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April 2006
Imagine a Big Bathtub with a Faucet and a Drain!
By John Paul Galles

Small Business Week will be celebrated in Washington, D.C., April 9-15, 2006. To appreciate the significance of small businesses to the United States economy, imagine a very big bathtub with a faucet at one end and a drain at the other. That bathtub is the American economy and it is filled with the sum total of all businesses.

The faucet is the source of all new and emerging businesses that flow into the American economy. Conversely, the drain represents those businesses that close, go bankrupt, or cease to exist for one reason or another. As it turns out, nearly all the businesses in that bathtub are small entities with fewer than 500 employees – “small businesses” – and those businesses are very diverse.

According to U.S. Small Business Administration Office of Advocacy data collected from the U.S. Department of Labor, U.S. Department of Commerce, and U.S. Census Bureau, there were approximately 23,974,500 businesses in the United States in 2004. However, out of all those business entities, only about 5,683,700 businesses actually had employees. And, within those firms with employees, nearly all (5,666,600) firms were classified as small businesses. Self-employed persons totaled 15,636,149 entities.

Diversity within the American business community is constantly increasing. The most current statistics (from 2002) showed 6,492,795 women-owned enterprises. Those women-owned firms generated $950.6 billion in revenues. Women represent about 33.7 percent of self-employed persons. Hispanic-owned firms numbered about 1,574,159 and black-owned firms numbered about 1,197,988 in 2002.

Fortunately, there was an influx of new businesses to our bathtub more than equal to those that slipped down the drain. In 2004, there were approximately 580,900 new employer businesses. In that same year, 576,200 businesses were terminated.

Small businesses added jobs while large firms lost jobs. Businesses with fewer than 500 employees numbered about 5,680,914 in 2002. Together, they employed about 56,366,292 individuals. Small businesses added a net gain of 853,074 jobs between 2001 and 2002. Large firms with more than 500 employees lost 2,231,026 jobs in the same period. Proprietor’s income (a partial measure of small business income) increased to about $902.8 billion in 2004.

By comparison, North Carolina had about 671,810 small businesses in 2004. Of that number, 182,598 firms had employees. Self-employed persons increased from 383,846 in 2003 to 419,654 in 2004. Women-owned firms totaled 173,921 and generated $26.8 billion in 2002. Hispanic-owned firms numbered 9,047 and black-owned firms numbered 52,134. Consistent with the national data, North Carolina added about as many new employer businesses as it lost in 2004. About 23,387 new employer businesses were added in 2004, while terminations totaled 22,055. Small firms added a net gain of 21,418 jobs while large firms lost 84,916 jobs.

South Carolina had about 312,108 small businesses in 2004. Nearly 92,940 firms had employees. Self-employed persons grew from 179,586 in 2003 to 181,946 in 2004. Women-owned firms totaled 76,879 and generated $10.9 billion to the economy. Hispanic-owned firms numbered 3,019 in 2002, while black-owned firms totaled 28,620 in 2002. An estimated 11,745 new employer businesses were created in 2004. Business terminations numbered 10,975. Small firms added a net gain of 8,271 jobs, while large firms lost 50,963 jobs between 2001 and 2002.

Small businesses are vital to the financial well-being of the nation’s economy. We need to keep our bathtub full. We will always need to create new businesses to replace those businesses being terminated. All together, small businesses generate about half of all U.S. non-farm output and create most of the new jobs. As powerful job-generators and wealth-creators, small businesses deserve to be celebrated. Small business owners should stand tall and be proud for all they contribute to the U.S. economy. They should be celebrated all year long and not just one week in one month. Keep up the good work!

John Paul Galles is the publisher of Greater Charlotte Biz.
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