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The latest study by Advocacy, an organization that has sponsored research on small businesses since 1980, also provided insight into the economic impact of small businesses. Advocacy reported that small businesses account for 44% of U.S. economic activity. They also create two-thirds of new jobs and are responsible for 43.5% of the U.S.’ gross domestic product.
Small businesses contribute to the economy in many ways, especially in the local areas where they operate. These businesses create jobs in their communities and pay sales and property taxes that support local and state budgets. A recent study has demonstrated that every dollar spent at a small business funnels 68 cents back into the community. By comparison, only 46 cents of every dollar spent at large businesses are returned to the community. Small businesses purchase many goods and services from other enterprises of all sizes. When these small businesses fail, the entities that serve them are, in turn, affected by lower sales. Therefore, the success of small businesses is essential to the performance of the overall economy, according to Forbes.
While small- and medium-sized businesses are critical to the U.S. economy, they often face many obstacles to success. According to the online magazine Small Business Trends, some of the biggest challenges those small businesses experience are complying with tax laws, following complex government regulations, hiring and training productive employees, and effectively managing cash flow.