For those looking to start a small business, the state of California offers many opportunities. As of 2018, the state has about 3.9 million small businesses, representing 99.8 percent of all businesses in California. More than half a million Californian small businesses have at least one employee, whereas almost three million small businesses do not have any employees at all. California’s small business sector employs 7 million people, almost 50 percent of the employed population of California.
Best Cities for Small Business in California
San Francisco is home to a number of biotech companies, while Santa Monica is a hub for digital media startups. Similarly, Silicon Valley is known all over the world for its tech industry, whereas Napa Valley is popular wine country. Startup growth rate in San Jose is second in the United States behind Minneapolis.
Six metropolitan areas in California made it to CNBC’s list of Top 10 Best Cities for Small Business Growth:
- San Francisco
- San Jose
- Los Angeles
- Riverside-San Bernardino
- San Diego
Other best cities in California for small business include:
- Palo Alto in Silicon Valley: Palo Alto is home to big companies like HP and Tesla. Facebook and Google also started their operations here.
- Yorba Linda in Orange County: Located near Los Angeles, this city with affluent residents offers a great opportunity for service-based startups.
- Torrance in Los Angeles: This coastal town houses a number of large manufacturing facilities, including those of Honda and Robinson Helicopters.
- Redwood City: This place has seen a sharp increase in population, especially between 2010 and 2015. Oracle and Electronic Arts are two major companies that provide employment to about 10 percent of the city’s population.
Why Start a Small Business in California?
California offers a business-friendly climate suitable for the growth of small businesses. Slightly higher than the national average of 8.6, California has nine businesses per 100 residents. According to Business News Daily, following are the major opportunities to start a small business in California:
Support From Big Industries
Silicon Valley, the tech capital of the world, and Hollywood, the home of the world’s oldest, largest and most profitable film industry, are both located in California. A number of other big companies, such as Tesla, HP, Verizon, and Oracle, are also in the state. So starting a small business in California gives you the advantage of being close to large markets consisting of companies, manufacturing facilities, and their employees.
Large and Affluent Population
According to the Bureau of Economic Analysis, California has a population of 39,536,653, which is highest among U.S. states. In terms of per-capita personal income, it ranked sixth in position with a figure of $58,272, compared to the national average of 50,392. Higher population and more disposable income among residents mean higher sales potential.
Rapid Economic Recovery
California has recorded a much faster economic recovery than many other states. Although it still has a higher unemployment rate than the national average, it’s been rapidly closing the gap. The state has successfully brought down the unemployment rate from 12.2 percent in 2010 to 4.3 percent in 2018. California also caught up with the national annual growth rate of 3 percent in 2013, indicating that it’s prepared for huge economic expansion.
California Small Business Opportunity by Industry
Going by employment share, the construction industry stands at the top with a whopping 83 percent employment. Agriculture, forestry, fishing, and hunting account for 74.6 percent employment in California, while real estate and rental and leasing account for 71.1 percent. Another large sector is accommodation and food services, occupying a share of 63.2 percent, followed by wholesale trade, holding a share of 60.5 percent. Other large industries include professional, scientific, and technical services (54.8 percent), manufacturing (53.3 percent), educational services (52.4 percent), and arts, entertainment, and recreation (50.3 percent).
At the bottom of the hierarchy are utilities and management of companies and enterprises with employment shares of 8.2 percent and 14.2 percent respectively from these industries.
The following sectors also offer a good opportunity for entrepreneurs looking to set up a small business in California:
An e-commerce business is relatively easy to set up compared to a brick-and-mortar establishment. Moreover, the tech industry in San Francisco has helped the e-commerce sector grow through the development of innovative applications and software. California has more than 5,000 e-commerce companies that employ about 55,000 workers. On an average, each employee contributes more than $950,000 to the industry’s revenue.
Wholesale electronic trade is a lucrative business opportunity in California. It involves buying electronic goods in large quantities and selling them to retailers and manufacturers, including automotive aftermarket companies. The nearly 5,000 firms in this sector employ more than 35,000 people.
Retail electronics is a $14 billion industry. You can set up a retail outlet for selling electronics and appliances like TVs, refrigerators, and washing machines. You may also consider adding replacement parts to your inventory and providing repair services for the appliances you sell.
Secondhand retail mainly includes thrift and used-product stores. It encompasses a huge range of products such as antiques, appliances, books, and furniture. There are about 2,000 secondhand retailers in California, and this figure does not include used car dealers and pawn shops. Increasing public awareness about the environment, sustainability, and recycling have contributed to the growth of this sector.
Challenges Facing California Small Businesses
It’s not that the pasture is all green; there are a few challenges, as well. One major hurdle faced by small business entrepreneurs is the complex tax code of California. The minimum franchise tax is high, and the state government seems to be too aggressive in collecting non-compliance fees and penalties.
California has legislation in place to ensure that all workers get a minimum wage of $15 per hour by 2023. The fear of anticipated hikes in minimum wages often causes entrepreneurs to implement hiring freezes or sometimes even lay off the existing workforce, stunting the growth of their businesses.
Although the people of California are relatively wealthier than average Americans, the wealth is not distributed equally across different counties of the state. This is yet another impeding factor that may hold entrepreneurs back from setting up businesses at some places where residents have substantially low-income levels.
The Road Ahead
Despite the challenges entrepreneurs encounter, nothing has slowed down the growth of business in California. In 2014, the state accounted for about 13 percent of the gross domestic product of the entire nation. California still remains an attractive destination for small-business startups. Without cash flow, no business big or small could survive though! Nowadays, small businesses are bigger than ever in the California small business economy, which means that now is the time to help your small business grow with additional funding, as it is more readily available than ever. Small business loans do not have to scare you as a small business owner as they can help you grow even faster!