Small Businesses Drive the California Economy

California’s dominance in many economic areas is based, in part, on the significant role small businesses play in the state’s $3.1 trillion economy.  Two separate studies, one by the US 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 in the state’s international competitiveness and are an important means for dispersing the economic positive impacts of trade within the California economy.

  • In 2017 (most recent full set of data), of the 4.1 million firms in California, there were 3.3 million nonemployer firms as compared to 763,803 employer firms. 

  • Total revenues for nonemployer sole proprietorships, across all industry sectors, were $118 billion in receipts in 2017. 

  • Businesses with less than five employees are classified as microenterprises.  In 2017, there were 473,641 microenterprises which had one or more employees.

  • Microenterprises, including both nonemployer and up-to-5-employee businesses, comprise the single largest segment of the California business community, representing 92.9% (3.8 million) of all businesses in the state.

The chart below displays 2017 data (most recent full set of data) on California employer businesses, including payrolls, employment, and number of firms, which may be comprised of one or more establishments.

Excluding sole proprietorships, businesses with less than 20 employees comprise over 88.6% of all businesses and employ approximately 17.4% of all workers.  Businesses with less than 100 employees represent 97.3% of all businesses and employ 34.5% of the workforce. 

California Employer Businesses by Size 2017
Enterprise Employment Size Number of Firms Number of Establishments Employment  
0-4 473,641 474,301 737,168  
Under 20 676,913 682,756 2,605,213  
0-99 743,830 768,456 5,143,522  
100-499 13,628 39,757 2,081,423  
Under 500 757,458 808,213 7,224,945  
500+ 6,345 133,164 7,671,680  
Total for All Employers 763,803 941,377 14,896,625  
Source: US Census, SUSB Series        



Microenterprises have many unique features and provide important benefits to local communities, according to a recent study from the Microenterprise Fund for Innovation, Effectiveness, Learning, and Dissemination (FIELD) at the Aspen Institute.  These benefits include:

  • Providing products and services tailored to meet local and neighborhood needs.

  • Stimulating an inflow of revenues to and within local communities.

  • Serving as catalysts for neighborhood reengagement.

  • Revitalizing neighborhoods that may otherwise have vacant storefronts.

  • Providing role models and support for future entrepreneurs.

These non-employer and small employer firms create jobs, generate taxes, support important industry sectors, and revitalize communities.  While their small size allows them to be more flexible in meeting niche foreign and domestic market needs, it also results in certain market challenges.  These challenges include 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.

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