Why Are So Many California Businesses Changing Hands?

Why Are So Many California Businesses Changing Hands?

Photograph by Ian Stanley/Alamy

This summer, Bloomberg News published research indicating that California lost 5.2 percent of its business establishments in 2012. Why were California’s businesses disappearing at the nation’s fastest rate?

High taxes and over-regulation, said a torrent of commenters on a blog post from July, echoing the often-repeated theory that Golden State business owners are seeking friendlier business conditions elsewhere. Kevin Klowden, an economist at the Milken Institute’s California Center, was less certain: It was more likely that businesses were closing shop as the result of the extended hangover from the Great Recession, he said in an interview at the time. Another possibility: Entrepreneurs out of necessity were folding businesses to take full-time jobs.

Here’s an unrelated tidbit that offers a more recent look at business ownership in California: 1,336 small businesses in the state changed hands in September, according to the website BizBen.com, which tracks business sales there. That’s an increase of 8.4 percent from last September and 40 percent from September 2009. (BizBen defines small businesses as those that sell for $1 million or less.)

Steadily improving housing and stock markets through the end of last month explain the increase, says BizBen founder Peter Siegel. “There are also a lot of small business owners who have been on the sideline, waiting for prices to edge up,” he says.

That doesn’t explain what happened to California’s disappearing businesses, or predict whether the state will lose more businesses this year. Siegel’s research does give some sense of what types of businesses are likely sticking around: Restaurants, gas stations, car washes, and businesses with annual cash flow of more than $100,000 are most popular with buyers, he says.

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