Why small business success should matter year-round

“Shop local” is not just a catchy slogan meant to make you and small-business owners feel good a few times a year. There is real economic value to shopping at and spending money at locally owned establishments. Although big-box retailers and online megastores often can beat local stores on price and product variety, nothing can compare to the community impact, job growth and financial multiplier that comes from shopping local on a regular basis.

Community support

Local and small-business owners generally have a deep passion for their work and the people they serve. Their operations help to make local communities unique. These businesses — which often are called “the backbone of America” — are the restaurants, shops, marketing firms and community banks that provide a sense of community from coast to coast. Not only that, but they help support communities, too. In a study for the Small Business Administration, study author Dr. Patricia Frishkoff found companies with fewer than 100 employees gave an average of $789 per employee in cash and in-kind donations, while companies with more than 500 employees gave only $334 per employee. When businesses are operated by community members, there is a much deeper sense of civic responsibility.

Job growth

Every business, large and small, must have employees, but the impact and value of those employees changes based on where they work. In fact, Federal Reserve Chair Janet Yellen recognizes the role small businesses played and continue to play in job creation — in a 2014 speech to the United States Chamber of Commerce, she noted, “America has come a long way since the dark days of the financial crisis, and small businesses deserve a considerable share of the credit for the investment and hiring that have brought that progress.” Yellen referenced data from the Labor Department which reported small firms (fewer than 250 employees) created more than half of the new jobs in the last five years.

Small-business as a financial multiplier

According to the private research firm Civic Economics, multiple studies have shown that on average money spent locally returns more than three times to the local economy as the same dollar spent at a chain store.1 This multiplier originates from three areas: direct, indirect and induced impact measures. The indirect effect comes from businesses spending their profits at other local businesses, while induced effect refers to employees spending their wages locally. The scenario is simple to understand: Someone buys a product at a local store; that local store makes a profit and spends the profit at other local businesses. It also pays its staff, who then spend their paychecks at local businesses. It is a cycle that, when repeated, creates a growing circle of economic growth.

Other positives

Locally owned small businesses typically consume less land, carry more locally made products and are located closer to residents, making for less traffic and air pollution. All these factors make them community-friendly in addition to supporting the community, providing jobs and expanding the local economy. So next time you’re in the market for something new, consider buying at your local small business. The price of products may be a bit higher, but the value of the product, service and impact of each dollar spent is invaluable to every community in the country.

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1 Civic Economics of Retail, Ten Years Study, Economic Analysis and Strategic Planning for sustainable Prosperity, Civic Economics, 2012