The comprehensive report -- The Small Business Economy, 2004 -- analyzes 2003 data by examining the role small business plays in the economy focusing on economic trends and indicators, regulatory issues, innovation and technology transfer as well as federal government procurement and small business financing data.

"Traditionally small businesses have done well coming out of a recession," said Dr. Chad Moutray, chief economist with the Office of Advocacy. The Office is known as the "small business watchdog" of the government. "Large businesses continue to struggle for whatever reason but small businesses are creating new jobs and pushing the economy forward."

Incubators for growing businesses

The report comes on the heels of recently released data that shows more than 300,000 new jobs were created during the third quarter of 2004. Since most new jobs are created by small business, Moutray says this signals "continued growth for small firms in the months to come."

Areas where small business growth has been on the upswing are health care, technology and service sectors because of the aging baby boomer population.

Home-based businesses are also a vibrant part of the success story and make up 53% of the small business population, serving as incubators for many growing businesses. The report noted that 60% of home-based small businesses are in service industries, 16% in construction and 14% in retail trade.

Almost all of net jobs are coming from companies with less than 20 employees, clearly showing that small firms are having a huge impact.

"Because of the Internet today start-up costs are pretty minimal," Moutray said. "Anyone can open up a shop on line on eBay."

Small businesses still face four major hurdles in their life cycle, says Howard Margolis, Fiducial’s director of field support and development. These include putting together the correct capital to get into business, growing, hiring the right people and dealing with technology and sales issues.

"It’s a competitive market," said Margolis. "The number of messages hitting potential clients is always increasing but the small business has to find a way to reach its potential customers."

Bill Morice, Fiducial’s director of field operations, observed that there’s been an increased turnover among mature businesses in recent years.

"We’re seeing more and more mature businesses go out of business," he said. Larger companies are being disbursed to one or more smaller ones due to obstacles such as taxes and retirement planning. "Death and taxes are affecting a lot of the ways these businesses are passed on," he said. "It’s taking business out of the stream."

Some of the niche markets where Morice finds small businesses are flourishing are technology, especially in high-tech hotbeds in southern California, Arizona and Texas. These are areas where individuals in technology fields have certificates and training that enables them to establish an independent operation like a consultancy.

The rise of Hispanic-owned businesses

The SBA report also identified small business demographic trends showing that Hispanic-owned businesses have increased significantly, rising from 5% of the total number of firms in 1995 to 7.4% in 2002.

Gene Polley, a business advisor in Fiducial’s company-owned office in San Diego, has witnessed the growth among Hispanic entrepreneurs in his locale.

"They are the fastest-growing segment of the population and with a heavy Hispanic population in San Diego County, we definitely see it as a growth trend," said Polley. "We have translated versions of all the brochures here that we give to potential clients."

Polley recently helped a Hispanic woman-owned business incorporate for both legal protection and tax savings for the owner’s two companies -- a maid’s referral service and an auto repair shop.

Another demographic area identified in the report as showing a growth spurt are businesses owned by people in the 55 to 64 age group who increased from 15.9% to 19.9% of businesses during the same period. Again, Polley has witnessed this first hand.

"We have a number of long-term clients who weren’t in that age group when they started their business and as it evolved they are showing no signs of slowing down," he said. His clients in this age bracket operate hardware and grocery stores, hair salons and a bar.

One of Polley’s clients in this age group is a veteran grant writer who’s quite a strategic thinker and has proposed replacing the Internet connections for the city of San Diego with huge wireless broadband Internet connections known as Wi-Fi. Polley says the family business looks like it might take off so he’s trying to put the client in touch with some "movers and shakers."

Dr. Joel Popkin, a Washington, D.C.-based economic consultant whose firm has prepared small business analyses for the SBA, finds the increase noteworthy in the 55-64 group.  He expects that to continue as baby boomers retire due to downsizing by large corporations, which is facilitated by the fact that retirement assets may not be up to expectations.

"There’s a need to do something more and a retiring person expects to live longer," said Popkin. "There’s greater demand for retirement income but the relative decline in its availability is going to keep people working longer."

Outlook remains decidedly upbeat

Sources agree that good news should continue coming from the small business sector for some time.

"We’re going to see a lot more of the same from small businesses in 2005," SBA’s Moutray said. "You’ll see moderate growth and output. Hopefully you are going to see a raise in interest rates because we feel the economy is starting to heat up. Overall the outlook will continue to remain positive."

Consultant Popkin also strikes an upbeat note. With the continued outsourcing of jobs by large, multinational corporations, he said more employees "have a sense that having their own business may not be as risky as working for a large corporation."

Another key factor stirring these gains is the ease in which a small business starts up as a web site and goes from there, buying address lists of web sites and increasing the potential for becoming niche suppliers which is ideally suited for small businesses.

"We’re going to see a lot more small businesses coming on the web," Popkin added. "I’m really optimistic about that." He pointed out that if the share of U.S. output product by small business moves up two percentage points in the next five years, "that would be significant."

Except for certain pockets of companies that face tougher competition, Fiducial’s Polley says that most of his small business clients are doing better in 2004 than the previous year. After all, he analyzes data from small businesses on average of 20 per week.

Based on his analyses, Polley noted that 70% of his small business clients "are up this year compared to the year before. Very few are down."

But that comes as no surprise to this Fiducial expert.

"The economy is improving," he said. "People are spending more at the hair dressers. They are spending more money and that’s reflected in the small business world."

STEPHEN PAREZO is the Media Manager for Fiducial.