As part of our yearlong project "The State of Small Business," Business News Daily plans to report on the small business environment in every state in America. In this installment, we asked a few of Connecticut's roughly 350,000 small business owners about the challenges and opportunities of operating in their state. Here's what they had to say.
Small business owners in Connecticut say there are both pros and cons of doing business in the state. On one hand, they enjoy a close proximity to major cities such as New York and Boston, as well as access to a highly skilled workforce and a favorable labor market. Perhaps most important, entrepreneurs in Connecticut operate alongside the wealthiest population in the nation: Connecticut's per capita personal income in 2015 was nearly $20,000 higher than the national average. While the cost of living is significant, the per capita personal income is so elevated that, in many areas, people hold more disposable income, which often means more patronage for small businesses.
However, the drawbacks of owning a business in Connecticut can be significant. Small business owners face not only a wide array of high taxes but also contend with expensive real estate, which increases overhead in the form of rent and employee compensation. The economic landscape in the state is also somewhat concerning from an entrepreneurial perspective. In 2014, Connecticut's GDP grew by only 1 percent, according to the Bureau of Economic Analysis — much less than the nation's already-tepid growth rate of 2.2 percent the same year. From 2004 through 2014, Connecticut's compound annual growth rate reached an anemic 0.1 percent.
Highest per capita personal income
One of the brightest spots for Connecticut's small business owners is the incredibly high per capita personal income (PCPI) of the Nutmeg State's denizens. In fact, the Bureau of Economic Analysis reported that Connecticut's PCPI for 2015 was 140 percent of the national average, at nearly $67,000. This is a boon to small business owners in areas where wealth is highly concentrated, as there is more disposable income to go around despite the state's elevated cost of living.
However, the state's extraordinary PCPI must be taken with a grain of salt; the state is also home to the widest income gap in the country. According to a 2015 report by the Economic Analysis and Research Network, which includes a number of different research organizations, Connecticut and New York were the two most inequitable states for wealth distribution.
"According to state-level data, Connecticut and New York have the largest gaps between the top one percent and the bottom 99 percent [of earners,]" the report reads. "In both states, the top one percent in 2012 earned, on average, over 48 times the income of the bottom 99 percent of taxpayers."
So, while small business owners can take advantage of the incredible wealth in Connecticut, they must be aware that there are pockets of affluence scattered throughout the state.
Favorable labor market
Connecticut has a slightly higher-than-average unemployment rate, and it's been rising for the past several months, according to the U.S. Bureau of Labor Statistics. As of March 2016, the rate stood at 5.7 percent. In part because of growth in the state's labor force, the labor market is particularly favorable to entrepreneurs looking to fill open positions. Employment has consistently grown along with the labor force, but so has unemployment. This trend has created competition for open positions and allows small business owners to be selective during the hiring process.
"Businesses across the state can recruit highly qualified employees from a number of top-level universities located here," said Joseph Cherico, managing partner at law firm McCarter & English Stamford branch. "And employees still find Connecticut to be a desirable place to live."
"One of Connecticut's strengths is its human capital," William Conron, partner at accounting firm Citrin Cooperman, said. "With a number of major corporations in the state there are people with money and experience that can develop the younger generation that is moving into some parts of the state.
Proximity to major cities
Connecticut is close to major metropolitan areas, namely New York City and Boston, which brings with it all of the benefits of operating a business in an urban center. However, Connecticut also offers an escape from the urban environment. The cost of living remains high, but the state is a great place for entrepreneurs who don't want to maintain a business in a big city but also don't want to lose out on the opportunities it provides.
"With great proximity to New York and Boston, Connecticut is a nice area if you want to get out of the city and enjoy a great quality of life," said Michelle McComb, chief financial officer at data-protection firm Datto. "Connecticut is sitting right between New York and Massachusetts, which makes it a great suburban area that has plenty of access to skilled workers."
Most of the Connecticut small business owners we spoke with complained of high taxes. Coupled with the already-high cost of living, the elevated taxes make it difficult for many entrepreneurs to turn a profit. The state maintains a six-tiered progressive income tax rate that tops out at 6.99 percent, a flat corporate income tax rate of 9 percent, a 6.35 percent sales tax and property taxes that vary from municipality to municipality.
"There are some challenges, but also a recognition by the executive and legislative branches that a commerce-friendly landscape for small businesses is important to the state's overall economy," Cherico said. "Along with that recognition is the motivation to take steps to create an environment in which small businesses can succeed."
There is a sense among Connecticut entrepreneurs that a revision of the state's tax code is on the horizon. Small business owners are cautiously hopeful that the state legislature and governor will act, but the uncertainty generated by the $1 billion budget deficit looms large.
"Connecticut has the opportunity to really turn things around, but it means that both local and state government will need to step up to the plate," said Ja-Nae Duane, co-author of "The Startup Equation" (McGraw-Hill Education, 2016).
Slow economic growth
Connecticut has experienced extremely sluggish economic growth since the 2008 financial crisis. In 2014, the state's economy grew by just 1 percent. Even compared to the national economy's 2.2 percent growth, Connecticut is falling short of expectations. Over the past 10 years, the state's compound annual growth rate was just 0.1 percent, according to the BEA. Moreover, entrepreneurs and professionals are concerned about the state government's looming deficit, which is generating uncertainty throughout the business community.
"As are many states, Connecticut is still recovering from the 2008 recession," Cherico said. "The governor and state legislature are working to close a nearly $1 billion gap in the budget for the fiscal year that begins July 1, with much larger deficits looming two and three years out."
A persistent budget deficit means delayed or canceled services and projects, such as state infrastructure work that benefits small businesses, or reductions in tax benefits or small business programs supported by the state. It can also mean a reduction in any government grants or contracts for Connecticut's entrepreneurs.
Meanwhile, General Electric — which has been located in Connecticut since 1974 and is one of the largest companies to call the state home — announced earlier this year that it would be relocating its headquarters to Boston. If GE's departure is a bellwether for the state, Connecticut's economic woes are not yet over. Many entrepreneurs, particularly those filling B2B roles, are concerned the flight of big business will continue.
Still, residents said there are many new small businesses that are emerging, offering some promise for the future.
"There have been a number of new beverage companies that have started recently," Conron said. "I have also seen at lot of technology startups, [and] certain areas of the state are focused on attracting Bio-tech companies."
High cost of living
Another drawback of doing business in Connecticut is the elevated cost of living. Across the board, life in Connecticut is more expensive than average, and that can prove difficult for an entrepreneur just starting out.
"It's expensive to live in Connecticut," said Ashley Popoli, owner of aerial fitness center Vertical Addiction. "Rent, mortgage, food, gas and insurance are all significantly more expensive than [in] other areas of the country, and it adds up quickly.
"Everyone I know who owns a small business [in Connecticut] is either being supported by a significant other, or they are still working as they try to build their business," Popoli added.
In addition to facing significant overhead when starting a business, small business owners will have to compensate employees highly to meet the elevated costs of living and working in Connecticut. Given entrepreneurs' limited access to capital, it can prove difficult for small businesses to get off the ground.
However, it's worth noting that some of the business professionals we spoke with said they were able to negotiate a good deal on commercial space, bringing some much-needed relief to the overall upfront expenses of operating in Connecticut.
"When it comes to commercial real estate in Connecticut, there are a lot of options, and we got a fantastic deal," McComb said.
Resources for small businesses in Connecticut
If you're a small business owner in Connecticut looking for resources to help you move forward, here are a few organizations you might want to learn more about.
SCORE's volunteer business professionals and expert "mentors" give counsel and guidance to entrepreneurs looking to start or expand their businesses. The services are entirely free and volunteer-driven. Here are some of the chapters in Connecticut.
U.S. Small Business Administration District Offices
The U.S. Small Business Administration (SBA) offers financing and grants, as well as consultations and counseling services. There are also opportunities to apply for federal government contracts through the SBA and avenues for obtaining assistance in the wake of natural disasters.
Connecticut Small Business Development Centers
Connecticut hosts a number of development centers for small business. Each is dedicated to supporting the development and retention of small businesses, helping entrepreneurs do everything from crafting business plans to navigating the state's tax code. You can find your region's small business development center via the link below.
HelpGrowCT is a private economic advocacy organization, which helps network entrepreneurs together and encourages others to pursue small business ownership throughout the state. By "redveloping economic development," HelpGrowCT aims to assist small business owners in cutting costs, streamlining productivity, and maximize their profits. Visit the link below for more details.
Women's Business Development Council
Aimed specifically at helping entrepreneurs start and grow their businesses, the Connecticut Women's Business Development Council (WBDC) offers workshops and educational programming to assist women and men alike in their entrepreneurial endeavors. The WBDC is a nonprofit founded in 1997. To learn more, visit WBDC's website via the link below.
Connecticut Business Incubator Network
The Connecticut Business Incubator Network (CBIN),a network of incubators and accelerators throughout the state, helps connect fledgling entrepreneurs with organizations that can help them succeed. CBIN partners with seven participating organizations that host 10 facilities throughout the state. Learn more by visiting the link below.
Are you an entrepreneurial organization or resource for small business owners, but are not listed here? Let us know. Contact the author at email@example.com.