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HOW BADLY DOES CALIFORNIA TREAT SMALL BUSINESS?

Nov 5, 2010
Article #65
Author: Mel Jones

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People I speak to about California's unfriendly small business environment are often shocked to discover what that state puts small business owners through each day and all that these folks are trying to do is make a living and employ people.

So I feel it my duty to educate the public with the challenges small business face in California so as to effectuate "change" and return California to the great state it once was.

I’m a native Californian who moved to Arizona in 2010 because doing business California has become frustrating and daunting for me as a broker and I'm sure this holds true for all small businesses in the state. 

For example, the liquor license transfer process takes no less than 90 days today where only a couple years ago it took 45 days.  Remember, escrow can't close and money can't change hands until the liquor license transfers.  That means NO ONE collects any money until the liquor license folks transfer the license.  The escrow company, the brokers, the seller, the state, NO ONE!  Can you see the impact it has on the economy?  And often buyers get so overwhelmed by the whole task, they walk away and everyone loses.

Why is it taking twice as long to transfer the licenses?  I have talked to the director, Steve Hardy, about this and frankly, he is at a loss.  He says something about a new computer system and the furlough days, etc.  The department has the same staffing it had 3 years ago - probably more - and is transferring probably half the number of transfers it did 3 years ago. It just doesn't add-up.  I understand it is due in part to shifting people to enforcement so that fines can be levied and revenue for the state generated.  Does that makes sense? Hurt the small businesses during a deep recession?  There is a whole lot of money being held back due to this liquor license factor.

To add insult to injury, the liquor board has increased fees by some $500 to transfer a license.

As a comparison, in Arizona, liquor license transfers don't hold up the closing of escrows and everyone gets paid quickly.   Why you may ask?  Because Arizona takes the position the buyer assumes the risk of the liquor license transfer.  Of course the buyer is given all the risks upfront so they know what could happen. The only reason a liquor license won't transfer is because the buyer has some criminal record. So the burden shifts to the Buyer.  Smart in my opinion. 

I've sold nearly 400 restaurants.  Only once did a buyer not get the liquor license transferred and that's because he lied about his criminal background.  Arizona's process seems straight forward to this broker.   

Then we have the sales taxes folks in California.  Oh my have they gotten nasty over the past couple years.  For example, they now demand an advance on sales taxes when a buyer wants to get a sales permit.  Can you believe it!  An Advance of sales tax that haven't been collected from the consumer!  In one deal the state demanded a $5,000 deposit before they would issue the sales permit and this place only does $25,000 a month in sales!  Can one imagine what the advance will be for a place doing $100,000 a month?  They have also recently instituted a policy of auditing every business sales transaction, slowing the business sale down and often frightening away the sellers.  Let's face it, the restaurant business has a lot of cash floating around.

In another example of the unfriendly small business atmosphere, the county health departments are now charging outrageous fees to perform a transfer inspection - about $1,500 in Sacramento County alone. A couple years ago it was $300. 

And the worse issue that’s out of control in California is the legal system.  Attorneys have this state in the palm of their hands.  Does the average consumer realize there is ZERO penalty to an attorney filing frivolous lawsuits?  Most don't.  In fact, California's legal system encourages frivolous lawsuits.  The only reason why is because the laws are written by attorneys for attorneys. Attorneys win even when they lose the case.  A defendant has to file a lawsuit against the plaintiff and attorney in order to collect on frivolous lawsuits. There aren't too many people who want to go through that process and the attorneys know it.  

And speaking of the legal system, should a seller attempt to breach a listing agreement with his/her broker and the broker wishes to file a lawsuit to collect their commission, the broker must deposit a $10,000 bond with court before a law suit can even be filed.  WOW, how unfriendly is that!  The seller or buyer on the other hand doesn't have to deposit a dime with the court.  
 
So , if you want to do business in California, you need to have the patience to deal with all these “out-of-control” state/county departments and state employees. With absolutely nothing to stop the legislators since that proposition passed allowing only 51% approval of the state budget, one can only expect more regulations, higher taxes and a stronger state employees union in an environment that is already over regulated and over taxed.

And most people don't know this and I only know it because I received the notice, the state announced prior to the election they have no money to send out tax refund checks.  Excuse me state.  That's my darn money you're holding!  This is a sure sign of the trouble coming. This means investors are no longer willing to give California money. Not good for small business folks.  The big business will simply pickup and leave the state.  But us small guys, it is far more difficult to do that.

Write your assembly person or state senator that you've had enough!  This madness of hating small business - all driven by big union money - has to stop!

SellingRestaurants is a professional restaurant brokerage firm specializing in the sale and leasing of restaurant businesses for sale. We are the premier restaurant for sale company with locations in California, Arizona, Washington, Georgia.  Contact me at 480.274.7000


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