs, income and wealth, tax collections and charitable contributions. There’s no magic to it—it’s basic economics that companies that are local have more local relationships, and that’s what creates this disproportionate positive effect.”

Small businesses are also more likely to be involved in their community and to give back.

Small businesses are also more likely to be involved in their community and to give back. It’s often done out of caring for their community; however, there are solid economic benefits, too.

A sponsored story in USA Today reported that almost half of small business owners contribute to local charities that do community service in the area. It helps connect their brand to social issues, which raises visibility. Furthermore, when employers encourage employees to volunteer at local charities or for social causes, employees can learn new skills. These types of activities also boost employee satisfaction.

The saying that small businesses are the backbone of the economy is true, but it leaves out why. Now you know why—because small businesses have a large and positive impact on local economies and communities.