How California Can Become a More Small Business Friendly State - Case Study Example

How California Can Become a More Small Business Friendly In the recent past, Californiahas been ranking lowly in terms of business friendliness, particularly when it comes to the ease with which small businesses can start up in the state. Introduction Although many states in the U.S. are conducive for the growth and expansion of small business, it is rather unfortunate that some states rank poorly among the top business friendly states. For instance, California has been hitting the headlines for the past one decade as being the most unfavorable state for small businesses in America. Essentially, small businesses are significant in contributing to the overall growth and expansion of the economy of the United States of America. Some agencies have attributed this to the poor business framework by the California State government or failure in leadership. Whichever the reason, there is the need to enhance the attractiveness of California as a state, towards the small business enterprises. This paper therefore, examines the root causes of California’s low rank in small business friendliness, and the possible ways of enhancing the state’s attractiveness towards the small business enterprises. Fundamentally, the United States was once considered the hub of small businesses but this mantle appears to be shifting away due to the hostile environments of some states to small business people. Perhaps, this is due to lack of proper policies that would encourage many small businesses to thrive in certain states within the U.S. For instance, California has been on the business headlines for the wrong reasons, especially as far as attracting and retaining small businesses is concerned. In the year 2013, the small Business & Entrepreneurship Council (SBC) ranked all the fifty states in the U.S. according to their levels of business friendliness. The results of the survey were astonishing because, California persistently remained at the bottom despite concerted efforts to woo small entrepreneurs into the state. Definitely, it is important to fist examine the eligibility criteria for small businesses in the United States and how some states have enforced this policy to their advantage. Intrinsically, there are certain requirements that businesses seeking certification in the United States must meet. The first requirement is that all small businesses must be operated and owned independently without any interference whatsoever from the government or any other interest group. Of course, the fact that it is a small business only means that such an enterprise should not dominate over other enterprises in the build of interest. More specifically, any small business seeking certification in California must have its main offices situated in California. Of course, this is a requisite in many states that encourage the flourishing of small businesses. Perhaps it is worth mentioning that the owners of small businesses or manufacturing plants must be residents of California in order to receive business certification. This law applies to their affiliates in which case, the manufacture or employer must have not more than one hundred employees to be categorized under the small business group. In terms of fiscal requirements, a small business seeking certification in the State of California must not have average gross receipts for the year exceeding USD14 million. A micro-business is much smaller than a small business in the sense that it has fewer than or maximum of 25 employees and an annual gross receipts of not more than USD 3.5 million. Despite the fact that most small businesses in California have meet the requirements and received their due certification, California is still ranked as one of the most small business unfriendly states in North America. It means that there is a major policy problem as far as the regulation of the factors of production is concerned. For the second time in a row, California was ranked among the last of states in terms of business friendliness. The advocacy report that revealed the appalling state of affairs in California attributed the dismal performance by California to poor policy measures adopted by the state and the costs that affect such small businesses. Since the high costs of operation and poor policy measures are the major concerns in California, it is critical to look at the factors against their impact on small businesses. Essentially, the cost of doing business is high in California, particularly to small business enterprises that have to contend with heightened competition and high overhead costs. The factor has crippled many businesses in California with many of them opting out of California, which is the opposite of their original intention, which was growth and expansion. Over the years, California has been reluctant to review the existing policies that would enable fairness especially to small business owners. This has only worsened the situation and put California in the small business owners’ ‘black book’. More importantly, the problem with California that arises out of poor policies is the local government. For many years, small businesspersons have tried to engage the local government in finding suitable ways or reducing the cost of doing businesses, but unfortunately, their pleas have fallen on deaf years. Consequently, California has not disappointed for the last two years since 2013 as far as business unfriendliness is concerned. Indeed, the local government has since desisted from offering incentives to the small investors. Perhaps it is due to the fact that a disconnect exists between the local government and the Small Business & Entrepreneurship Council (SBC). Unlike Idaho, Oklahoma, Texas, and Utah that scored highly in the survey of business friendliness, the three major cities of California namely, Los Angeles, Sacramento, and San Francisco have ranked lowly in the same criteria. Although California beats the other nations when it comes other sectors such as entertainment and revenue collection, its appeal to small businesses has been questionable for quite a long time. In the 2013 and 2014 reports, the small businesses and their respective CEOs or owners were interviewed about the business friendliness of California State to the small businesses. For their responses, it was evident that they were not comfortable with the manner that the state of California was handling small businesses, especially in the 21st century when the economic health of many states is at stake. Among the main issues of concerns that the owners and Managing Directors of small businesses fronted were the tax code of the state of California. Essentially, they lamented that the tax code was too harsh and unfavorable to their respective businesses. Since the MDs were running small businesses, the implication was that they were not fetching as much proceeds as the large corporations that amassed enormous profits. This being the case, subjective the small businesses together with the larger corporations the same tax regime was tantamount to enhancing monopoly. Therefore, the high tax regime contributed to many small businesspersons ditching California as an investment zone and this subsequently led to the poor ranking in the survey. Another critical element of business friendliness was the licensing regulations that scored a grade F in the study. Again, this points out to the fact that the problems lies with the local government of California State and not the businesspersons themselves, because they do not control the authorities. As seen in the eligibility criteria, most of the potential small business owners may not be in apposition to fulfill all the requirements within the designated period due to the common start-up challenges. Most of the licensing regulations in the state of California are virtually unfavorable to small business owners, who have to contend with stiff competition, monopoly, and high operational costs. As far as the health and safety code is concerned, it is worth noting that California State has been an insecure state, particularly in the major cities like Los Angeles and Sacramento. Any lapse in the security system of the state presents a significant challenge to the small businesses in terms of launching and smooth operation. Additionally, the safety of the environment plays a major role in influencing the decision of small business owners to set up in California. For instance, California has been on the forefront as far as pollution is concerned. It actually makes most of the cities in California inhabitable and unfavorable for doing certain kinds of businesses that require the least level of pollution possible. In this regard, the poor state of security and the pathetic state of the environment, particularly in California, has driven most businesspersons away from California to alternative states with better conditions. All the factors that make California business unfriendly are almost interrelated in the sense that they affect the ease with which small businesses can launch in California. Although owners and MDs of potential small businesses in California have sort redress of such issues by the government of California State, little has been done to that extent and this has in turn escalated investor apathy in California, especially the small and medium investors. In any given state, the ease of launching and operating a business plays a key role in determining the attractiveness of the state in terms of business friendliness. Furthermore, most of the start-ups have their implementation being carried out at the state level, contrary to the expectations of many businesspersons. Owing to the negative records and reputation about the business friendliness of California, it is prudent to examine the strategies that will help reverse the situation for the good of the businesspersons and California as a state. With that in mind, it is worth noting that California State has vast resources and business opportunities more than any other state in the U.S. and it should use this to its advantage. The first step towards reclaiming California as a business friendly state is to review the tax policies and regulations, which are unreasonable, particularly for small business owners. It will definitely include a complete overhaul of the policy costs, including the irrational tax regimes. As far as the taxes are concerned, it is important to mention that the California Tax department has to review downwards the individual capital gain tax and the state personal income tax, which have continued to be the highest in the entire United States. When it comes to the levies, much more need to be done in order to woo more of the small businesses back to California. For example, the government of California State ought to scrap out if not reduce, the capital gains levies. Additionally, the California government can attract more investors by reducing the corporate income tax or exempting the small businesses from such taxes altogether. Since taxation formula is the biggest headache for most small businesses operating in California State, it is only prudent that the California government look into the matter carefully by reviewing its tax regimes, especially with the small businesses in mind. Concerning the operational costs, the State of California can only achieve a higher score in business friendliness when it takes bold steps in reducing the operation costs of small business. Certainly, doing business in California has been so expensive, particularly in the past one decade and this has seen many small business owners shun California for a long time. Normally, businesses, including small businesses, have to contend with high overhead costs such as high electricity costs and high compensation costs for the workers due to the minimum wage. The only positive thing about California was the absence of death tax, meaning that virtually every item was taxable. Therefore, careful policy and tax review will persuade more small businesspersons to venture in California and Los Angeles in particular. In conclusion, there is the need to reclaim Los Angeles and largely California, as the business hub in the United States. This is so especially when it come to the small businesses and entrepreneurships. For the past two years since 2013, California has been lagging behind in terms of business friendliness and several businesses have attributed this low ranking to unfavorable business conditions for small entrepreneurs. Owing to this, the state of California has to review its tax regime and put in place more workable policies for small businesses. It will improve the attractiveness of California as a business friendly state. Finally, health and safety ought to be enhanced in California in order to attract more small-scale investors. 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