How Small Businesses Affect a Nation’s Economy

Gone are the days when small business owners were individuals lacking formal education or corporate skills. Due to the advent of the Internet and social media, social status or level of education are no longer the defining criteria for achieving success in entrepreneurship.

Because of that, small businesses have become a really important part of national economies in recent times. This trend is now observable in a number of developed and developing countries. SBEs (small business enterprises) contribute to half of the total GDP in such developed countries as Japan and the USA. This gives one a pretty good idea of how essential SBEs are to the continual growth of any economy. However, in some countries, small businesses are oftentimes underrepresented, and it's high time that changed.

To better understand the role SBEs play, we should first consider some basic economic concepts.

What is a Small Business Enterprise (SBE)?

There isn't a universally accepted definition of small business enterprises. In the United States, SBEs are referred to as commercial entities that employ a staff of 500 and have little influence on the market segment they operate in. In their turn, Europeans define them as having fewer than 250 people.

What is an economy?

An economy can be defined as a system of buying, selling, and producing goods and services. The most basic component of any economy is the distribution of money, or putting it simply, buying and selling. There are many interdependent factors that influence economic growth or decline of a nation, such as labor, law, infrastructure, natural resources, human capital, and technology. For the purpose of this article, we will focus on small business enterprises and their influence on a national economy. There are numerous ways in which SME ensure collective growth of an economy but we'll focus on these four:

Employment

Due to the abundance of information on social media, it has become relatively easy for literally anyone today to start a small business. All it takes is having some start-up capital and Internet access. However, small business owners need to employ people to ensure their company's growth. Because of the small initial costs involved, people are constantly looking for ways to launch their own SBEs. Examples of such small enterprises include companies hiring custom writers for people who can buy cheap essay, Wieners Circle, Death wish Coffee, etc.

One form of trading that has become very instrumental in facilitating the creation of small businesses is e-commerce (online shopping). E-commerce makes it possible to start a profitable business with no infrastructure at all, and that means little start-up costs. Small business enterprises serve as an excellent alternative source of employment, especially when it comes to jobs that don't require graduate level education. And this, in turn, translates to increased economic growth and development.

Poverty

Poverty is undeniably one of the main reasons for economic stagnation. Poverty and unemployment go hand in hand, which means that the former can be eradicated by providing more job opportunities. And the best way to do that is to encourage the creation of SBEs at the community level. Given the low start-up costs involved, it's safe to say that an economy that invests in SBEs is sure to experience exponential growth within the shortest possible time.

Crime Drop

A spike in crime rate is undeniably another anti-economic growth indicator. That's because it imposes a huge economic burden on the affected communities and taxpayers. And the worst thing is that investors make it a rule to avoid crime-ridden areas.

So what can be done to improve a country's economy if it is filled with crime-ridden communities? To tackle a problem of this magnitude, we've got to first understand its underlying cause, which is joblessness. In fact, it doesn't take a rocket scientist to figure that out. If that's the case, then creating SBEs seems to be the logical thing to do. In other words, by creating jobs in these communities, you provide people with an opportunity to make an honest living and give a boost to your economy.

Taxes

Tax payment is one of the major channels through which governments get revenue. As of 2010, small businesses accounted for 50% of the total GDP (Gross Domestic Product) in the United States, one of the strongest economies on the planet. This means that half of the foundation of one of the world's biggest economy is based on the input of SBEs. And as we all know, the ratio of tax revenue to GDP is directly proportional. In other words, tax revenue increases as GDP increases. So, not only do small businesses affect GDP but they also directly affect tax revenue. Given that, a rapid decline in output of SBEs will automatically cause a rapid decline in economic growth.

Because of the small start-up costs involved, SMEs are relatively easy to create and run. That is exactly the reason why more and more of them are started on a regular basis in developed and developing countries. This fact alone underscores the grave importance of small businesses. Their growing number means more employment opportunities which, in turn, translates to increased tax revenue and GDP.

Now that you know the role small businesses play in a nation's economy, it should be pretty clear to you that they ensure global financial stability. And this further reinforces the belief that we all have significant roles to play in nation building, no matter how small they may be.