Skip to main content

5 Common Challenges Running a Business in California

Successful operation of a business anywhere in America can be a tricky proposition, to say the least. Nevertheless, there are additional challenges facing California business owners, alongside the ample opportunity. Here are a few of the possible obstacles, including working out the complexities of your commercial insurance needs. 

1. High Taxes 

For starters, California is ranked 48th out of the 50 states in business tax rate, according to the Tax Foundation. Only New York and New Jersey make things tougher for business owners in that regard. 

The state is also ranked 48th in total taxes charged to state residents. That includes sales taxes, property taxes, and individual income taxes. Why does that matter? Because those high taxes are being charged to your clients or customers, and that can make fewer dollars available for them to do business with you. 

2. California’s Challenging Regulatory Environment 

According to a recent survey of state regulatory environments, California is the most regulated state in the nation. With a total of 396,000 regulatory requirements, the Golden State has 100,000 more than New York, the state that ranks next on this list. That’s a lot of rules and regulations. 

Among other things, it means that you’ll probably have to get used to obtaining permits or licenses to operate in the fashion that makes sense to your bottom line. It could also take you longer and cost more to make necessary moves. 

While sometimes regulations can make good sense, benefit the environment, and make it safer for your company to operate, a highly regulatory environment can also slow down a business, make it harder to turn a profit, and keep your doors open. 

3. High Operational Costs 

It’s not just taxes posing financial challenges for California businesses. Energy costs here are also among the highest in the nation. Furthermore, whether your business is housed in a commercial building or your own home, rents and home sales are off the charts in California. 

In fact, California ranks 49th in overall cost of living, with only Hawaii being pricier. That creates challenges not only to your own day-to-day business costs, but also to the ability of your customers to buy what you sell. 

It can also impact your ability to recruit top management team members from out of state. How much will you have to overpay your key people to obtain and retain their services? You’ll have to build that into your budget and business plan if you’re just starting out. 

African-American business owners work through a challenging day

4. California’s Shaky Economic Conditions 

This one isn’t just something that California businesses have to worry about. Many parts of the world are already in recession, and economists have warned about the possibility of such misfortune hitting our shores early next year. 

In the meantime, recession has been a part of the American economy in one form or another for a long period of time. With a current annual inflation rate of around 8 percent as of this post, consumers and businesses all over the country are constrained from spending money. 

Then there’s the price of gasoline. While the average price per gallon has fallen nationally from earlier highs, California is the state with the highest per-gallon average. This impacts shipping and delivery, which sends prices soaring even higher in the Golden State. 

All you can do about these external cost challenges is to control your own expenses and prepare as much as possible for all economic realities. 

5. The Complexities of California Business Insurance 

Does your company need directors and officers liability insurance, or errors and omission insurance? Should you be considering crime insurance or law insurance? 

For many business owners, the first step to answering questions like that is knowing what those terms and others — many others — even mean. 

While there are countless lines of commercial insurance serving California businesses of all categories, only a few might be critical to your company and financial protection. That can depend on your location, customer base, competitive situation, the industry in which you work, whether you’ll have employees or inventory, and other factors. 

One of the first steps you need to take as you’re planning your business is to meet with a business insurance agent. Describe your situation and goals, and find out what lines of coverage are indispensable for your operation. You should be able to trust this agent’s expertise and look forward to a helpful partnership for the long-term success of your company. 

Despite the Challenges, You Have Plenty of Advantages Doing Business in California 

Anyone starting a business anywhere in the nation and in any economic period is sure to be presented with obstacles that must be confronted and overcome. It’s no different now, in California. But, on the other hand, the upside is huge. 

The multiple advantages of living and doing business in this state include the appealing climate, its natural beauty, and its diverse economy. In addition, there are lots of companies that are succeeding here just fine. In fact, if it were a country, California would have the world’s fifth-largest economy, and the state is swiftly closing in on Germany for the number four position. 

The point is, you have a bright future in business here. Still, it’s always advantageous to know what you’re up against before starting out or growing your enterprise. That way, you’ll hit fewer unexpected bumps in the road and get to your profitability goals sooner. 

Find Affordable Commercial Insurance to Help Your Business Thrive in California 

At Cost-U-Less Insurance, our independent insurance brokers are available to answer all your business questions and help you find affordable lines of coverage to protect your financial interests. Simply call us at (800) 390-4071 or get a quick online quote. You can also find a Cost-U-Less California location near you for a sit-down meeting with an agent. 

Ready to Get a Quick Quote?