The Small Business Economy 2007 reviews how small businesses fared in the economy in 2006, in the financial markets, and in the federal procurement marketplace, as well as new information about minorities and veterans in business.

Chapters 6 and 7 offer guest contributors’ studies of social entrepreneurship and pre-venture planning. In Chapter 8, with its responsibility for oversight of Regulatory Flexibility Act implementation, the Office of Advocacy takes a look at the regulatory environment for small firms. Appendices provide additional data on small businesses and background information on the Regulatory Flexibility Act.

The Small Business Economy in 2006

Small businesses continued to be at the core of the continuing economic expansion in 2006. Output rose, business income and profits were up, and unemployment was down. The estimated number of firms and self-employed individuals increased. Output declined from a high in the first quarter, and early 2007 indicators also portrayed a slight slowing of the economy.

Small businesses continued to drive employment in early 2006. The overall employment increase of 2.3 percent was low relative to other periods, but occurred in the context of a tightening labor market as unemployment declined to 4.6 percent.

In 2004, the most recent year for which firm size data are available, small firms with fewer than 500 employees accounted for all of the net new jobs. According to the U.S. Department of Commerce, Bureau of the Census, firms with fewer than 500 employees had a net gain of 1.86 million new jobs, while large firms with 500 or more employees had a net loss of 181,000 jobs. Small firms employed just over half of the private sector work force and generated more than half of nonfarm private gross domestic product. More than 99 percent of American businesses are small, and the average small employer had one location and 10 employees, compared with 62 locations and 3,313 employees in the average large business.

The report reviews data on the costs of doing business for small firms. A 2.8 percentage point decline in the small business share of payroll, from 47.9 percent in the late 1980s to 45.1 percent in 2004, mirrors a 2.9 percentage point decline in the small business share of employment. An appendix to the chapter takes a brief look at sources of data on current small business trends....

Download The Small Business Economy 2007

PDF format, 2.4MB, 368Pages.

Prepared by The U.S. Small Business Administration, Office of Advocacy.

Dear Mr. President:

The Office of Advocacy of the U.S. Small Business Administration (SBA) is pleased to present The Small Business Economy: A Report to the President. The American economy is blessed with an entrepreneurial spirit that continues to be the envy of many nations around the world. Small business leaders provide new ideas, employ additional workers, and develop innovative products and services. By investing in their businesses, the small firm owner makes a major contribution to the local, regional, and national economy.

Over the past year, the Office of Advocacy has conducted research that documents these points. First, Kathryn Kobe of Economic Consulting Services reconfirmed our knowledge that small businesses account for half of private, nonfarm gross domestic product. Second, Donald Bruce, John A. Deskins, Brian C. Hill, and Jonathon C. Rork find that a state’s ability to generate new establishments is the most important factor that leads to higher gross state product, state personal income, and total state employment. Finally, Larry Plummer, a doctoral student at the University of Colorado at Boulder who served as a visiting research economist in this office, found that new business entrants provide long-term benefits to the local economy; the increased competition might be painful in the short term, but with time, collaborative efforts accrue to everyone’s betterment. These and other studies can be found on the Office of Advocacy’s research page at http://www.sba.gov/advo/research.

This edition of The Small Business Economy features two chapters on owner demographics based primarily on the 2002 Survey of Business Owners from the U.S. Census Bureau. In documenting the number of small businesses owned by minorities, women, veterans, and service-disabled veterans, we gain a better understanding of their contributions to the economy.

This report also summarizes the economic and small business financial climate in 2006, and examines small business procurement. Generally, the economy and financial markets were supportive of small business growth in 2006. The Office of Advocacy, through its implementation of the Regulatory Flexibility Act of 1980 and Executive Order 13272, has assisted small businesses by helping to reduce the regulatory compliance costs of proposed rules. For instance, in FY 2006, Advocacy’s efforts resulted in cost savings of $7.25 billion in the first year and $117 million annually for small businesses. These are costs that will not be borne by the small business owners as a result of changes in the regulations they comply with.

We also feature two chapters from external contributors. Andrew Wolk of the Root Cause Institute and a senior lecturer at the Massachusetts Institute of Technology presents a number of examples of social entrepreneurship across the country and outlines steps governments are taking to promote social entrepreneurs as a mechanism for solving some of our nation’s problems. Some may ask, “What does social entrepreneurship have to do with small business?” A short answer might be that social entrepreneurship exhibits many of the attributes of small business entrepreneurship, serving as an engine of innovation, job creation, and economic growth. Moreover, by bringing together aspects of the public, private, and nonprofit sectors to address a market failure, social entrepreneurs have, in a variety of ways, helped create an economic environment in which private entrepreneurs and small businesses can flourish. The longer answer may be to read on and see how this chapter answers the question. It is an excellent chapter that will provoke discussion in academic and policymaking circles.

A second chapter from external contributors, by William Gartner of Clemson University and Jianwen (Jon) Liao of the Illinois Institute of Technology, discusses the need for pre-venture planning. They find that nascent business owners who engaged in business planning during the startup phase and wrote a formal business plan were more likely to open and remain in business. In essence, they suggest that the process of drafting a business plan was essential to the overall success of the venture. While that might seem common sense to many, a debate in recent years has sometimes challenged the need for pre-venture planning as a prerequisite for success. This chapter lends credence to those who suggest that planning matters.

In sum, the 26.8 million small businesses in the United States play a vital role in the economic well-being of our nation. The research of the Office of Advocacy continues to document the importance of the entrepreneur in maintaining economic growth, employing workers, bringing new innovations to the marketplace, and remaining competitive in a global economy.

Chad Moutray
Chief Economist and Director of Economic Research

Comments (0)

Name

Email

Comment

smaller | bigger

Add Comment