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The State of Small Business: Arizona

The State of Small Business: Arizona

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 Arizona's more than 500,000 small business owners about the challenges and opportunities of operating in their state. Here's what they had to say.

Arizona's entrepreneurs are largely excited about the state's future prospects. Not only is Arizona's economic growth stable and encouraging, the population is growing while unemployment is holding around 5.5 percent, and the state's tax rates remain low and manageable. Small business owners across the state are taking notice of these healthy indicators, ready to seize new opportunities, and are eager to see if they continue to trend in the right direction.

The primary drawbacks in Arizona are difficulties accessing startup and growth capital, a problem that plagues much of the nation, and the state's generally low per-capita personal income. While the cost of living is moderate in Arizona, personal income is much lower than the national average, meaning the average Arizonan has less disposable income to spend on small businesses' goods and services. Still, neither of these factors have dampened entrepreneurs' outlooks in the Grand Canyon State; the mood in Arizona is resoundingly optimistic.

Arizona's economy is growing on a par with the nation, reaching 2.4 percent through 2014. While not a staggering rate of growth, the reliability of the rate provides a level of certainty for Arizona's entrepreneurs, a benefit that other states don't necessarily enjoy. In fact, from 2010 through 2014, Arizona only saw one year with economic growth below the 2 percent mark – no small feat for a state enduring an economic recovery.

"Real estate seems to be stable, and more people are moving to the state than leaving," Scott Curry, CEO and founder of e-commerce platform Scott's Marketplace, told Business News Daily. "More businesses are moving to Arizona because of the favorable business environment and the relatively low cost of living." 

A seven-year study performed by Spectrum Location Solutions and published in 2015 found that Arizona is the third most attractive state for businesses leaving California alone. The study found that relocation by California companies diverted more than $68 billion in capital across more than 1,500 relocations to other states – Arizona was a large beneficiary of that divestment.

Perhaps part of the reason so many relocating businesses are happy to move into the Grand Canyon State is the state's lineup of low and moderate taxes. The state sales tax is middle-of-the-road at 5.6 percent, but the flat corporate income tax of 6.968 percent and the five-bracket personal income tax ranging from 2.59 percent to 4.54 percent make the overall tax burden generally manageable. Similarly to most other states, additional property and sales taxes are levied from municipality to municipality, and county to county, so total tax burden can vary depending on where in the state a business is located.

"The tax rate is fairly low in Arizona, which makes it appealing to small business," said Tom Wheelwright, an Arizona CPA and author of "Tax-Free Wealth" (RDA Press, 2013). "The Arizona Department of Revenue isn't bad to deal with, and cities often have tax incentives for opening a business in an enterprise zone."

Arizona's labor market is a huge plus for the small business community right now. The population and labor force continue to grow, as does employment. Unemployment rates are hovering above 5 percent, which is slightly higher than average. But that also means employers can easily find the help they need. Meanwhile, the cost of living in Phoenix is affordable compared with other major metropolitan areas, which keeps labor expenses to a manageable level.

"The state is full of highly competent and educated workers that have the skill set to be an asset to companies and their growth," said William Moreland, owner of leadership development company Moreland International.

As in many states across the U.S., it can be difficult to find startup capital in Arizona. Entrepreneurs and professionals who spoke to Business News Daily said innovative ideas can find support, but that it's not always easy to distinguish oneself from the crowd.

"The growth capital is hard to come by in Arizona," Curry said. "Companies need to look outside of Arizona for the growth capital to take them to the next step in their journey."

"A challenge in Arizona and throughout the U.S. is reasonable startup capital," Fred Auzenne, CEO of advisory firm Legacy Franchise Group, said. "Microlending is missing in the entrepreneurship world. [Banks are] lending to a small portion of the population, instead of lending to the average entrepreneur."

Arizona's cost of living is moderate, but the state's per capita personal income is significantly lower than the national average and declining. That's a big concern for in-state small businesses that rely on residents' disposable income for a majority of their proceeds. According to the Bureau of Economic Analysis (BEA), Arizona's per-capita personal income was $39,060, just 82 percent of the national average in 2015. Even considering the cost of living, that's a negative indicator. And it seems to have an impact on Arizona's youngest businesses, though entrepreneurs are optimistic that the trends point in a stronger direction.

"Unfortunately, Arizona isn't known for producing high growth, highly scalable businesses to date," Curry said. "Hopefully that is going to change in the foreseeable future.For now, Arizona startups need to execute and gain traction to be seen as viable in the market."

If you're a small business owner in Arizona looking for resources to help you move forward, here are a few organizations you might want to learn more about.

Arizona SCORE

SCORE's volunteer business professionals and expert "mentors" give counsel and guidance to entrepreneurs looking to start or expand their businesses. The services are free and volunteer-driven. Here are some of the chapters in Arizona. 

Greater Phoenix SCORE

Northern Arizona SCORE

Southern Arizona SCORE

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 after natural disasters.

U.S. SBA District Office for Arizona

Arizona Small Business Development Centers

Arizona 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 tax code. You can find your region's small business development center at the link below.

 Arizona SBDC Network

Are you an entrepreneurial organization or resource for small business owners, but are not listed here? Let us know. Contact the author at auzialko@purch.com.

Adam C. Uzialko

Adam C. Uzialko, a New Jersey native, graduated from Rutgers University in 2014 with a degree in Political Science and Journalism & Media Studies. In addition to his full-time position at Business News Daily and Business.com, Adam freelances for a variety of outlets. An indispensable ally of the feline race, Adam is owned by four lovely cats.

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