Keeping Growth on Track
With the stock market on a roller-coaster ride, Asian and Latin American economies in turmoil and corporate layoffs continuing, small business could become even more critical to Southern California’s prosperity.
For the last decade, the nation and region have counted on small business’ job creation and innovation for economic growth. This appears likely to continue as we head into the millennium facing an uncertain economic future.
Thus, familiarity with the region’s vast army of small businesses, their concerns and their needs has never been more vital.
A Los Angeles Times/USC Marshall School survey provides new insight into small business and its needs, and suggests possible courses of action for lawmakers at the local, state and federal levels.
Companies with fewer than 500 employees were sampled. Such businesses make up 99.8% of all firms in Southern California and employ 80% of the region’s private-sector work force.
Responses from 1,670 companies in Los Angeles, Orange, Riverside, San Bernardino, San Diego and Ventura counties underscore the fact that Southern California is a universe of very small companies.
A quarter of the businesses surveyed were home-based and a quarter were sole proprietorships. The median number of employees was three, and 60% of the companies had sales of less than $500,000 a year.
As expected, most of these small-business owners were plowing their own money into their firms, with 37.4% giving owner loans to the business and 30.5% drawing on personal credit cards. By contrast, 27.2% used commercial bank loans and 4.7% used a financial services firm.
Only about a third of those surveyed expect to add employees. Of those, the median number they expect to add is two.
Thus, if small business is the “engine that drives the economy,” as is often repeated, the survey reveals that in Southern California, the engine is a tiny choo-choo.
Further, the concerns of small-business owners outlined in the Times/USC Southern California Business Climate Survey differ from what are typically viewed as prime small-business issues. Indeed, the results suggest that small-business owners may not be perceived correctly by government or the large corporations that market to them.
For example, access to capital is usually considered the top concern of small-business owners. Banks, lending institutions and financial service companies focus on this and target small business for low-cost loans or special programs. Southern California’s numerous small-business development centers offer hundreds of classes yearly on financing.
But according to the survey, access to capital ranked fourth as a critical problem, behind availability of skilled workers and concern over federal and state taxes. Overall, 55.1% of the businesses surveyed said access to capital was a problem, ranging from a less-than-minor one to critical.
But more businesses--61.6%--listed availability of workers as a problem, with 17.2% calling it a critical problem, outranking any other issue.
Typical comments on the survey from small-business owners were: “Cannot find ANYONE who wants to do physical work (even at $12-$14 per hour!),” “inability to find employees who are willing to work,” and “You have workers that are often difficult to train when willing, but are often unwilling to really work and earn their way.”
The concern over state and federal taxes--about two-thirds said they are a problem--probably reflects the constant congressional tinkering with federal income and estate tax regulations. These annual changes then prompt revisions of the state tax rules and confusion for all small-business owners and the self-employed. Similarly, 61.2% of the businesses surveyed said permitting and licensing are problems, which probably reflects their difficulty in coping with confusing and often contradictory state and local regulations. Nearly half, 48%, said health insurance costs are a problem.
Paradoxically, although huge regional transportation improvements--the Alameda Corridor and Metropolitan Transportation Authority projects--have had high political profiles, the small-business owners surveyed rank transportation at the bottom of their overall concerns, with only union relations scoring lower.
The survey results suggest several possible lines of action to help small businesses grow:
* Lawmakers and large corporations would better serve small business and themselves in the long term by focusing on efforts to improve the state’s educational system. Education is a prime issue for small business, reflecting concerns expressed in the survey about the shortage of skilled labor.
* Small business would benefit from a simplified tax structure instead of piecemeal and often politics-driven annual changes.
* Simplified government regulations would ease the burden on small business. For example, contracting reforms proposed by the Los Angeles County Office of Small Business could be duplicated elsewhere. The state could create a task force to study simplification of independent contractor rules, a long-sought goal of small business that has failed to find support with organized labor or the governor’s office.
* Concern over health insurance costs means small-business owners are a ready market for innovative ways to provide medical care.
Small business is doing its part for the region. According to the survey, 48% of small firms reported sales increases last year, and 57% expect higher sales this year. A hefty 15% are exporting, compared with 2% to 3% of businesses nationally. Nearly half those surveyed are using the Internet to do business and nearly a third have a Web page.
It is these thriving and forward-looking businesses that hold the key to the continued growth of Southern California. We owe it to them and to the region’s future to ensure that they find the resources and tools they need.
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esults of the survey will be discussed at The Times’ Small Business Strategies Conference this weekend at the Los Angeles Convention Center by William Gartner, professor of entrepreneurship at USC, who conducted the poll.
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Vicki Torres’ column on small business appears Wednesdays in the Business Section. She can be reached at (213) 237-6553 or at vicki.torres@latimes.com.
