Workers’ Comp Chief Concern of Most Calif. Small Business Owners

February 23, 2004

While the state’s economic recovery has not yet reached every part of the business spectrum, 72 percent of California small business owners polled are expecting 2004 to be an overall better year than 2003, according to an annual statewide survey released by Union Bank of California, N.A. On the subject of employment, for example, only about 10 percent of respondents laid off workers in 2003, and about 37 percent anticipate their staffing levels to increase in 2004.

However, nearly half of the respondents stated California’s current economic climate is one of their key concerns, and about a third commented that rising health care costs and state and local business regulations are additional pressing challenges for their business.

Respondents were also asked to identify the principal advantages of owning a business in California: Opportunities for growth (26 percent), family ties (22 percent) and the climate (16 percent) proved to be the top three reasons for staying in the state.

“As a group, small businesses account for roughly half of California’s employment, and they continue to be the backbone in the state’s economy, having generated most of the new business formations and employment growth in recent years,” said Richard C. Hartnack, Union Bank vice chairman. “This annual survey, which we have conducted since 2001, is an excellent tool to help us take the pulse of California’s small business owners to determine their biggest concerns for 2004, both regionally and statewide.”

According to the survey, the issues surrounding workers’ compensation reform continue to be a chief concern of most small business owners: 65 percent of businesses polled identified the rising cost of workers’ compensation insurance as one of their top challenges of owning a business in California.

“California’s workers’ compensation system must be reformed if we intend to lure businesses back to the state. The current system lacks the predictability and stability companies have been seeking. The results of this survey show that we must fix this system now. California’s economy cannot afford to wait any longer,” said California Insurance Commissioner John Garamendi.

Last month, Union Bank surveyed more than 1,300 small business owners statewide. Respondents were asked questions regarding their company’s sales performance, hiring plans, health benefit costs and other financial and economic issues affecting them. For this survey, small businesses were defined as California companies in operation for at least two years, with annual sales under $5 million for the fiscal year 2003.

“The survey’s results show that small business owners are becoming more optimistic about the national and state economies rebounding,” said Union Bank of California Senior Economist Keitaro Matsuda. “Despite the fact that the state’s economy is still the second greatest concern among California small business owners, almost half of the respondents are making plans to invest in land, buildings, equipment and inventory, showing they anticipate an increased demand for services and products. But in order to keep small business owners in the state, the rising cost of workers’ compensation insurance and health care coverage must be addressed.”

About 59 percent of business owners surveyed reported greater sales in the fourth quarter of 2003 over the same period in 2002, with 24 percent reporting the same sales and 17 percent with lower sales. In addition, 44 percent of respondents have capital expenditure plans in 2004, and of those, 70 percent plan to spend more than what they did in 2003.

Providing health care insurance to employees remains a challenge for business owners. Approximately half (52 percent) currently offer health benefits, and of those, 21 percent said they shifted a higher portion of health care costs to their employees last year; 12 percent reduced health benefits. In addition, only about 31 percent of respondents said they offer their employees a retirement plan, such as a 401(k) plan or employee stock ownership plan (ESOP).

Other survey results showed that 58 percent of respondents purchased or upgraded technology applications for their businesses, and of those, 35 percent spent more than $10,000 in 2003.

Survey Methodology
From Jan. 5 to Jan. 16, 2004, Union Bank of California’s Small Business Division conducted face-to-face interviews with 1,399 small business owners.

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