Why California Is a Difficult State for Restaurants

Governor Jerry Brown signing bills

Operating a restaurant in California can be tougher than usual. Governor Jerry Brown, 80, has been busy with his pen in recent weeks, signing into law measures that complicate running restaurants, such as one that requires full-service restaurants to stop automatically providing straws with drinks.

The ban-plastic-straws movement began back in 2011 with a 9-year-old boy's dubious statistic on straw usage. From that beginning it exploded into a strong nationwide movement.

The requirement [to stop the automatic provision of straws] doesn’t extend to quick-service restaurants, which presumably distribute far more of the potential hazards to ocean wildlife. But limited-service places have their own unique challenges courtesy of the governor, including a change in what beverages they can bundle into a kids meal no more sodas or sports drinks, even if they’re calorie-free.

There was also an expansion of the state’s paid-leave law to cover more families with a member in the military.

But the Big Kahuna of the signed pile on Brown’s desk has to be the groundbreaking requirement that public companies based in the state include at least one woman on their board starting next year, and at least two by 2022 if they have at least five seats. Even the governor raised an eyebrow with that one, knowing it marks government’s intrusion into an area that has traditionally been off-limits. What comes out of the board room is subject to regulation, but the inner workings have been allowed left alone. —Peter Romeo, Restaurant Business

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Photo: California governor Jerry Brown signing bills. State of California photo.

Most difficult states for businesses measured by biz bankruptcy

State government regulatory overreach on businesses is certainly something to watch out for. Charging extra for plastic bag usage, restricting plastic straws, limiting what drinks go into a kids meals, and mandating women on company boards — really, California!

Nonetheless, it is important to have a data-based idea of what is happening to begin the conversation. Here is what the data shows us as far as where the most difficult states are when it comes to business survival, according to business bankruptcy rates in Q2 of 2016 that was compiled by The Kaplan Group.

US Business Bankruptcy Filings - Average Adjusted Rankings

Source: US Business Bankruptcy Filings by State - Average Adjusted Rankings was produced by the team at The Kaplan Group.

The South (pictured in a troubled sea of deep red and pink), characterized by fewer regulations, are among the most dangerous places when its comes to business insolvency. But that broad general statement may be an oversimplification. I mean look: Pennsylvania, libertarian New Hampshire and regulated Illinois are also painted in deep red. Those states are certainly not in the South. And the southern states of South Carolina, Alabama and Louisiana are among the safest. That gives this map a more nuanced and complicated look.

The West Coast and Far West, pictured below in evergreen, were among the safest states when it comes to business bankruptcies adjusted for population and GDP. Go Hawaii!

This look at the states by business bankruptcy is only for a single quarter. That short time frame is a problem. However, there are other data for longer periods of time that also confirm that the South leads in bankruptcies (ouch, Tennessee). Unfortunately, that data is for overall bankruptcies, not just business bankruptcies that the Kaplan study is measuring. Another issue is that this report may not be granular enough for some. Some restaurateurs may somehow believe that their industry has little in common with the general trend. So maybe the data is flipped on its head when it comes to restaurants and that California somehow is actually the riskiest when it comes to restaurants and Georgia is the safest. I have yet to see such data. As I vaguely recall, restaurants, including franchised restaurants, follow state trends but with a higher bankruptcy rate (and hotels lower) than the general business population.

Does anyone have current data specifically for restaurant bankruptcies by state, and for a longer period of time? If so, please post it. Don't forget to name the source of the data.