Small businesses have big impact on area economy

Why is it important for you to maximize the positive impact your small business has on the local economy?

A strong local economy will contribute to the success of your business, just as the success of your business contributes to the local economy.

Also, identifying significant economic impact resulting from starting and/or expanding your business could bring financial support in the form of loans and grants.

Considering your current level of economic impact and making plans to increase it makes sense from a business strategy standpoint.

So how much of an impact is your firm having in your area? The Small Business Administration reports that "small firms represent 99.7 percent of all employers and employ over half of all private sector employees, providing more than 45 percent of the total U.S. private payroll."

Small businesses generate 60 to 80 percent of net new jobs. In other words, small businesses create a big economic impact.

While we know the overall impact of small businesses, measuring the economic impact of a particular business on a particular local economy is complicated.

Useful formulas

Research-based analyses using formal models can predict:

• The employment impact of a new business
• The contributions of a local industry and
• The effects of a closing or downsizing event.

Applied economics specialists at the University of Wisconsin-Extension utilize the IMPLAN (IMpace analysis for PLANing) input-output model (www.implan.com) computer software to simulate economic impact considering the number of jobs, annual salary and gross revenue for an enterprise.

This is more than the average small business owner needs to know, but it is a useful tool for high-growth companies.

Fortunately, you don't need to measure the magnitude of your company's economic impact to increase the positive effect you are having.

Small businesses connected

Small business owners can expand their economic impact and the impact of neighboring small businesses by choosing to purchase supplies, equipment and services locally from smaller companies whenever possible.

Due to the interrelationships within a local economy, shifts in demand for goods and services produced by one business affect other local businesses as well.

Let's look at an example. Assume that a corporate chain decides to open a new facility employing 30 people full time. Those 30 new employees now have an income generated from this new business.

If these 30 positions are new net jobs and not positions lost from other firms due to competition from the chain store, this income becomes new consumer spending. However, this effect may be where the impact from the "box-store" opening ends.

Taking a look at a similar scenario but with a local company expanding its operation or opening a new venture, we see significant differences.

The economic impact

A business that originates locally will have a far greater economic impact on the local economy. The local business person will most likely:

• Use a local accounting firm
• Hire a local attorney
• Purchase other goods and services from local merchants (supplies from the local lumberyard, items from the local hardware store, insurance from a nearby agent, etc.).

All of those purchases have a direct impact on the local economy.

The "big box store" will not obtain many of those goods and services locally, thereby diluting the overall economic impact of its presence.

Choices are important

As consumers we make choices regarding where we purchase goods and services. We often do this with little regard for the economic impact of our decisions.

It is easy to draw attention to the plant closing or relocation of jobs. While our daily purchasing decisions have just as much impact, it occurs in "small bites" and is easily overlooked.

Small businesses close their doors from time to time.

We accept this as the natural culling that occurs within the economy.

How many of those failures are the result of big box allure and how many fail because of poor management? We may never have accurate figures to answer this question.

What we do know from studying economic impact is that dollars invested with locally established businesses will result in far greater positive economic impact.

The choice is yours … and mine.

Bud Gayhart is interim director of the Center for Innovation and Business Development at UW-Whitewater.