While big businesses, including the likes of Wal-Mart and Kroger, have a measureable positive effect on the neighborhoods they enter, often the local small businesses have a greater economic impact on their communities. The American Independent Business Alliance (AMIBA) contends that, “Independent retailers return more than three times as much money per dollar of sales than chain competitors.”
According to the U.S. Small Business Association (SBA), small businesses are an ever-growing share of overall businesses in the United States. They represent more than 99.7% of all employers, accounting for 67% of net new private-sector jobs created from mid-2009 to 2011, and 54% of sales in the United States. These figures show that small businesses have a huge effect on the nation’s economy as a whole. However, it is how they affect the communities in which they operate that provides the greatest impact.
Local Economic Benefits of Small Businesses
Increased Property Values – According to a 2011 report sponsored by American Express, dynamic neighborhood shopping areas are considered an advantage when selling a home. Of the residential neighborhoods examined, those served by a successful independent business district experienced 50% more appreciation in home values on average than their citywide markets over the 14‑year study period. “This research validates what we know intuitively—small businesses are the lifeblood of our communities,” stated Susan Sobbott, president, American Express OPEN. “There is concrete evidence that thriving independent neighborhoods lead to higher real estate values and more local jobs.”
Local Multiplier – In an article written for AMIBA, Jeff Milchen describes the local multiplier effect, “Dollars spent at community-based merchants create a multiplier in the local economy, meaning that from each dollar spent at a local independent merchant, 2 to 3.5 recirculates in the local economy compared to a dollar spent at chain-owned businesses.” By supporting a local boutique, a consumer is also supporting a local tax preparer, cleaning service, and attorney. For every dollar spent at a local business, 45 cents are reinvested locally, compared to only 15 cents for each dollar spent at a corporate chain. A recent study on this “local economic premium” in the Andersonville neighborhood of Chicago found that the total impact, including direct, indirect, and induced effects, of each dollar spent at local independent businesses was 68 cents of additional local economic activity ultimately generated in the community after additional spending cycles. This compares to 43 cents of additional local economic activity for chain competitors.
Brain Drain Reversal – Small businesses can also facilitate economic growth through the creation of valuable local jobs for skilled workers. It is often easiest to envision large cities and corporations as the primary place of employment for recent graduates, educated professionals, and trade workers. Smaller communities often lack big businesses that ultimately hire many of these skilled workers. However, according to recent surveys by The Wall Street Journal and Vistage International, 54% of small business owners plan to hire new employees during the next year. Data from Indeed’s small business services team also finds that small businesses have a strong demand for sales and finance professionals. “A focus on sales talent shows that small businesses are looking to grow as we head into the end of the year,” said Jason Whitman, SVP of Client Services at Indeed. Actively supporting entrepreneurship and small business in these communities allows for the creation of local jobs for skilled workers and reduces brain drain in the community.
Leveling the Playing Field – Incentives to Promote Small Businesses
Despite the measurable economic benefits that local communities receive from welcoming small businesses, state-level economic development incentives designed to promote economic growth are often out of reach for these independent businesses. In 2015, an analysis by Good Jobs First of over 4,200 economic development incentive awards in 14 states found that big businesses received 90% of the $3.2 billion awarded and 70% of the deals. This is consistent with findings from a national survey of 41 leaders of small business organizations, which found that 92% of respondents believed that spending on economic development incentives in their state is biased toward big businesses. “Our findings are absolutely consistent with what we have heard for years from small business leaders,” said Good Jobs First Executive Director Greg LeRoy. “Despite their pro-small business rhetoric, state officials’ programs are perceived as biased in favor of large companies that receive big tax-break packages.”
Local communities have taken up the fight in recent years to even the playing field, with some communities putting in extra effort to attract and keep small businesses in their cities. Des Moines, Iowa, named #7 on Kiplinger’s Great Cities for Starting a Business, offers the MicroLoan Program through the city’s economic development office. The program can provide up to $10,000 to Des Moines businesses with five or fewer employees. In 2014, the Columbus, Ohio City Council created a new position, “small business concierge,” whose mission is to help entrepreneurs get settled in Columbus, including obtaining financing, permits, and licenses.
Even larger corporations have noted the incredible impact of small businesses and strive to help promote growth. For example, Goldman Sachs’ 10,000 Small Businesses provides education, capital, and support services to help established small businesses grow and create more jobs. “Small businesses continue to play a central role in spurring economic growth and job creation in their communities and nationwide…,” said Dina Habib Powell, President of the Goldman Sachs Foundation and head of the firm’s Impact Investing business.
How does your community support their local small businesses? And for small businesses, what help can your community provide to help you grow?