Arlington, Va.—“You can’t go on a Tuesday, and you can’t go on Thursday, and you have to go before nine o’clock on the opposite days,” said Blazing Bagel founder Dennis Ballen, describing the cumbersome permitting processes for starting a small business in Seattle. Entrepreneurs across the country must contend with an array of local-level regulations that needlessly complicate starting a small business. Entrepreneurs opening an average brick-and-mortar business in 20 studied cities must complete an average 45 regulatory steps and interact with eight separate agencies—all before they even earn a dime, according to a study released today by the Institute for Justice.
Barriers to Business: How Cities Can Pave a Cheaper, Faster, and Simpler Path to Entrepreneurship reveals the costs, delays, and complexity cities pile on entrepreneurs seeking to start a small business. The report finds that entrepreneurs must navigate a complex web of local costs, delays, and steps—put together, a death by a thousand cuts—before reaching opening day, and before they have made a dime or had the chance to test the viability of their idea.
“You shouldn’t need a pile of cash and a law degree to start the mom-and-pop shop of your dreams,” said IJ City Policy Associate Alex Montgomery, one of the report’s co-authors. “These high price tags and burdens most harm those with the fewest resources at their disposal. City officials should make it cheaper, faster, and simpler to get up and running so that all entrepreneurs have the opportunity to earn an honest living—especially during these challenging economic times.”
The report provides a first-of-its-kind, in-depth analysis of regulations governing small businesses in 20 U.S. cities and the real-world process of starting five common business types from the entrepreneur’s perspective. Key findings include:
- Starting a business is already an expensive endeavor, but local regulations pile on additional costs, from paying for permits to handing over additional fees for mandatory training requirements. On average, opening a restaurant across the 20 cities costs entrepreneurs more than $4,900 in fees for permits and licenses—and as much as $22,600 in San Francisco, the city with the steepest licensing and permitting costs.
- Complying with local rules doesn’t just cost money, but also an entrepreneur’s valuable time. Regulations are often opaque, and cities lack comprehensive online portals—so-called, “one-stop shops”—for starting a business, while often doing a poor job of giving entrepreneurs reliable step-by-step guides on how to navigate rules. Out of five one-stop shop criteria measured, none of the cities meet all five of them. In fact, two cities, Birmingham and Des Moines, do not meet any of the criteria and eight cities—Boise, Boston, Jacksonville, Phoenix, Raleigh, San Antonio, Seattle, and St. Louis—only meet one or two.
- Starting a business involves navigating unnecessarily complex bureaucratic processes. To open a barbershop in one of the 20 cities, an entrepreneur must complete an average of 49 steps and 14 forms, with eight different government agencies involved in the process.
“Cities can do more to support entrepreneurs than simply providing them with technical assistance and small business resources. Cities must invest in small businesses by removing barriers that are already on the books,” said IJ Activism Associate Andrew Meleta, the report’s other co-author. “When thinking about easing the cost of doing business for entrepreneurs, many policymakers focus on federal and state-level reform efforts. But by pursuing our targeted recommendations for local reform and following best practices from across the country, city officials can make a truly impactful difference for entrepreneurs.”
Two years into the COVID-19 pandemic, America’s downtowns and small-business corridors continue to struggle with reduced hours and vacant storefronts. “It is hard enough turning an innovative idea into a successful small business, but local regulatory hurdles further complicate an entrepreneur’s start-up journey,” said Montgomery. “This forces many aspiring small business owners to choose between operating in the informal economy or giving up altogether.”
By removing the legal and regulatory obstacles that make it challenging for small businesses to open and operate, officials can bolster—rather than hinder—entrepreneurs who are seeking to revitalize beloved city blocks and neighborhoods. This report provides specific guidance to cities seeking to better support their entrepreneur communities by pinpointing specific barriers to small business ownership and identifying best practices and policy solutions to lower the cost of doing business, cut down on regulatory delays, and streamline requirements for license and permit applicants.
The release of this study marks the launch of Cities Work, an initiative dedicated to making it cheaper, faster, and simpler to start a business in cities across the country. The initiative builds on years of IJ’s work in Washington, D.C., and Chicago, collaborating with city officials to enact regulatory reforms that support aspiring small business owners. The Cities Work team will expand their lessons learned to cities and towns nationwide, organizing entrepreneurs at the grassroots level and pursuing needed policy and legislative change.
Barriers to Business
Too often entrepreneurs struggle with local regulatory burdens, finding themselves trapped by high fees, long wait times, and complex paperwork.