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Positive expectations seen for staff growth, improved revenues, and upgraded technology despite concerns

SAN FRANCISCO - 03/15/05 - Almost 71% of California small business owners are expecting 2005 to be an overall better year than 2004, according to the fifth annual statewide business survey conducted by Union Bank of California N.A. (UBOC).
 
The survey by the Bay Area-based bank also found that about 36% of small business owners in the state anticipate their staffing levels to increase in 2005, while only 3% of respondents reported having plans to lay workers off this year.
 
The survey - conducted by the UBOC's Small Business Division in face-to-face interviews with 1,941 small business owners - showed improvement in 2004 over 2003 in the number of actual layoffs.
 
The percentage of respondents that laid-off employees during the previous year for economic reasons dropped from about 10% in the 2004 survey to about 8% in 2005.

Business owners are also keeping jobs in California, as only 3% said they had shifted any of their operations or positions to a foreign country in 2004, the survey found.
 
However, the cost of workers' compensation insurance continues to plague California business owners, despite an overhaul of the system in 2004. It was the chief concern cited among respondents in the 2005 survey; nearly 66% listed workers' compensation insurance as one of their three biggest concerns about being a California small business owner.
 
This is slightly higher than what was recorded in the bank's 2004 survey. In fact, some 92% of business owners said their workers' compensation insurance costs remained the same, or increased last year. Of the 8% who reported a drop in their premium, about 39% said that their premium was lowered by less than 10%.

The next two biggest concerns were the overall state of the California economy (nearly 37%) and the cost of providing health care benefits (nearly 34%).

However, although the state economy is still the second biggest worry, the percentage of respondents who listed it as a challenge dropped from almost 45% in 2004.

Respondents were also asked to identify the principal advantages of owning a business in California: opportunities for growth (29%), family ties (20%) and the climate (18%), proved to be the top three reasons for staying in the state.

"Small business is the engine that powers the California economy.  As a group, small businesses account for roughly half of California's employment and most of the new business formations and employment growth in recent years," said Richard Hartnack, Union Bank vice chairman and first vice chairman of the California Chamber of Commerce.

UBOC surveyed more than 1,900 small business owners statewide with respondents asked questions on a variety of topics including their company's sales performance, hiring plans, health benefit costs and other financial and economic issues.

To better quantify the results of the survey the bank defined small businesses as California companies in operation for at least two years, with annual sales under $5 million for the fiscal year 2004.

"The survey's results show that small business owners are becoming increasingly optimistic, as the state's economy finally gained traction in 2004," said Keitaro Matsuda, Union Bank of California senior economist.

"They appear to preparing for future growth now, as they are planning to boost their capital investment, build up inventories and increase the square footage of their real estate.  This is a shift from more defensive strategies of the past several years."

About 64% of business owners surveyed reported greater sales in the fourth quarter of 2004 over the same period in 2003, with 23% reporting the same sales and 14% with lower sales.
 
In addition, 42% of respondents have capital expenditure plans in 2005, and of those, 71% plan to spend more than what they did in 2004. At the same time, about 19% of the firms surveyed plan to increase the square footage of their real estate.

The business owners were also asked if they planned to retire in the next five years, and while only 15% responded "yes," 37% reported having a succession plan in place for their business.  About one-fourth of the respondents reported having named a successor for the business as well.
 
According to the University of San Diego Family Business Forum, only about 30% of family-owned small businesses survive the transition to the second generation, while less than 10% survive the transition to the third generation.

Providing health care insurance to employees remains a challenge for business owners.
 
Half currently offer health benefits, and of those, 20% said they shifted a higher portion of health care costs to their employees last year, while10% reduced health benefits.
 
In addition, only about 27% of respondents said they offer their employees a retirement plan, such as a 401(k) plan or employee stock ownership plan (ESOP).

The survey also concluded that 56% of respondents purchased or upgraded technology applications for their businesses, and of those, one-third spent more than $10,000 in 2004.

California Insurance Commissioner John Garamendi commented on the results of the survey saying, "The recent reforms passed by the legislature have not yet been fully realized by California small businesses. In order to keep our current businesses, and attract new ones, we must provide a predictable and stable system."

The results of the survey "show that we still have more to do," he said.

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