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Small Business Week - April 30 to May 3 2017

California's dominance in many economic areas is based, in part, on the significant role small businesses play in the state's $2.3 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.

Nonemployer firms make up the single largest component of businesses in California, 2.9 million out of an estimated 3.6 million firms in 2012, representing over $149 billion in revenues with the highest number of businesses 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 nonemployer firms, businesses with less than 20 employees comprise nearly 90% of all businesses and employ approximately 18% of all workers. These non-employer and small employer firms create jobs, generate taxes, and revitalize communities.

In hard economic times, smaller size businesses often function as economic engines. In this most recent recession the trend continued, with the number of nonemployer firms increasing from 2.6 million firms ($137 billion in revenues) for 2008 to 2.8 million firms ($138 billion in revenues) for 2010.  A federal Small Business Administration's Small Business Economy 2011 report, stated that small businesses nationally outperformed large firms in net job creation nearly three out of four times from 1992 through 2010 when private-sector employment rose.   In the post-recession economy, small businesses are expected to become increasingly important due to their ability to be more flexible and better suited to meet niche market needs. Their small size, however, results in certain challenges in meeting regulatory requirements, accessing capital, competing for large-size contracts and marketing their goods and services.

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 that would increase the number of contracts between the state and small businesses. A DBVE component was added in 1989. Today, approximately 90% of DVBEs have dual certification as small businesses.

The Small Business Procurement Act states that it is the policy of the State of California that the state aid the interests of small businesses in order to preserve free competitive enterprise and to ensure that a fair portion of the total purchases and contracts of the state be placed with these enterprises. The statute further states that DVBE participation is strongly encouraged to address the special needs of disabled veterans seeking rehabilitation and training through entrepreneurship, and to recognize the sacrifices of California's disabled military veterans. Statute sets an annual 3% DVBE participation goal, and a 2010 executive order sets a 25% goal for small businesses and microbusinesses.   

The state's success in obtaining small business and DVBE  participation in state contracts has been inconsistent.  Since 2001, when the first executive order set the 25% small business participation target, the state has met its small business goal only five times.  In the most recent report on procurement, 2013-14, DGS reported that $2 billion (22.26 %) out of a total of $7.1 billion of all state contracts were awarded to small businesses.  The state has achieved its 3% DVBE participation goal six times, that being in 2007-08, 2009-10, 2010-11, 2011-12, 2012-13, and in 2013-14.  In 2013-14, $ 299,683,794 million out of a total of $8.2 billion (3.64%) was awarded to DVBEs.

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.

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