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May 31

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Going to the source

There are a plethora of business climate indexes available; however, a recent small business survey conducted by Thumstack.com and the Kauffman Foundation appears to be one of the few (or maybe the only) that actually use small businesses as the source of its results.  Thumstack.com and the Kauffman Foundation surveyed small business owners to understand what small businesses value most in determining the best places to do business in the country.

The survey asked small business owners to rate and/or rank their state and city across multiple categries including the following:

  • Overall small business friendliness
  • Ease of starting a small business
  • Cost of hiring a new employee
  • Overall regulatory friendliness
  • Friendliness of health and safety regulations
  • Friendliness of employment, labor, and hiring regulations
  • Friendliness of tax code
  • Friendliness of licensing regulations
  • Friendliness of environmental regulations
  • Friendliness of zoning regulations
  • Publicity of training programs
  • Publicity of networking programs
  • Current economic health of small business
  • Change in revenue over past 12 months
  • Forecast of small business’s future economic growth

Although some of the survey results are similar to those of other business indexes, there are some interesting differences.  One of the predictable results of the survey is that Texas had three of the top five cities for business (Dallas-Fort Worth, San Antonio, and Austin), while California had the bottom three (Los Angeles, San Diego, and Sacramento).  Is anyone surprised…?  However, the survey results also include items that other indexes do not measure.  The surveyors performed linear regressions with the survery results data to test which variables/categories were the best predictors of “overall small business friendliness scores”.  Here are some the more interesting conclusion as reported by Thumstack.com:

  • Licensing requirements were nearly twice as important as tax-related regulations in determining overall business-friendliness.
  • Top predictors of small business friendliness were (i) whether small business owners are aware of the state or local government offering training programs for small businesses, (ii) respondent’s forecast of his/her company ‘s financial performance over the coming 12 months, and (iii) his/her assessment of the small business’ current financial state.
  • In a regression analyses of the data for a low-ranking and a high-ranking state (i.e., California and Texas respectively), licensing requirements were top predictors of overall scores; however, Texans care more about the tax code than the cost of hiring.  Californians are the opposite.

Thumbtack.com provided the following chart of state rankings by survey respondents after aggregating the results (States ranked with grades of A+ through F):

                                                                                 

Although there may be some bias to this survey’s methodology (e.g.,  only those businesses that list their services on Thumbtack.com were surveyed), this survey does provide a template for what other organizations may want to consider when creating their own business climate indexes.

About the author

Nicole Liska

I am a Principal at Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I hold an ABD and MA in economics from the University of California, San Diego. I perform damages analyses and serve as a damages expert witness. My resume is on Fulcrum's website.

Permanent link to this article: http://betweenthenumbers.net/2012/05/going-to-the-source/

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