The Citibank Survey completed in January 2011 continues to find increasing optimism
among California’s small businesses. The majority of California small business owners
believe 2011 will be better than 2010; only 10 percent expect this year will be worse.
Entrepreneurs cite reducing taxes and credit availability as keys to helping their
business in 2011.

The majority of California’s small business owners (54 percent) believe 2011 will be
better than 2010, with 36 percent expecting it to be the same as last year and only
10 percent expecting it will be worse, according to the latest Citibank small business
survey. Moreover, Citibank’s latest survey shows an increase in California entrepreneurs’
optimism about both current and future business conditions, offering a strong indication
that after battling through the recession, small businesses are finally poised for growth.

According to the survey, 34 percent of California’s small business owners say their
business situation is better than a year ago, up from 28 percent in September and
just 19 percent in March of last year. Additionally, the number of California business
owners who rate their business situation as worse than a year ago declined to 32
percent, down from 35 percent in September and 45 percent in March.

“Small businesses are the largest source of jobs in the state of California, and their
growing optimism represents an incredibly positive development,” said Rebecca
Macieira-Kaufmann, President of Citibank California. “Though challenges remain, the
results of our latest survey provide strong evidence that California’s small businesses
feel more confident about the current environment and about 2011.”

Business Environment Full of Unknowns
Of course, from unemployment to the rising costs of running a business, California
entrepreneurs still face many unknowns. Business owners say the increasing cost of
healthcare (24 percent) and rising raw material prices (21 percent) pose the biggest
challenges in 2011. And though concern over another downturn dropped to 79 percent
in the latest survey, down from 84 percent in September, it is clearly still on the
minds of many entrepreneurs.

Yet many California small business owners do not appear concerned about the impact
of government policies in 2011, with 40 percent expecting policies to remain the same
and 22 percent expecting them to be more favorable; 38 percent say they expect less
favorable policies this year.

When discussing what would make the most positive impact on their business this year,
respondents cite reducing taxes (28 percent), increasing credit availability (21
percent) and lowering healthcare costs (17 percent).

Business Costs Expected to Rise, Hiring Plans Tepid
The increasing optimism did not reveal itself in hiring plans, which remained flat
compared to previous surveys. The majority of California’s small business owners
(75 percent) continue to say they plan to keep the same number of employees over
the next 12 months, while 18 percent say they will increase employees and 7 percent
say they will reduce jobs. When discussing what would spur hiring, 88 percent say
increased sales.

On an array of expenses, the majority of respondents expect the costs of running
their business to increase this year. According to the survey:
• 80 percent expect the cost of healthcare to increase
• 78 percent expect the cost of raw materials to rise
• 77 percent expect utility costs to rise
• 65 percent expect taxes to increase
• 54 percent expect the cost of borrowing to increase

At the same time, 58 percent do not expect to raise the prices they charge this year,
compared to 42 percent who say they will raise prices. 

California respondents say that to grow or improve their business in 2011, they plan
to work longer hours themselves (61 percent), increase marketing (55 percent), or do
business in a larger geographic area (44 percent). More than half (61 percent) say
they plan to offer new products or services in the coming year or expand into new
markets (51 percent).

Realistic but Passionate
Despite the challenging conditions, business owners remain passionate about their
choice of career, with 76 percent saying they would start their business again even
if they knew then what they know now about the challenges they would face, and 66
percent saying they would recommend entrepreneurship as a career to their children,
up from 60 percent in September.