SAN FRANCISCO—In San Francisco, the cost, delays and complexity imposed by the regulatory process for small businesses make it difficult—or sometimes even impossible—for entrepreneurs to start the ventures of their dreams. A new study finds that San Francisco is an extremely expensive city in which to start a business. Aspiring restauranteurs must pay a staggering $22,648 in compliance costs alone before ever opening their doors. This is not a function of San Francisco being a wealthy city; New York averages $2,882 in fees to start a restaurant.
The report, Barriers to Business: How Cities Can Pave a Cheaper, Faster, and Simpler Path to Entrepreneurship, analyzed the rules and regulations for starting a business in 20 large to mid-sized U.S. cities. San Francisco’s regulations were the most complex of all: Layers of onerous zoning review and permitting requirements present serious challenges to budding entrepreneurs.
“San Francisco should cut fees to lower the cost of doing business, and open a pathway to entrepreneurship for all residents,” said IJ City Policy Associate Alex Montgomery, one of the report’s co-authors. “Reducing red tape to bolster economic mobility is a social justice issue: All entrepreneurs, regardless of socioeconomic status, should have a shot at achieving their American Dream.”
Key findings of the report include:
- It is more expensive to start a business in San Francisco than in any of the other cities studied. Environmental reviews and exemptions are the single most expensive part of starting a business, but they are not the only hurdle facing entrepreneurs, as the city piles on additional regulatory burdens. For example, building permits required to open a restaurant cost $7,600 in review fees and $2,423 in issuance fees, contributing to the total price tag of $22,648 facing would-be restauranteurs.
- The environmental review process can take a very long time due to its numerous veto points and opportunities for public inputs. Barbers wanting to open their own shops must complete 45 separate steps and interact with nine different government agencies to get started in San Francisco, further delaying entrepreneurs from opening their doors.
- Useful city agency websites have comprehensive starter kits for common business types. These are comprehensive and generally include all applicable requirements, but some city agencies, such as the Department of Building Inspection, still operate on older, difficult to use sites, creating more layers of complexity when parsing out requirements.
“Starting a business is already an expensive endeavor, but local regulations pile on additional costs. San Francisco 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. “Complying with local rules consumes not just capital, but also an entrepreneur’s valuable time. Often, these regulations have nothing to do with health and safety.” Barriers to Business calls on San Francisco to simplify the business licensing process by reducing the number of business license categories. The report also calls on the city to remove barriers to occupations that lend themselves to starting small. For example, no other city studied provides the power to the public to veto food trucks in such a direct manner. And few other cities restrict home-based occupations as severely as San Francisco, which prevents home-based businesses from receiving customers at home—likely preventing them from legally starting up at all.
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 small 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.