As part of its year-long project, "The State of Small Business," Business News Daily will report on the small business environment in every state in America. In this edition, we asked a few of New Jersey’s 810,000 business owners to tell us about the challenges and opportunities of doing business in their state. Here's what they had to say.
Running a small business in the most densely populated state in the nation brings with it many daunting challenges. High taxes and a high demand for property, for example, drive up the costs of doing business. On the plus side, however, New Jersey also offers entrepreneurs a bustling and diverse marketplace and business owners reap the benefits of the state’s close proximity to New York City and the residual wealth and affluence that enters the state as a result.
Business owners report they struggle with balancing the pros and cons of doing business in the Garden State, where small businesses employ the majority of the private sector workforce. Small businesses were the source of 1,735,727 jobs in 2012, 50.5 percent of the Garden State's private sector employment, according to data compiled by the U.S. Census Bureau.
[See Business News Daily's complete coverage of the State of Small Business in the U.S.]
A bustling, diverse, and innovative environment
With more than 8.9 million people packed into just less than 7,500 square miles, New Jersey is the most densely populated state in the U.S. According to the U.S. Census Bureau, New Jersey hosts about 1,195 people per square mile, as opposed to the national average of 87 people per square mile.
That diversity spells opportunity for small business owners.
"I think New Jersey offers a lot of diversity which is really excellent," said Caroline Blazovsky, owner of My Healthy Home. "By having a business here, we can really be at the forefront of what's going on in the country. We're innovators, we have a large population and big cities, so rest of country looks to us for big ideas."
Nancy Bukovina, a mentor at central Jersey SCORE, said access to such a robust marketplace is worth the high cost of operating. Despite the exorbitant taxes and the cost of real estate, she said there are countless opportunities for niche marketing and developing a loyal customer base no matter the industry your business operates in.
"There are benefits that go with the high cost. You've got a dense marketplace, the ability to reach a fairly good population in close proximity, and you can do very targeted marketing," Bukovina said.
Proximity to New York City
A significant portion of New Jersey's population works in New York City or Philadelphia, connecting the Garden State with two robust metropolitan economies. The wealth and affluence that returns to the state as a by-product translates into opportunities to small business owners.
"We're right outside New York. There's a lot of high-paying jobs in the city, so there is more money here than there would be in other states, and there's a lot of opportunity in that," said Dr. Dan Margolin, owner of the NJ Foot and Ankle Centers podiatry practices.
Deborah Sittig and Karen Carolonza, co-founders of the Boonton-based public relations firm Green Room Communications, agreed that their proximity to New York has helped their business succeed.
"New Jersey is a positive for us because a lot of [our clients] travel to New York, and we're right here," Sittig said. "We've been able to reap benefits from a diverse population, all that transit, and a big economy."
Supportive local communities
A number of the business owners said they feel supported by their local communities, who regularly patronize their establishments because they recognize the value small businesses offer their towns. In addition, some local municipalities offer small businesses access to resources and programs to help encourage startups and the growth of existing businesses.
"Hillsborough Township, for example, has resources to help people who want to start businesses in the township," Bukovina said. One such resource is the Shop Hillsborough Rewards Program, which offers residents a property tax incentive in return for patronizing township businesses.
Marla Camins, co-owner of Drama Salon and founder of Camins Communications, said no matter the difficulties they face, both she and her husband know there is a loyal following of friends, neighbors, and acquaintances who prefer to shop local than simply go to a larger company.
"We have a great community and people appreciate the fact that we're independent and not a franchise. That is such empowering support," Camins said. "Because of the business climate in general, it's harder to turn a profit, but we're really optimistic about our community and the people who continuing to support us."
Small businesses are looking for growth capital
Daniel Sorrell, first vice president and leader of Valley National Bank's Community Lending Team, said there are encouraging signs in small business borrowing activity in New Jersey. While the recovery from the 2008 recession has been slower than many hoped, Sorrell told Business News Daily that small business borrowing is on the rise.
"I think borrowing is growing. In the last two or three years it's ticking back upwards," Sorrell said. "We're seeing a lot of volume in applications … It just seems like things are getting better."
Following the economic crisis of the late aughts, Sorrell said a lot of businesses were shaken out of the marketplace, while the ones with real staying power weathered the storm. Now, he said, it seems small business owners are ready to start expanding and investing in their operations once again, as more and more seek out financial support.
"We see an improvement in the quality of people applying, so we can loosen up the terms a bit and be more flexible," Sorrell said. "That's a positive development for New Jersey."
High taxes and cost of living
It's no secret to its citizens that New Jersey's taxes are, across the board, pretty hefty. In 2015, the nominal corporate income tax rate in New Jersey was 9 percent, falling between its tri-state neighbors of New York, which has a nominal rate of 7.1 percent, and Pennsylvania, which has a nominal rate of 9.99 percent. These figures don't include any deductions, credits, or exemptions available under state laws. For pass-through entities, such as LLCs, subject to the individual income tax, such as LLCs, New Jersey's rate is based on a six bracket system ranging from 1.4 percent in the lowest tier – incomes of $0 to $20,000 annually – up to 8.97 percent in the highest tier – incomes of $500,000 or greater annually. New Jersey residents also endure the highest property taxes per capita in the country, according to an analysis performed by the Tax Foundation.
"It has been difficult to operate in a state in which there is limited tax relief," William Bauer, managing director for the Meadowlands-based leather accessory manufacturer ROYCE, told Business News Daily. "Corporate tax rates, individual income tax rates, sales tax, unemployment insurance tax, and property taxes all take an immense toll on our ability to attain profits."
New Jersey's seven percent sales tax is the highest in the tri-state area as well, with Pennsylvania at six percent and New York at four percent. Bukovina, the SCORE mentor, said high taxes are part and parcel of a generally high expense of living and operating in the Northeastern U.S. That also goes for rents and the price of property, which all add up to a relatively high cost of doing business, she said.
"What we can't help is that this is just a high cost area," Bukovina said. "Everything costs more in New Jersey. As a brick and mortar, you are going to pay higher rent here than if you were in, say, Pennsylvania in the Lehigh Valley. And yes, we have high taxes, and that certainly does not help the small business person."
The spread of big business
In many industries, the expansion of big business is also a concern for small business owners in New Jersey. In 2012, small businesses faced particularly stiff competition from larger firms in the retail, finance and insurance, and information industries, according to data compiled by the U.S. Census Bureau. But even in the industries where small businesses make up a majority of the companies operating, there are still significant challenges posed by going head to head with big businesses that can achieve a great economy of scale.
"[A big challenge] is the competition of big business," said John Zaccone, owner of Northstar Truck Lettering and Signs.
The chief concern, naturally, is that big businesses can typically offer what small businesses do at a lower cost. For many small businesses, the challenge is to provide a superior level of quality and differentiate their own operation from more well-known national – or even global – brands. Marla Camins, who is based in East Brunswick, N.J., told Business News Daily that she has seen the toll big business can take on smaller companies both in the salon business and for her marketing clients.
"There's so much competition from franchises that provide similar services without the same level of training, which cuts into our market," Camins, who is also a member of the Central Jersey Business Association, said. "So, we're continuously trying to grow and expand and maintain our quality of service."
She added that tailoring a marketing campaign to help small businesses stand strong against competition from larger companies – which have much larger public relations budgets – can be a challenge.
"A lot of businesses have to fight against franchises that have the ability to buy everything cheaper and sell it cheaper. It can be frustrating for any business, old or new, to try and know what the best marketing solution is for them in that case," Camins said.
Concern over future natural disasters
In the wake of natural disasters like 2012’s Hurricane Sandy, which hit New Jersey particularly hard, small business owners are also keeping a suspect eye on Mother Nature. More recently, when Hurricane Joaquin threatened to strike the Jersey Shore, many entrepreneurs were reminded of the toll Sandy took on commerce. Now, as the scientific community predicts significantly more extreme weather by 2050 as a by-product of climate change, small business owners also need to focus on the environment in addition to the economy. That is especially true in a state that counts tourism as a staple of its economy.
"We experienced tremendous loss of both merchandise and operating technology during [Hurricane Sandy] and we sustained some flooding during the most recent Hurricane Joaquin," Bauer, the managing director at ROYCE, said.
For ROYCE, the threat of future floods and disasters is enough of a concern that the company is looking to relocate. That's a trend that could prove difficult for New Jersey's economy if more businesses decide to head for the hills and seek shelter across state lines.
Others, like Zaccone of Northstar lettering, actually benefited from the destruction wrought by Hurricane Sandy. Signs and paint jobs were damaged in the storm, and entrepreneurs who were eager to rebuild turned to Northstar for solutions. The recovery grew Zaccone's business and earned him a reputation as someone who can get the job done when small business owners need it most.
"Hurricane Sandy helped my business grow," Zaccone said. "The growth was bitter sweet, but has gained me more exposure and repeat customers."
Resources for Small Businesses in New Jersey
If you're a small business owner in New Jersey looking for some resources available to help you move forward, here are a few organizations you might be interested in learning more about.
New Jersey SCORE
SCORE offers volunteer business professionals and expert "mentors" to help give counsel and guidance to entrepreneurs looking to start or expand their business. Their services are entirely free and volunteer-driven. Here are some of the chapters in New Jersey.
New Jersey Business Action Center
The New Jersey Business Action Center was established in 2010 as a resource for business owners in the Garden State. In addition to mentoring and counseling, they also will redirect entrepreneurs to a number of available resources throughout the state.
New Jersey Small Business Development Centers
There are 12 small business development centers in New Jersey. Each is dedicated to supporting the development and retention of small business, from helping entrepreneurs craft business plans to navigate the state's tax code. You can also visit: NJSBDC.