You are here

Small Business Lead California Economic Growth

California's dominance in many economic areas is based, in part, on the significant role small businesses play in the state's $2.6 trillion economy. Two separate studies, one by the U.S. Census Bureau and another by the Kaufman Foundation, found that net job growth was strongest among businesses with less than 20 employees. Among other advantages, small businesses are crucial to the state's international competitiveness and are an important means for dispersing the positive economic impacts of trade within the California economy. Among other advantages, small businesses are crucial in the state's international competitiveness and are an important means for dispersing the positive economic impacts of trade within the California economy.

Sole proprietorships comprise the single largest component of businesses in California, 3.1 million out of an estimated 4 million firms in 2014, representing over $162 billion in revenues with the highest number of businesses (over 539,000) in the professional, scientific, and technical services industry sector.  As these non-employer businesses grow, they continue to serve as an important component of California's dynamic economy.   Excluding sole proprietorships, businesses with less than 20 employees comprise over 78% of all businesses and employ approximately 24% of all workers.  Businesses with less than 100 employees represent 87% of all businesses.  These non-employer and small employer firms create jobs, generate taxes, support important industry sectors, and revitalize communities. Since the recession, these businesses have become increasingly important because of their ability to be more flexible and suited to niche foreign and domestic market needs. 

However, their small size also results in certain market challenges, including having difficulty in meeting the procedural requirements of the state's complex regulatory structure and the traditional credit and collateral requirements of mainstream financial institutions.  Specialized technical assistance, access to credit enhancements, and targeting of state procurement activities help many small businesses overcome or at least minimize these difficulties.

Additional information on California's small businesses can be found on the JEDE Small Business Fast Facts .

Additional information on the activities of the Office of the Small Business Advocate can be found at this link.

Small Businesses Access to Capital Challenge

In today's finaincial environment, small businesses and start-ups face many challenges including accessing sufficient capital to meet day-to-day expenses and longer term investments in marketing, new equipment and other business expansion requirements.  California currently provides several loan and loan guarantee programs including the Capital Access Program, administered through the State Treasurer's Office, and the Small Business Loan Guarantee Program, administered through the Business, Transportation and Housing Agency and a statewide network of small business financial development corporations. 

State Procurement and Small Businesses

The Small Business Procurement Act, administered through DGS, was implemented more than 30 years ago to establish a small business preference within the state's procurement process for the purpose of increasing the number of contracts between the state and small businesses.A DBVE component was added in 1989.Today, approximately 85% of DVBEs have dual certification as a small business or microbusiness.

While statute sets an annual 3% DVBE participation goal, the 25% small business goal is provided through two executive orders, EO D-43-01 issue by Governor Gray Davis in 2001 and EO S-02-06 issue by Governor Arnold Schwarzenegger in 2006.  In the last 10 report periods, the 25% small business procurement participation goal has been met six times. 

The chart below shows small business and microbusiness aggregate procurement participation rates for the approximately 80% of mandatory reporting agencies that chose to report in the 2011-12 through 2015-16 fiscal years.

Small Business and Microbusiness Contracting Activity

Mandated Reporters (dollars in millions)

Fiscal year

Total Contract Dollars

Total Small Business and MicrobusinessContract Dollars

Total Percent

Total Number of Contracts

 

 

 

 

 

DGS Statewide Consolidated Annual Report 2013-14 to 2015-16

In order to assist state entities reach the small business participation goals, contracting entities are provided a number of specific tools, including a streamlined procurement method, bid preferences, and lead small business procurement contacts at every agency.

Under the streamlined procurement process, the awarding state entity is authorized to bypass the advertising, bidding, and protest provisions in the State Contract Act.  This allows a contract to be awarded directly to a certified small business at a contract price established by checking the proposed rate with two other small businesses.  Contracts offered under the streamlined procurement process are currently limited to contracts between $5,000 and $100,000.  Of the $2.5 billion of state contracts that were awarded to small businesses in 2008-09, $225.4 million (17,310 contracts) were awarded through the streamlined procurement process.  The actual number may be higher as only 78 of 124 departments reported their small business procurement activities to DGS.

Certified small business bidders and other bidders that commit to using certified small businesses are also eligible for a 5% bid preference where the solicitations are made either on the basis of lowest responsible dollar bid, or on the basis of highest score, considering factors in addition to price.  A single bid preference is limited to $50,000 and the combined costs of preferences shall not exceed $100,000. 

Another important component of the state's effort to increase small business participation in state contracts is through the work of the Small Business Advocate and the network of small business liaisons.  Under existing law, every state agency is also required to have a single point of contact for small business state procurement opportunities.  

The 2012 Survey of Business Owners

In August 2015, the U.S. Department of Census published initial data from the 2012 Survey of Business Owners.  The last survey was made in 2007.  While the data significantly trails real-time, it is the most comprehensive source for tracking trends in entrepreneurship, including ownership by women and individuals of color. 

Chart 1, shows selected data from the 2012 Survey of Small Business Owners.  Among other findings, the data shows a 27.5% increase in women-owned businesses between 2007 and 2012, as compared to a 7.9% increase in businesses owned by men and a -45.8% decrease in firms owned equally by men and women.   Women-owned businesses also experienced the greatest increase in the number of people they employed and wages paid.

Chart1 - Gender Differences in U.S. Businesses

 

Percent Change 2007 to 2012 Women-Owned Firms

Percent of Change 2007 to 2012 Man and Women-Owned Firms

Percent Change 2007 to 2012 Men-Owned Firms

U.S. Firms

27.5%

-45.8%

7.9%

Receipts from all firms

(employer and nonemployer)

35.1%

6.7%

33.8%

Employer Firms

15.7%

-25.8%

5.3%

Receipts from Employer Firms

35.4%

13.2%

34.9%

Employment

19.4%

-11.9%

11.5%

Payroll

35.3%

-0.9%

25.8%

Source:  National Women's Business Council

States with the highest percentage of women-owned firms included District of Columbia, Georgia, Maryland, New Mexico, and Florida.  Delaware, Alaska, North Dakota, Maine, and New Jersey were the states where women-owned firms collected the highest amount of receipts.

Women entrepreneurs, according to the Ewing Marion Kauffman Foundation, have unique skill sets, which both set them apart from other business owners and make them successful entrepreneurs.  Among other things, the Kauffman Foundation states that women entrepreneurs have a more nuanced understanding of businesses risk/reward profile.  Women are more comfortable with financial risks, but more sensitive about risks that may seem foolhardy.  The Kauffman Foundation also believes that there is a correlation between a rise in women entrepreneurs and increased business returns and payout ratios.

Chart 2 shows additional information from the 2012 Survey of Business Owners relative to race and ethnicity.  The largest percentage changes in business ownership were by Hispanic women, where the number of firms grew by 87.3% between 2007 and from 20012.  As a comparison, male Hispanic-owned firms grew by 39.3%.

Chart 2 - Comparison of Business Growth by Race, Ethnicity, and Veterans

Business Ownership

Percent Change 2007 to 2012

Number of all Firms

Asian American Women

44.3%

Asian American Men

25.7%

Black Women

67.5%

Black Men

18.8%

Hispanic Women

87.3%

Hispanic Men

39.3%

White Women

10.1%

Veteran Women

29.6%

Veteran Men

7.7%

Source: 2012 Survey of Business Owners

 

In California, business ownership by women was up 13.7%, which was the highest among states with the largest number of women-owned businesses.  In Texas, women-owned businesses were up 8.7%; Florida, 8.18%; New York, 7.3%; and Illinois, 4.23%.  California also had the highest number of Hispanic and Asian American women-owned firms.  For businesses owned by Black women, Georgia had the largest number of firms, California had the fifth largest number.

Copyright © 2011 State of California