Owners of small firms are the virtuous strivers, the job creators and the plucky entrepreneurs who drive the economy. A weak economy does just the opposite: discourages start-ups and expansions, which decreases the workforce through layoffs. The greater diversity we have in the economy, the easier it is for the economy to withstand tough conditions. Economic growth also plays a role in reducing debt to GDP ratios. The millions of individuals who have started businesses in the United States have shaped the business world as we know it today. Table 5.1 “Small Firm Job Gains and Losses, 1993–2008 (in millions of jobs)” reports the net increase in jobs generated by small firms for the fifteen-year period of 1993 to 2008 and breaks it down into job gains from openings and expansions and job losses from closings and contractions. Some advantages of having these businesses in the economy include: Unemployment is a problem that most economies suffer from. Why are small businesses so innovative? Another incentive is to make access to capital easier so that most people can find it convenient to change their ideas to established businesses. They typically make faster decisions, their research programs often are focused, and their compensation structures frequently reward top performers. That’s why global investment banks such as Goldman Sachs do their part to support small business. But the survival and expansion rates for small firms is poor, and so, again at any given point in time, many small businesses close or contract and workers lose their jobs. And, it’s not just the number of small businesses that give them an economic advantage. Secondly, the crime rates reduce as those who would have resorted to robbery to get an income are gainfully employed. We speak with Professor Mark Watson-Gandy about the finer points of English contract law, including the formalities required in drawing up a contract, what can make a contract invalid and possible ways to exit legally from a contract. Local sporting goods stores sell athletic shoes made by industry giants, such as Adidas and Nike. Some small business founders like Henry Ford and Thomas Edison have even gained places in history. They supply many of the components needed by big companies. Because of their direct connection to the community, small businesses tend to be more adaptable to changing economic climates. Describe some of the ways in which small companies work with big ones. Advantages & Disadvantages of Small Businesses. Not only did his innovative approach to online retailing make Bezos enormously rich, but it also established a viable model for the e-commerce industry. Office of Advocacy, U.S. Small Business Administration, The Small Business Economy: A Report to the President, Appendix A (December 2010), http://www.sba.gov/content/small-business-economy-2010 (accessed August 28, 2011). Also, small firms usually don't have large overhead that is burdened by big companies with fancy addresses and designer lobbies. Likewise, local small businesses tend to buy locally as well, pumping more of their profits back into the community than their chain store counterparts, helping with economic development. If a substantial portion of small businesses in the United States suddenly closed, what would be the impact on the U.S. economy? While small businesses may not generate as much revenue individually as a large corporation, they are still vital to the success of our economy. If you live in Smalltown, USA and work at Random Small Business LLC, chances are you'll spend that money right where you earned it. “Human inertia”, as Beacham says, “may overcome economic incentive.” Expansion may entail loss of freedom, comfort, leisure for the proprietors. Small firms also tend to invest less in training and rely relatively more on external recruitment for raising competence. Benefits to consumer of using small firms. Today, half of all U.S. adults either are self-employed or work for businesses with fewer than five hundred employees (U.S. Small Business Administration, 2011). Small firms supply many of the components needed by big companies. Faster growth in gross domestic product (GDP) expands the overall size of the economy and strengthens fiscal conditions. Small firms complement large firms in a number of ways. Economic growth results in bringing a high rate of employment. According to the EU definition , medium-sized firms are those which employ fewer than 250 employees, small-sized employ fewer than 50, and micro-sized fewer than 10. Small businesses can win through creativity. Fast decision making is encouraged, their research programs tend to be focused, and their compensation structures typically reward top performers. U.S. Small Business Administration, “How Important Are Small Businesses to the U.S. Economy?,” U.S. Small Business Administration, Office of Advocacy, http://www.sba.gov/advocacy/7495/8420, (accessed August 28, 2011). Because the small businesses cannot cope with the huge price reduction, they are forced to terminate their services. Flexibility, generally lean staffing, and the ability to develop close relationships with customers are among the key benefits of small businesses. Businesses also establish important infrastructure within the societies where they operate, such as roads, electricity connections, and water. When local residents shop at small businesses within their communities, their tax dollars stay within the local economy, helping to improve their community as a result. Given the financial resources available to large businesses, you’d expect them to introduce virtually all the new products that hit the market. Raising Capital. A weak economy does just the opposite: discourages start-ups and expansions, which decreases the workforce through layoffs. As a result, only 59% of small businesses offered health insurance benefits. In some areas, people such as Tej Kohli who run these businesses have created successful and established centers where the others are trained on how to manage their own ventures. In other words, startups’ contribution to our economy is the “big small.” Small business owners are also particularly adept at finding new ways of doing old things. Still millions of others have collectively contributed to our standard of living. 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