The study analyzes the formation, development, contribution and management of small firms in the United Kingdom. It explores the differences that smaller firms and larger companies face in the business environment, and studies how far their success or failure depends on the wider economic climate. The analysis also examines different locations and the effect of small businesses on the outside community. The study of the internal organization of small companies includes discussions of employment, entrepreneurship, management strategies, organizational cultures, finance and the variety of challenges the small business owner faces in all these areas. Identifies five reasons for undertaking long-term research on small firms: 1) the small business sector plays an important role in employment creation, in innovation, and in the economy in general, which means that small business policy must be a part of social and employment policy, which requires long-term research; 2) the interests of the small business owner and those of society do not always coincide, and wider social and economic considerations need to be examined; 3) it is reasonable to devote a lot of time to research because reaching a judgment on policy requires careful assessment of high-quality evidence, and because reading historical accounts about small business reveals that many issues remain similar over long periods of time; 4) long-term research can provide an antidote to the 'knee-jerk' policy making which characterized the small firm environment in the UK during the 1980s; and 5) researchers need to have an opportunity to make theoretical as well as empirical contributions. This analysis offers an overview of the small firm sector in developed countries. It discusses the problem of defining small firms and concludes that, no matter how they are defined, they constitute at least 95 percent of businesses in the European Community. The study examines the reasons for that - such as increasing unemployment and the lowering of the unemployment benefit - and the likelihood of the continuation of this trend in the future. Also examines facotrs influencing the birth rate, growth and death of small firms, their job creation potential, and financing concerns. Discusses the role of governments in promoting the small enterprise sector and in locating small firms within a wider economic and social framework. It articulates a need for a statement about objectives and targets for small firm public policy in the form of a government White Paper, so that targets can be identified and measured. The key findings are laid out to provide a basis for further action by small firms themselves, by financiers, and by governments. (AT).