California's Small Business Economy

California’s dominance in many economic areas is based, in part, on the significant role small businesses play in the state’s $3.2 trillion economy.  Two 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 2018 (most recent full set of data), of the 4.4 million firms in California, there were 3.4 million nonemployer firms as compared to 954,632 employer firms. 
• Total revenues for nonemployer establishments, across all industry sectors, were $189.3 billion in receipts in 2018. 
• Businesses with less than five employees are classified as microenterprises.  In 2018, there were 485,387 microenterprise firms 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 62.2% of all employer firms and 93% of all businesses in the state.

If you're looking for a quick overview of California small business, the SBA Office of Advocacy prepares an annual state profile.  Please note that the federal definition of small business can include businesses that employ up to 500 workers.

California Small Business Profile

The chart below displays 2018 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.  The are 4,233,594otal nonemployer firms and employer firms.

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.    

Microbusinesses

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 nonemployer 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.

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. 

The Gender Differences in US Businesses chart 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.

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 advantages, the Kauffman Foundation states, 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.

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, and California had the fifth largest number.

The Comparison of Business Growth by Race, Ethnicity, and Veterans chart 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 20012.  As a comparison, number of male Hispanic-owned firms grew by 39.3% during the same time period.