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Starting a Small Business in California

Small Business Profile: CALIFORNIA

In California, small businesses are vital to the financial well being of the state’s economy. Their contribution
is essential for economic growth since they make up almost all employer firms in the state. As entrepreneurs
and innovators, small business owners represented a diverse group in 2004 and continued to keep the state’s
economy productive. The Small Business Profile provides information on the performance of small businesses in
the state using the most current federal data available.

Number of Businesses. There were an estimated 3,320,977 small businesses in California in 2004.1 Of the
1,077,390 firms with employees, an estimated 99.2 percent, or 1,068,602, were small firms. In 2004, the
estimated number of employer businesses increased by 1.3 percent. The number of self-employed persons
(including incorporated) increased overall by 7.6 percent, from 1,986,534 in 2003 to 2,137,841 in 2004.
Non-employer businesses numbered 2,252,375 in 2002, an increase of 4.8 percent since 2001, based on the
most recent data available. (Sources: U.S. Dept. of Labor, Employment and Training Administration; U.S. Dept.
of Commerce, Census Bureau; U.S. Dept of Labor, Bureau of Labor Statistics.)

Women-Owned Businesses. In 2002 women-owned firms totaled 871,617, an increase of 24 percent from 1997, and
generated $140.9 billion in revenues. Firms owned jointly by women and men numbered 346,097 with revenues of
$128.2 billion. Women represented 34.7 percent of the selfemployed persons in the state. (Sources: U.S. Dept.
of Labor, Bureau of Labor Statistics; U.S. Dept. of Commerce, Census Bureau.)

Minority-Owned Businesses. In 2002, Hispanic-owned firms numbered 427,805, an increase of 27 percent from
1997. Black-owned firms numbered 113,003, an increase of 43 percent; Asian-owned firms numbered 372,221, an
increase of 19 percent; American Indian and Alaska Nativeowned firms numbered 40,541, an increase of 52
percent; and there were 7,308 Native Hawaiian and other Pacific Islanderowned businesses.2 (Source: U.S.
Dept. of Commerce, Census Bureau.)

Business Turnover. There were an estimated 117,016 new employer businesses in 2004, 3.1 percent more than the
previous year. Business terminations numbered 143,115 in 2004, an increase of 1.9 percent. Business
bankruptcies decreased by 16.7 percent and totaled 3,748 in 2004. (Sources: U.S. Dept. of Labor, Employment
and Training Administration; Administrative Office of the U.S. Courts; U.S. Dept. of Commerce, Census Bureau.)

Employment. Small firms with fewer than 500 employees numbered 669,132 in 2002 and employed 6,810,807
individuals, or 53 percent of the state’s non-farm private sector (Table 1).3 Net job gains among firms with
fewer than 20 employees totaled 117,379, while large firms with 500 or more employees lost 263,913 jobs
between 2001 and 2002 (Table 2). (Source: U.S. Dept. of Commerce, Census Bureau, Statistics of U.S.
Businesses.)

Small Business Income. Non-farm proprietors’ income, a partial measure of small business income, increased by
6 percent, from $129.7 billion in 2002 to $137.5 billion in 2003.  (Source: U.S. Dept. of Commerce.)

Finance. Commercial bank lenders are an important source of small business loans, and small firms usually rely
on them for financing. Over the last 10 years the number of banks in California has declined (Table 3). The
Office of Advocacy has identified banks in each state that make the most loans to small businesses. This
information is available in its banking studies at www.sba.gov/advo/research/lending.html. 


1 The Office of Advocacy’s estimate of the total number of state small businesses is based on the percent of
small businesses (2002 Census Bureau firm size data) multiplied by the total number of employer businesses in
2004 (Employment and Training Administration). To this total is added the 2002 number of non-employer firms
(Census Bureau).  See Business Estimates from the Office of Advocacy, www.sba.gov/advo/research/rs258tot.pdf.
2 Minority owners may be in more than one minority group. 
3 The number of employers in Table 1 is not directly comparable to the figures in the Number of Businesses
section due to different data sources.