CTBC Bank Business Survey4 The CTBC Bank Business Survey – Southern California of more than 430...

Southern California / 2014

CTBC Bank Business Survey

WWW.CTBCBANKUSA.COM

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Executive Message

Executive Summary

Demographics & Background

Current Status & Business Outlook

Southern California Environment

Rewards & Challenges of Being A Small Business Owner

Business Goals

Finance

Workforce

Business Sourcing

Marketing & Sales

About the Report

Table of contents

3

At CTBC Bank (USA), our understanding of the growth opportunity in Southern California runs deep because we ourselves are an integral part of the business phenomenon in Los Angeles. We’ve based our U.S. operations in the region for nearly 20 years, and our confidence is further reflected in our move to a brand new corporate headquarters in downtown Los Angeles last year even as the national and regional economies recovered from the economic downturn. Our primary goal was to capture the momentum that is at the core of the world’s small business capital.

As the North American CEO of a leading global bank with growing operations in the region, I am always impressed at the ingenuity and drive demonstrated by local businesses that makes this creative and dynamic economy tick. I also wonder about what can and should be done to support the entrepreneurs who have dared to dream in these tough times, and often risked everything? And what can be done to grow key industries further? I know that my peers and counterparts across every sector have the same questions. These queries led our team at CTBC to create an instrument that would effectively capture the pulse of small and medium-sized businesses (SMB) in Southern California.

Thus, our most passionate project to-date, the CTBC Bank Business Survey - Southern California, is an annual measure of SMB confidence and future outlook based on input from more than 400 owners and senior managers in the region. These businesses include a wide variety of sectors, sizes and scale and are a true representation of our market. This survey has strengthened CTBC’s bond with the region, and it is with a sense of great pride that we bring you the results.

The findings of our inaugural survey are very encouraging, and point to the overall optimism of business owners. Three primary reasons drive their confidence. First, nearly six-in-ten expect their 2015 revenues to be higher than this year. Second, nearly half say they expect to increase full-time staff at their organizations. And, third, a significant 88 percent are looking to increase their customer base within the region, highlighting their confidence in the Southern California market. It is evident that we have a lot to look forward to.

That said, there are clear challenges in the face of national and global headwinds. The foremost of these challenges, in my opinion, is ensuring a skilled workforce for the future. More than seven in ten of our respondents cited that it is difficult to find and retain talent with the right skillset. Given the increasing levels of foreign investment in our market, the dearth of talent will be critical to improve. As a community bank, we look forward to building partnerships with the business community and academic institutions to ensure that companies have the support they need to grow their businesses and realize their financial dreams.

This is clearly a time of transition and a time of opportunity for Southern California and our region’s business partners nationally and abroad. Our study aims to highlight the issues that keep SMB leaders up at night. We believe that this survey will bring significant insight into the road ahead. On behalf of my colleagues at CTBC Bank, I hope that our customers, businesses and regional leaders will leverage the findings of this report. We want to thank all the companies that participated in the survey. We’re grateful for their insight.

Executive Message

Noor MenaiPresident & CEO,

CTBC Bank (USA)

4

The CTBC Bank Business Survey – Southern California of more than 430 small and medium-sized business owners and senior managers in the region finds an optimistic group that expects their revenues, number of employees and investments in marketing, sales and long-term commitments to increase over the next year.

Business Outlook

Leaders of Southern California small and medium-sized businesses are confident, but reveal finding and retaining the right employees are often constraints despite the advantage of the region’s skilled workforce. For start-ups, access to capital remains a barrier.

Optimism Is High for Southern California Small and Medium-Sized Business Leaders

More than half expect their 2014 revenues to be higher than 2013 and nearly 60 percent believe their 2015 revenues will be higher than 2014 revenues. Small and medium-sized business owners from San Diego are particularly optimistic about future revenues, with 66 percent expecting an increase in 2014 and 67 percent expecting an increase in 2015.

Small and medium-sized business owners and senior managers express optimism on a macro level as well, as the overwhelming majority expect business conditions in both the U.S. (80 percent) and Southern California (78 percent) to either stay the same or improve over the next year. Those businesses with $5 million - $10 million in revenues are even more likely than others to expect business conditions in the U.S. to stay the same or improve.

Southern California’s Skilled Workforce and Access to Markets are Considerable Advantages

Respondents believe there are a number of inherent advantages to maintaining their businesses in Southern California. The top advantages to operating in Southern California are the availability, quality and education of the workforce. Businesses in manufacturing are particularly likely to say Southern California’s access to markets (including local, national and international) is an essential benefit. They are also more likely to cite the quality of and access to transportation networks as advantages for their businesses.

One-third of respondents say their business involves the purchase of, transformation or resale of raw materials. Of those respondents, sourcing primarily comes locally from California and Asia. Just under half of those businesses that source do so from Asia.

Leaders Believe Government Can Do More to Help Them Get Ahead

At the same time, small and medium-sized business leaders and managers are critical of the job the U.S. federal government, the California state government and their local county and city government are doing at creating a positive business environment for businesses like theirs. Those businesses with revenues of $25 million or more are even more negative – with just over 10 percent rating the job the California state government is doing as excellent or good. Respondents identify California state level business taxes and regulations as the most significant constraints for their businesses.

Business Goals and Plans

Most businesses are focused on growth, achieving revenue increases through better serving their current customers, supported by improvements in operations, and ongoing investment.

Growth Remains the Most Important Goal of Small and Medium-Sized Businesses

Not surprising, given the confidence small and medium-sized business owners have in the Southern California and California market, most businesses say their primary goal for their business over the next 3 – 5 years is to grow their business, as opposed to simply maintaining stability or executing an exit strategy. Respondents identified acquiring customers within their currently served geographies as the most important tactic to grow their business.

Businesses with a growth goal understand that revenue growth will come from getting better at what they do. They rate internal improvements, such as improving internal operations, changing how they sell to or serve customers and reducing direct costs, as important goals.

Growth Will Drive Employment and Business Investment

Revenue growth will drive employment, with a skew toward full-time hires. Nearly half say they expect their number of full- time employees to increase. Business and professional services firms are even more likely to anticipate an increase in hiring. Additionally, more than one-third of owners and managers expect the number of part-time employees to increase.

Executive Summary

5

Confidence will drive investments. Virtually all respondents (96 percent) expect funds allocated to marketing and sales initiatives to increase or stay the same over the next year. Similarly, the overwhelming majority of owners and managers (90 percent) anticipate the amount their business invests in long-term commitments, such as purchases, leases and long-term contracts on technology and facilities, to increase or stay the same. Nearly half say investments in long-term commitments will increase. The Limits and Risks to Growth

To achieve growth, small and medium-sized businesses will require a supportive policy environment, including continued recovery, available credit and capital, and workforce development support.

Increases in Costs and Macro-Economic Issues are the Greatest Risks

In terms of business risks, the owners and managers say a rise in costs (e.g., energy, operating supplies, etc.) is the most significant risk followed by macro-economic issues (e.g., recession). Respondents feel prepared to handle a rise in costs, as three quarters say they are very or somewhat prepared. Those businesses that source from outside suppliers express more concern about nearly all of the risks featured in the survey, in particular a rise in costs and supply chain unreliability.

Capital Remains a Constraint

In general, small and medium-sized businesses finance expansion through retained profits (53 percent in our sample). Consequently, capital and cash flow is the biggest factor that might hold small and medium-sized business leaders back from achieving their goals. 55 percent of growth oriented firms in particular view capital and cash flow as the biggest constraint.

Finding and Retaining Employees is Both Critical to Success and a Major Challenge for Many Businesses

While nearly half say they expect the number of full-time employees at their business to increase over the next year, more than 70 percent say it is difficult to find and retain employees with the right skill set. And, overall, about two-thirds are concerned about having to change their business strategy because they cannot find and retain the right talent. To solve this issue, they

believe both businesses and universities should take action. They propose that businesses should increase on-the-job training and colleges should direct students into specific disciplines most needed by businesses.

Small and medium-sized business leaders believe vacation time and employer provided health insurance are the most important benefits to attracting and retaining employees. Those businesses with more than 250 employees are even more likely to say employer provided health insurance is critical. When asked about the long-term impact of the Affordable Care Act on small and medium-sized businesses, about one-third believe it will have no impact or will be generally positive, while just over half say it will be generally negative for small businesses.

Entrepreneurial Spirit Remains Alive

Most Owners Would Start Their Business Again, and Managers are Interested in Launching Their Own Businesses

When asked if they would still start their business if they could go back, a large majority (86 percent) of business owners said yes they would. In addition, more than half said they are interested in starting a new business in the next 3 – 5 years. Businesses with 51 – 100 employees are more likely than others to say they would still decide to start their business (96 percent), as are those with more than $25 million in revenues (92 percent).

Nearly half of managers are very or somewhat interested in starting a new business in the next 3 – 5 years. Of those who are interested, 70 percent said they are very or somewhat likely to do so. Financial instability and cash flow concerns are the biggest factors holding them back. Respondents in financial, professional, IT and business services are more likely to actually start a business at 83 percent.

(CONTINUED)

To achieve growth, small businesses will require a supportive policy

environment, including continued recovery, available credit and capital, and workforce development support.

6

Industry Distribution

Respondents came from a wide variety of industries. The most prevalent industry among small business owners and managers was Business and Professional Services with 18%, followed by Manufacturing at 15%, Fashion, Retail and Wholesale Trade at 9% and Construction at 7%. The remaining industries each received 5% or less of respondents.

Demographics & Background

1%1%

18%7%5%4%9%8%5%5%2%6%

15%2%1%2%8%

Agriculture, Forestry, Fishing and HuntingAutomotiveBusiness and Professional Services including accounting & lawConstructionEducation and Knowledge CreationEntertainment/MultimediaFashion, Retail and Wholesale TradeFinancial ServicesFood Services/RestaurantsHealthcare and BiomedicalHospitality and TourismInformation TechnologyManufacturingPersonal and consumer servicesPublishing and PrintingTransportation, warehousing and logisticsOther

Size Distribution

In terms of revenue distribution, respondents fall into somewhat of a bell curve, with the largest percentage of business owners and managers falling into the $5M - $10M category, at 19%. Following closely is $1M - $2.5M at 18%, and the next highest is $10M - $25M at 17%.

1%6%

8%18%

13%19%

17%7%

6%5%

Less than $100,000

$100,000 - $499,999$500,000 - $999,999

$1 million - $2.5 million

$2.5 million - $5 million$5 million - $10 million

$10 million - $25 million



More than $100 million

Due to rounding, percentages may not add to exactly 100%.

7

Demographics and Background

13%50%

5%

1%

4%

22%

5%

San Diego CountyLos Angeles County

Riverside County

Santa Barbara County

Ventura County

Orange County

San Bernardino County

County

Half of respondents are located in Los Angeles County, 22% are located in Orange County, and 13% are located in San Diego County. No more than 5% were located in each of the remaining counties (Riverside, San Bernardino, Santa Barbara, and Ventura).

39%

61%

Owner

Manager

Business Title

Approximately 6-in-10 respondents are managers at their business, and 4-in-10 say they are owners.

8

CURRENT STATUS & BUSINESS OUTLOOK

of business owners/managers expect 2015 revenues to be significantly or somewhat higher than 2014 revenue.

59%

CTBC Bank Business Survey – Southern California 9

How do you expect business conditions to change over the next 12 months in each of the following?

United States

Southern California

Business owners/managers expect business conditions in both the U.S. and South-ern California to either improve or stay the same over the next year at 80% and 78%, respectively. Only 20% and 22% expect business conditions to weaken.

Those with $5M - $10M in revenues are more likely than others are to expect conditions in the U.S. to improve, at 45%.

And, those with $10M - $25M in revenues are more likely to expect conditions in Southern California to improve, at 44%.

1

37%

36%

Total Improve

Total Improve

20%

22%

Total Weaken

Total Weaken

Do you expect your 2014 fiscal year revenues to be higher, lower or about the same as your 2013 fiscal year revenues?

Most business owners/managers expect their 2014 revenues to be significantly or somewhat higher than 2013 revenues, at 55%.

2

10%

45%

34%

11%

1%

Significantly Higher

Somewhat Higher

About the Same

Somewhat Lower

Significantly Lower


And do you expect your 2015 fiscal year revenues to be higher, lower or about the same as your 2014 fiscal year revenues?

Nearly 6-in-10 believe that 2015 revenues will be even higher than 2014.

3

10%

49%

32%

8%

1%

Significantly Higher

Somewhat Higher

About the Same

Somewhat Lower

Significantly Lower

Respondents with 251 – 1,000 employees expect 2014 and 2015 revenues to be higher more often than other groups do, at 72% and 72%.

Small business owners/man-agers from San Diego are also more positive about future revenues, with 66% expecting an increase in 2014, and 67% expecting an increase in 2015.

Respondents with the main goal of growing their business are also more likely to expect increases in revenues in both 2014 (63%) and 2015 (72%).


How would you rate the relative risk of each of the following to your business?

In terms of risks, business owners/managers rate “Rise in costs” as their most significant risk with three-quarters saying very or somewhat critical. “Macro-economic issues” follows closely, with 7-in-10 saying very or somewhat critical.

Those in Manufacturing rate “Rise in costs” as critical more often than other groups do, at 94%, as well as “Loss of a major customer” at 85%, “Macro-economic issues” at 82%, and “Supply chain unreli-ability” at 73%.

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75%

71%

70%

69%

53%

49%

49%

25%

29%

30%

31%

47%

51%

51%

Rise in Costs (e.g., energy, raw materials, inventory, operating supplies, etc.)

Macro-economic Issues (e.g., recession, impact of international exchange rates on revenues or costs, etc.)

Loss of Key Staff (e.g., senior staff)

Loss of a Major Customer

Natural Disasters (e.g., wildfires, earthquakes, etc.)

Supply Chain Unreliability (e.g., loss of a key supplier, logistics disruptions, etc.)

Labor Issues (e.g., labor actions)

Total Critical

Total Critical

Total Critical

Total Critical

Total Critical

Total Critical

Total Critical

Total Not Critical

Total Not Critical

Total Not Critical

Total Not Critical

Total Not Critical

Total Not Critical

Total Not Critical


How would you rate the relative risk of each of the following to your business? (cont’d)

4

Sources from outside suppliers

Rise in costsCritical 90% 67%

Critical 78% 68%

Critical 76% 68%

Critical 77% 65%

Critical 52% 54%

Critical 72% 38%

Critical 53% 46%

Not Critical 10% 33%







Macro-economic issues

Loss of key staff

Loss of a major customer

Natural Disasters

Supply chain unreliability

Labor issues

Does not source from outside suppliers

Those who source from outside suppliers consider nearly all of these risks more critical than their counterparts who do not source from outside suppliers, with the exception of natural disasters. The most significant differences are “Rise in costs” (90% critical vs. 67% critical), “Supply chain unreliability” (72% critical vs. 38% critical) and “Loss of a major customer” (77% critical vs. 65% critical).


And, how well prepared are you to handle each of the following?

Respondents believe they are prepared to handle a rise in costs, with three-quarters saying they are very/somewhat prepared.

5

79%

75%

74%

71%

70%

69%

67%

21%

25%

26%

29%

30%

31%

33%

Supply Chain Unreliability (e.g., loss of a key supplier, logistics disruptions, etc.)

Rise in Costs (e.g., energy, raw materials, inventory, operating supplies, etc.)

Labor Issues (e.g., labor actions)

Loss of key staff (e.g., senior staff)

Macro-economic issues (e.g., recession, impact of international exchange rates on revenues or costs, etc.)

Loss of a major customer

Natural disasters (e.g., wildfires, earthquakes, etc.)

Total Prepared

Total Prepared

Total Prepared

Total Prepared

Total Prepared

Total Prepared

Total Prepared

Total Not Prepared

Total Not Prepared

Total Not Prepared

Total Not Prepared

Total Not Prepared

Total Not Prepared

Total Not Prepared


How would you rate the job each of the following is doing at creating a positive business environment for businesses like yours?Your Local County And City Government

United States Federal Government

California State Government

One quarter of small business owners/managers believe the U.S. federal government is excellent or good in terms of creating a positive business environment. Only 2-in-10 believe the California state government is excellent/good, but nearly 3-in-10 say their local county and city government is excellent or good.

Those in Publishing/Print, Knowledge Creation, Enter-tainment/Multi-Media and/or Fashion say more often (35%) that the U.S. federal govern-ment is excellent or good and one-third of those who have more than half of sales coming from online channels also say the U.S. federal government is excellent or good.

Respondents in Food Service/Restaurants, Hospitality/Tour-ism, and Personal & Consumer Services rate California as excellent or good more often than others at 31% vs. 20% of the total.

Those in Orange County (35%) and San Diego County (33%) were more likely than those in Los Angeles County (27%) to say their local county and city government is doing an excellent or good job.

6

29%

25%

20%

Total Excellent/Good



25%

39%

46%

Total Poor/Very Poor



15

SOUTHERN CALIFORNIA ENVIRONMENT

49% Availability of Workforce

44% Quality/Education of Workforce

43% Access to Local Markets

39%Access to National Markets

Greatest Advantages to Operating in Southern California


How do you think the following affect your ability to operate in Southern California?

7

Availability of workforce (numbers)

Quality/education of workforce

Access to local markets

Access to national markets

Access to international markets

Quality/access to transportation networks

Access to raw materials and supplies

Reliability/cost of energy

Support from local government

Total Positive/Advantage









Total Negative/Constraint









49%

44%

43%

39%

36%

33%

31%

23%

22%

16%

17%

6%

8%

7%

13%

10%

31%

27%


How do you think the following affect your ability to operate in Southern California? (cont’d)

“Availability of workforce” is seen as one of the biggest advantages in terms of operating in Southern California, followed by the “Quality and education of workforce”.

“California state level business taxes” are seen as the biggest constraint with over half saying this is somewhat or very negative.

Respondents in Manufacturing rate “Access to local markets”, “Access to national markets”, and “Access to international markets” higher than those in other industries (58% 52%, and 58%, respectively, compared to 43%, 39%, and 36% of the to-tal, respectively). They also say “Quality/access to transporta-tion networks” is an advantage more often, at 47% vs. 33% of the total, as well as “Access to raw materials and supplies” at 58% vs. 31%.

Owners/managers from San Diego say more often that “Quality/education of work-force” is an advantage, at 62% compared to the total at 44%.

Owners/managers in Manu-facturing are even more likely to say that “California state level business taxes” are a constraint at 64% vs. 51% of the total. They also say that support from both the Califor-nia state and local government is a constraint more often than others do, at 47% vs. 35% and 38% vs. 27%, respectively.

7

Cost of real estate/facilities

Local level business regulations

Support from state government

Reliability/cost of water

California state level business regulations

California state level business taxes

Local level business taxes















21%

21%

20%

19%

19%

18%

17%

42%

30%

35%

25%

45%

51%

39%

18

REWARDS & CHALLENGES OF BEING A SMALL BUSINESS OWNER

86%of business owners would start their business again if they could go back.

62%of business owners/managers say Financial Instability/Cash Flow would hold them back from starting a new small business.


What has been the most rewarding aspect to owning or working at a small business?

The most rewarding aspects to owning/working at a small business are seen as a sense of personal achievement, creativity, and decision-making, with more than 4-in-10 selecting these options. One-third of respondents say independence, flexibility, “being my own boss” and control are the most rewarding aspects.

Owners as well as respondents with 5 – 20 employees select “Being my own boss/independ-ence/more control” more often than others, at 38% and 40%, respectively.

Managers select “Having the ability to make strategic deci-sions” more often than owners, at 21% vs. 7%.

8

21%

12%

9%

16%

11%

4%

16%

9%

2%

Being my own boss/independence/more control

Flexible Schedule

Being able to exercise personal activity

Sense of Personal Achievement

Helping Customers/Clients

Working with Family/Friends

Having the ability to make Strategic Decisions

Financial Rewards/Money

Other


What has been the most significant challenge or frustration to owning or working at a small business?

“Hiring/retaining qualified staff” is ranked as the most significant challenge to owning/working at a small business (14%), followed very closely by “financial instability/cash flow” (13%).

In general, those with fewer employees see “Financial in-stability/cash flow” as a bigger challenge than those with more employees.

Respondents with less than $1M in revenues cite “Long hours/demanding sched-ule” more often (18%) than those with more than $1M in revenues.

9

14%

12%

9%

4%

13%

12%

7%

3%

12%

10%

5%

Hiring/Retaining Qualified Staff

Government Regulation

Competition

Employee Benefits (not including health)

Financial Instability/ Cash Flow

Attracting Customers/Generating New Business

Healthcare/Affordable Care Act (ACA)

Other

Long Hours/ Demanding Schedule

Taxes

The Broader Economy


If you could go back and have the opportunity to start your business again, would you still decide to do it?

[Asked of Owners] While you already own or are a partner in a business, how interested are you in starting a new business in the next 3 – 5 years? In this case, by new business, we mean any new business which you personally see as having substantially different customers, products and operations than your current business, even if it may be part of the same corporate or LLC structure.

When asked if they would still start their business if they could go back, a large ma-jority of business owners said yes they would (86%).

In addition, over half (57%) said they would be very/somewhat interested in starting a new business in the next 3-5 years.

Respondents with 51 – 100 employees are more likely than others are to say they would still decide to start their busi-ness (96%), as are those with more than $25M in revenues (92%).

Those who took over their busi-ness (as opposed to starting it themselves) are less likely to say they would do it again, at 78% vs. 89%.

The groups who say they are most interested in starting a new business are those with 51 – 100 employees (73%), those with $2.5M - $5M in revenues (77%), those in Food Service/Restaurants, Hospitality/Tour-ism, Personal and Consumer Services (81%), or who have 11% - 50% of sales coming from online channels (78%).

10

10b

86%

24%

33%

22%

14%

21%

Yes

Very Interested

Somewhat Interested

Not Very Interested

No

Not At All Interested


[Asked of Non-Owners] How interested are you in starting your own business in the next 3-5 years?

[Asked if Very interested or Somewhat interested in Q11] How likely are you to start a new business in the next 3 – 5 years?

Among non-owners, almost half (46%) say they are very or somewhat interested in starting a new business in the next 3 – 5 years.

Of those who are interested, 7-in-10 say they are very or somewhat likely to do so.

Interestingly, respondent’s who’s most important goal is to execute an exit strategy are far more interested in starting a business at 72% than others are (46%).

Respondents in Financial, Pro-fessional, IT, and Business Ser-vices are more likely to actually start a business at 83%.

11

11b

20%

14%

51%

32%

26%

31%

3%

23%

Very Interested

Very Interested

Somewhat Interested

Somewhat Interested

Not Very Interested

Not Very Interested




[Asked if Very interested or Somewhat interested in Q11] You said you’re interested in starting a new business. What things are most likely to hold you back from starting a new small business?

What is the most important goal for your business over the next 3 – 5 years? Please select one.

“Financial instability/cash flow” is the biggest factor holding them back.

Most respondents say their most important goal is to grow their business over the next 3 – 5 years (53%). Over 3-in-10 say they want to maintain stability in their business.

In general, those with higher revenue are more likely to want to increase revenues/grow the business, whereas those with lower revenues are more likely to say they want to maintain stability in their business.

Managers are more likely than owners to want to grow their business, at 57% vs. 46%.

Those who started their own business want to grow it more often than those who took over their business, at 48% vs. 38%.

11c

12

TOTALFinancial Instability/ Cash Flow

Attracting customers/generating new business

Long Hours/ Demanding Schedule

Government Regulation

The Broader Economy

Competition

Taxes

Employee Health Benefit Costs

Hiring/Retaining Qualified Staff

Employee Benefits (not including health)

62%

41%

18%

17%

16%

14%

11%

8%

6%

5%

33%

53%

14%

Maintain stability in the business

Significantly increase revenues/grow the business

Execute an exit strategy (e.g., sell the business to another corporate entity, go public, pass on to the next generation of family or employee owners, etc.)

24

BUSINESS GOALS

of business owners/managers want to significantly improve internal operations and simplify processes in the next 1-2 years.

82%


Please rate the following tactics in terms of their importance to your business strategy for the next 1 – 2 years.

“Reduce business and operational risks” is seen as important for nearly all of those in Food Service/Restaurants, Hospitality/Tourism, Personal and Consumer Services at 97% (vs. 79% of the total).

13

Grow by acquiring customers within our currently served geographies

Significantly improve internal operations (e.g. streamline and simplify processes, reduce cycle times, improve quality, etc.)

Significantly change or improve how we sell to or serve customers (customer experience)

Reduce business and operational risks

Being able to increase revenues through better prices for my products/services

Reduce direct costs of the products/services we deliver

Grow by developing new products or services

Reduce indirect costs (selling, general, administrative and other expenses)

Grow by expanding geographically

Total Important

Total Important

Total Important

Total Important

Total Important

Total Important

Total Important

Total Important

Total Important

Total Not Important

Total Not Important

Total Not Important

Total Not Important

Total Not Important

Total Not Important

Total Not Important

Total Not Important

Total Not Important

88%

82%

81%

79%

78%

77%

76%

76%

58%

12%

18%

19%

21%

22%

23%

24%

24%

42%

“Grow by acquiring customers within our currently served geographies” is seen as the most important strategy for owners/managers over the next 1 – 2 years (88%).


Please rate the following tactics in terms of their importance to your business strategy for the next 1 – 2 years. (cont’d)

13

Given your business goals and strategies, what might hold you back? Please select the top factors that might hold you back.

14

TOTAL

50%

28%

28%

27%

22%

22%

21%

21%

19%

12%

15%

10%

Capital/cash flow

Limits on my own, and other senior staff members’ time

Access to customers/channels

Affordable staff

Knowledge and skills of other senior staff

Business and technology infrastructure

Limits on internal production and service capacity

Operations and administrative support

Risk management

Space and facilities

Access to suppliers and partners

My own knowledge and skills

Those with less than $1M in revenues say “Affordable staff is the second biggest factor that might hold them back at 39% (vs. 27% of the total).

Owners/managers with more than $25M in revenues select “Business and technology infrastructure” as a challenge more often than others at 34% vs. 22%.

Nearly 6-in-10 of those who wish to grow their business say “Grow by acquiring customers within our currently served geographies” is very important. In general, those who wish to grow their business consider every tactic more important than those who wish to main-tain stability or execute an exit strategy.

Again, “Capital/cash flow” is the biggest factor that might hold them back (50%).

Maintain StabilityTACTICS: VERY IMPORTANT

Grow by acquiring customers within out currently served geographies 35% 59% 43%

Significantly change or improve how we sell to or serve customers 26% 39% 25%

Being able to increase revenues through better prices for my products/services 24% 35% 26%

Grow by developing new products or services 22% 41% 38%

Grow by expanding geographically 13% 26% 21%

Significantly improve internal operations 30% 40% 34%

Reduce business and operational risks 27% 32% 28%

Reduce direct costs of the products/services we deliver 20% 36% 36%

Reduce indirect costs 14% 32% 26%

Grow the Business

Execute Exit Strategy


Please rate the following tactics in terms of their importance to your business strategy for the next 1 – 2 years. (cont’d)

Growth oriented firms view “Capital/cash flow” as the biggest constraint, at 55% compared to 44% of those who wish to maintain stability and execute an exit strategy. Those with the primary goal of execut-ing an exit strategy are slightly more likely to say “Knowledge and skills of other key staff”, “Limits on my own, and other senior staff members’ time” and “Limits on internal produc-tion and service capacity” are constraints.

14

Maintain StabilityCONSTRAINTS: TOTAL

Capital/Cash Flow 44% 55% 44%

Access to customers/channels 26% 31% 21%

Knowledge and skills of other senior staff 22% 21% 25%

Limits on internal production and service capacity 20% 21% 26%

Risk management

Access to suppliers and partners

23%

14%

16%

11%

23%

10%

Limits on my own, and other senior staff members’ time 27% 27% 31%

Affordable staff 28% 29% 21%

Business and technology infrastructure 26% 22% 11%

Operations and administrative support

Space and facilities

My own knowledge and skills

20%

12%

11%

20%

18%

9%

25%

10%

8%

Grow the Business

Execute Exit Strategy

28

FINANCE

of business owners/managers expect the amount invested in long-term commitments to increase some or significantly in the next year.

45%


Over the next 12 months, do you expect the amount invested in long-term commitments (including purchases, leases and long-term contracts on technology, facilities, etc.) to:

15

10%

45%

2%

35%

5%

3%

Increase Significantly

Stay the Same

Decrease Significantly

Increase a Little

Decrease a Little

Not Sure

90% of small business owners/managers expect the amount invested in long-term commit-ments to increase or stay the same. Of those who expect an increase, most say it will be spent in the form of upgrades to existing technology.


What are the primary sources of funding for your business today?

16

Accumulated profits

Loans or lines of credit to your business from a financial institution

Personal lines of credit under your own name including personal loans, credit cards, etc.

Personal savings

Equity investments from outside investors

Financing from Small Business Administration (SBA) (e.g., 7(a) loan)

Trade credit from suppliers

Equity investments from family/friends

Loans from family/friends

53%

37%

18%

17%

12%

10%

8%

6%

5%

Over half of respondents say their primary source of funding is accumulated profits, followed by loans or lines of credit (37%).


Looking forward, what do you expect to happen for each possible source of funding over the next 1 – 2 years?

17

58%7%

Total Increase

Total Decrease

Accumulated profits

In the next 1-2 years, most expect accumulated profits to increase (58%) or stay the same (29%).

In general, those with higher revenues are more likely to be sourced from loans or lines of credit from a financial institu-tion. Those with lower revenues are more likely to be sourced from personal lines of credit.

Total Increase

Total Decrease

Loan or line of credit to your business from a financial institution

Total Increase

Total Decrease

Personal savings

Total Increase

Total Decrease

Equity investments from outside investors

Total Increase

Total Decrease

Personal lines of credit under your own name including personal loans, credit cards, etc.

Total Increase

Total Decrease

Trade credit from suppliers

Total Increase

Total Decrease

Loans from family/friends

28%11%

18%25%

14%19%

15%19%

13%18%

Total Increase

Total Decrease

Equity investments from family/friends

17%12%

Total Increase

Total Decrease

Financing from Small Business Administration (SBA) (e.g., 7(a) loan)

12%12%

18%10%


About how often does your business seek assistance or advice from the following sources?

18

20%25%

Monthly or More

Quarterly

Bank/Banker

Monthly or More

Quarterly

Accountant

35%27%

Monthly or More

Quarterly

Tax Specialist

31%13%

Monthly or More

Quarterly

Attorney

27%21%

Monthly or More

Quarterly

Financial Planners

20%10%

Monthly or More

Quarterly

Internet/Online Resources

13%35%

Monthly or More

Quarterly

Friends/Family

17%11%

Respondents most often seek assistance or advice from accountants, with 35% who seek advice monthly or more often and another 27% who seek their advice quarterly.


Please indicate the extent to which you trust each of the following sources for advice on business operations?

19

5%

Total Trust

Total Distrust

Accountant

Total Trust

Total Distrust

Tax Specialist

Total Trust

Total Distrust

Attorney

Total Trust

Total Distrust

Bank/Banker

Total Trust

Total Distrust

Financial Planners

Total Trust

Total Distrust

Friends/Family

Total Trust

Total Distrust

Internet/Online Resources

92%8%

9%91%

16%84%

21%79%

26%74%

29%71%

95%

Accountants are the most trusted source (95%).


Thinking about the bank you primarily use for your business, how helpful has that bank been to your business over the past year?

20

Over 8-in-10 say the bank they primarily use has been extremely, very, or somewhat helpful over the past year.

Owners/managers with 5-20 employees have found banks to be less helpful than others (66% vs. 81% of the total).

13%

31%

37%

10%

5%

Extremely Helpful

Very Helpful

Somewhat Helpful

Not Very Helpful

Not At All Helpful

5% Not sure

35

WORKFORCE

49%of business owners/managers expect to increase the number of full-time employees in the next year.

67%of business owners/managers are some-what concerned or very concerned they will have to change business strategy or plans because they are unable to find/retain the right talent.


Over the next 12 months, do you expect the number of full-time employees at your business to?

21

7%

42%

44%

7%

0%

Increase significantly

Increase a little

Stay the same

Decrease a little

Decrease significantly

Over the next 12 months, do you expect the number of part-time employees (including contract and 1099) to:

22

In general respondents with more employees expect full-time employees to increase more than those with fewer employees. Those with lower revenue expect to hire more part-time employees than others.

Owners/managers in Food Service/Restaurants, Hospi-tality/Tourism, Personal and Consumer Services plan to hire more part-time employees at 54% vs. 34% of the total.

Respondents in Financial, Professional, IT, and Business Services, as well as Retail/Wholesale Trade, Transporta-tion/Warehousing/Logistics, are more likely to say they expect an increase in the number of full-time employees over the next year, at 54% and 53%, respectively, compared to 49% of the total.

Those who are growing their business as well as planning an exit strategy are also plan-ning on hiring more full-time employees, at 56% and 51% respectively, compared to just 36% of those who wish to maintain stability.

5%

29%

59%

6%

2%


Increase a little

Stay the same

Decrease a little



How difficult is it for you to find and retain employees with the right skill set?

23

18%

54%

24%

4%

Very difficult

Somewhat difficult

Not very difficult

Not at all difficult

How concerned are you about having to change your business strategy or plans because you’re unable to find/retain the necessary talent? [Asked if very difficult or somewhat difficult in Q23]

23a

15%

52%

28%

5%

Very concerned

Somewhat concerned

Not very concerned

Not at all concerned

Two-thirds are concerned about changing their business strategy because they cannot find/retain the right talent.

More than 7-in-10 say it is difficult to find and retain employees with the right skill set.


Of the following, what do you see as the best solution to this issue? [Asked if very difficult or somewhat difficult in Q23]

23b

Businesses like mine increase our on-the-job training

2- and 4-year colleges direct students into specific disciplines most needed by businesses (e.g.,STEM fields)

High schools and colleges work with businesses like mine to increase collaboration and partnership (e.g., through apprenticeships, work experience programs, cooperative education etc.)

High schools and colleges improve the basic education their students receive

The government relaxes immigration laws to allow for more skilled and educated employees from outside of the U.S.

Not sure

23%

22%

17%

13%

8%

17%

Of those who are concerned, most say business should increase on-the-job training to re-solve the issue.

Owners/managers who want to grow their business find it more difficult to find and retain talent, at 73% overall and 23% who say very difficult. On the job training is favored as a solution by each group (maintain stabil-ity, grow business, exit strat-egy), but especially by growth oriented business owners and managers at 27%.

Small business owners/man-agers in the Retail/Wholesale Trade, Transportation/Ware-housing/ Logistics say more often that businesses should increase their on-the-job train-ing to resolve the talent issue (43% vs. 23% of the total).


How important are the following benefits to attracting and retaining your employees?

24

13%

Total Important

Total Not Important

Employer provided health insurance/healthcare

Total Important

Total Not Important

Vacation/paid time off

Total Important

Total Not Important

Flexible hours and locations (e.g., telecommuting, flextime, job sharing, etc.)

Total Important

Total Not Important

Paid family and medical leave

Total Important

Total Not Important

Employer contributions to retirement funds

Total Important

Total Not Important

Onsite amenities (e.g., gyms, meals)

79%14%

20%71%

27%63%

26%61%

50%30%

79%

Respondents say vacation/paid time off and employer provided health insurance are the most important benefits to attracting and retaining employees.

Owners/managers with more employees (251 – 1,000) say employer provided health in-surance/healthcare is important more often than others with fewer employees do (93% vs. 78% of the total), as well as employer contributions to re-tirement funds (76% vs. 61% of the total), and onsite amenities (50% vs. 30% of the total).

What do you think is the long-term impact of the Affordable Care Act on small businesses?

25

23%

55%

10%

12%

Generally positive

Generally negative

No impact

Not sure

Over half of owners/managers (55%) believe the Affordable Care Act had a generally negative impact on small businesses.

40

BUSINESS SOURCING

71%of business owners/managers source locally in Southern California;

49%source from Asia


Does your business involve the purchase of and transformation or resale of raw materials, inventory or parts/components or other distinct inputs from outside suppliers? This includes both tangible goods as well as software, intellectual property and external professional services if they are directly part of what your business provides to customers.

26

32%

68%

Yes

No

Respondents in Manufacturing are much more likely to say their business involves the purchase of/transformation or resale of raw materials (83%).

One-third say their business does involve the purchase of/transformation or resale of raw materials, inventory or parts/components.


To the best of your knowledge, from which geographies and countries do you source these raw materials, inventory, parts/components or other direct inputs? [Asked if Yes in Q26]

26a

Of those respondents, sourcing mainly comes locally from Southern California (71%), while just under half (49%) source from Asia (29% from China; 20% from Asia, not including Chi-na). A smaller percentage sources from Canada (9%), Latin America and Mexico (12%), and Europe (14%).

71%

37%

Local: Southern California

Local: California, not including Southern California

41%

34%

Regional: U.S. West, not including California

Regional: U.S. Midwest

25%

25%

Regional: U.S. South

Regional: U.S. Northeast

9% International: Canada

12% International: Latin America and Mexico

29% International: China

20% International: Asia, including India but not China

14% International: Europe

3% International: Africa

2% International: Australia

In general, owners/managers with higher revenues source internationally more often.


For which of these business processes do you outsource or contract out a majority of your requirements?

27

Legal/counsel

Technology and IT support

Accounting

Human resources

Design/creative

Support staff (e.g., executive assistants, administrative, etc.)

None of the above

Not sure

34%

21%

13%

6%

4%

3%

16%

4%

What are the main benefits your business sees through this outsourcing?

27a

It gives me access to qualified professionals that are difficult to hire full-time

It saves me the cost and burden associated with payroll taxes and expenses such as health insurance

It allows me to personally focus on generating income for my business

It frees up office space and means I have to invest less in technology infrastructure

61%

23%

19%

The main benefits of outsourcing is seen as “access to qualified professionals that are diffi-cult to hire full-time,” at 61%.

In terms of outsourcing or contracting, legal/counsel stands out among owners/managers (34% who outsource a majority of requirements) followed by technology and IT (21%).

Owners/managers with fewer employees and/or lower rev-enues say the main benefit of outsourcing is that it “allows me to personally focus on generating income for my business” more often than others do.

Respondents who started their own business contract out a majority of their legal/counsel more often than those who took over their business (39% vs. 19%).

32%

44

MARKETING & SALES

of business owners/managers expect to increase or significantly increase funds allocated to sales and marketing in the next year.

50%


Over the next 12 months, do you expect the amount of funds allocated towards marketing and sales initiatives at your business to:

28

8%

42%

46%

2%

1%


Increase a little

Stay the same

Decrease a little


96% of small business owners/managers expect funds for marketing and sales initiatives to increase or stay the same over the next year.

Owners/managers who source from outside suppliers say they do expect funds for marketing and sales to increase more than those who do not source from outside suppliers (64% vs. 44%).

Approximately what percentage of your businesses’ sales are conducted online / over the internet?

29

0%

1% - 10%

11% - 25%

26% - 50%

51% - 75%

76% - 100%

Not sure

29%

28%

19%

11%

5%

5%

3%

3-in-10 respondents do not conduct any business or sell any products or services online. Another nearly 3-in-10 conduct 1% – 10% of their businesses’ sales online and nearly 2-in-10 conduct 11% – 25% of their businesses’ sales online.


How has the internet and social media benefitted your business?

30

Small business owners/managers say that the biggest benefit of the internet and social media has been “improved sales and lead generation” (29%) followed by “market insight” (24%).

Respondents in Food Service/Restaurants, Hospitality/Tour-ism, Personal and Consumer Services select “increase visits to our physical locations” more often than others do at 31% vs. 18% of the total.

Those in Publishing/Print, Knowledge Creation, Enter-tainment/Multi-Media and/or Fashion select “market insight” more often than others do at 44% vs. 24% of the total.

Improved sales and lead generation

Market insight

Reduced marketing expenditures

Increase visits to our physical location(s)

Greater customer loyalty

Not sure

29%

24%

18%

17%

36%

21%


To the best of your knowledge, please indicate if you sell your businesses’ products or services in the following geographies.

31

Most respondents sell their products locally, in Southern California (89%), California in gen-eral (49%), and the West (47%).

89%

49%



47%

39%

Regional: U.S. West, not including California

Regional: U.S. Midwest

38%

39%

Regional: U.S. South

Regional: U.S. Northeast

23%

16%

International: Canada

International: Latin America and Mexico

15%

15%

21%

7%

International: China

International: Asia, including India but not China

International: Europe

International: Africa

13% International: Australia


Please indicate the extent to which you would like to change the amount you sell in each location.

32

73%3%

Total Increase

Total Decrease


Total Increase

Total Decrease


Total Increase

Total Decrease

Regional: West, not including California

Total Increase

Total Decrease

Regional: Midwest

Total Increase

Total Decrease

Regional: South

Total Increase

Total Decrease

Regional: Northeast

58%2%

2%51%

3%41%

3%39%

4%40%

Total Increase

Total Decrease

International: Canada

Total Increase

Total Decrease

International: Latin America and Mexico

3%29%

4%27%


Please indicate the extent to which you would like to change the amount you sell in each location. (cont’d)

32

Nearly three-quarters would like to increase the amount they sell in Southern Califor-nia in particular. Almost 6-in-10 would like to increase sales in California in general, and half would like to see an increase in sales in the West. Interestingly, less than 3-in-10 would like to increase the amount they sell in Canada, Latin America/Mexico, and Europe. Less than 2-in-10 would like to increase their sales in China and Africa.

Businesses with more employ-ees and higher revenues are more likely than others are to sell regionally and internation-ally, in general. These groups are also more interested in in-creasing their sales in the West, Midwest, South, Northeast, and Canada.

Total Increase

Total Decrease

Total Increase

Total Decrease

Total Increase

Total Decrease

Total Increase

Total Decrease

Total Increase

Total Decrease

International: China

International: Asia, including India but not China

International: Africa

International: Europe

International: Australia

5%

5%

5%

6%

4%

20%

22%

16%

26%

21%


What types of businesses do you find to be the most challenging competitors today?

And, what types of businesses do you expect to be the most challenging competitors in 3 – 5 years?

Over 4-in-10 respondents say their most challenging competitors are small and me-dium sized traditional businesses.

One-third expects this to be the same in 3-5 years.

Respondents in Food Service/Restaurants, Hospitality/Tour-ism, Personal and Consumer Services consider small and medium sized traditional businesses a more challenging competitor than others do, at 54% vs. 41% of the total.

33

33a

20%

16%

33%

41%

19%

13%

28%

30%

Small and medium sized, web-based businesses

Small and medium sized, web-based businesses

Small and medium sized, traditional businesses

Small and medium sized, traditional businesses

Large, web-based businesses

Large, web-based businesses

Large, traditional businesses

Large, traditional businesses

51

Methodology

The CTBC Bank Small Business Survey – Southern California was conducted online between August 21 – 28, 2014, with 432 business owners and senior managers in the region. CTBC Bank (USA) commissioned FTI Consulting to conduct the survey. Respondents were from a mix of industries with between 5 – 1,000 employees. The objectives of the study include developing an understanding and informed perspectives on the Southern California economy, establish an indicator of business confidence and expectations, and develop insights into the minds of small business owners and entrepreneurs.

About CTBC Bank Corp. (USA)

CTBC Bank Corp. (USA) is a trusted and established institution providing commercial and retail customers with a real financial bridge to the next state of their lives and businesses. Founded in 1989 and now headquartered in Los Angeles, CTBC Bank operates branches in California, New Jersey, and New York. The bank’s operations include deposits, loans, credit cards, foreign exchange, letters of credit, wealth management, mobile, and electronic banking services. Customers benefit from access to large bank resources coupled with individual attention and customized service of a small bank. Its parent company, CTBC Bank Co. Ltd., is supported by nearly $100 billion in assets and is among the largest banks in the world in terms of capital.

For more information, visit www.ctbcbankusa.com or call +1 888-308-0986.

For CTBC media inquiries, please contact dan.margolis@fticonsulting or +1 213-452-6472.

About the Report

CTBC Bank Business Survey4 The CTBC Bank Business Survey – Southern California of more than 430...

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