I routinely hear the statement that small business is the lifeblood of the US economy – producing far more jobs than large businesses.    Over the past few months, I have heard “jokes” and statements to the contrary – indicating that this was not really the case and that small businesses did little to contribute to the economy as a whole.    Obviously, dealing with small businesses on a daily basis, I was skeptical of these statements and decided to do some research on my own.    The result is that small business is far more important to the economy than I could ever have imagined.  Look at the following statistics  (Source:  US Small Business Administration).

• 99.7% of all employers are small businesses,
• Small businesses employ half of all private sector employees, and pay 45% of all private sector payrolls,
• have generated 60% to 80% of all net new jobs over the last decade
• create more than half of the non-farm Gross Domestic Product
• employ 40% of all high-tech workers (scientist, engineers, and computer workers)
• produce 13 times more patents per employee than large patenting firms, and the patents are twice as likely as large firm patents to be among the one percent most cited.

The SBA’s Office of Advocacy estimates that there were a total of  27.2 million businesses in the United States in 2007.  According to data from the 2005 Census, there were 6.0 million firms with employees and 20.4 million without employees in 2005.   There were slightly more than 17,000 large businesses.  Small businesses with fewer than 500 employees represented 99.9 percent of the 27.2 million businesses (including both employers and nonemployers).

This data is important to consider considering the current state of our economy and the mountain of additional regulation being considered at by the Federal Government.    Some of the 17,000 large businesses may be able to afford to absorb the additional cost of regulation, but what about the small businesses?    An SBA study shows that small businesses may have a difficult time taking on more regulation.    On average, an employer with less than 20 employees pays 45% more per employee to comply with federal regulations than does their large business (over 500 employee) counterparts.  When segregated into the types of regulation, the results are even more skewed.  For instance, the smallest businesses (less than 20 employees) on average spent $3,296 per employee on environmental regulations while big bisinesses spent only $710 per employee.    Tax compliance was another area that resulted in a heavy burden on the smallest businesses – where their cost per employee totaled $1,304, compared with just $780 for big businesses.

Statistics like this shed a lot of light on the reasons behind why some of the largest businesses  (such as Wal-Mart) are encouraging more regulation.  It will result in very little difference for them, but will put a great burden on many of its competitors – especially smaller competitors.

Hopefully, they will actually take some time to consider the ramifications of additional regulation before they pass any more legislation that could affect small business negatively.  Small business is without a doubt the lifeblood of the American economy, and we need to do everything we can to allow entreprenuers the opportunity to be successful.    We have to remove burdens and roadblocks to success – not reinforce them.

Tags: Add new tag, Small Business, Small Business Administration

This entry was posted on Wednesday, July 29th, 2009 at 10:50 pm and is filed under Small Business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.