ST. LOUIS—Hair braiding entrepreneur Tameka Stigers fought in the halls of the state Capitol to make possible her dream of opening a hair braiding business. She succeeded in 2018 when Missouri exempted braiders from an unnecessarily burdensome cosmetology license requirement. But she soon learned that her quest to open her business faced unexpected roadblocks from St. Louis City Hall, particularly when it came to trying to submit the proper paperwork to the city.
“This frustrates the heck out of you because they do so much by paper. You have to submit everything in person; if you mail it, you can’t trust that they won’t lose it,” Tameka said.
Tameka is not alone in her frustrations with the maze St. Louis puts entrepreneurs through. In St. Louis, 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 report by the Institute for Justice (IJ), Barriers to Business: How Cities Can Pave a Cheaper, Faster, and Simpler Path to Entrepreneurship, reveals the costs, delays and complexity imposed by cities on entrepreneurs seeking to start small businesses.
“Policy proposals to encourage entrepreneurship often occur at the state level, but there is so much that leaders at the city level can do to make it easier to start a business,” said IJ Activism Associate and report co-author Andrew Meleta. “Complying with local rules consumes not just capital, but also an entrepreneur’s valuable time. St. Louis should reduce the number of steps for starting a business to ensure that entrepreneurs, especially those without the resources to hire lawyers or expediters, don’t get caught in the procedural weeds.”
St. Louis’ tiered licensing system requires some businesses to obtain both a basic business license and a graduated business license. It is not always clear when both licenses are required, leading to confusion and redundancy. Barriers to Business concludes that St. Louis should remove duplicative requirements and simplify license requirements, starting with requiring only one type of business license.
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 for St. Louis include:
- St. Louis uses a revenue-based license fee structure that provides flexibility to fledgling businesses, but the fee schedule has no maximum cap, meaning fees can reach extremely high amounts as businesses grow. For example, a typical business studied in the report would be forced to pay a business license fee of $3,750, which is the most expensive business license of any city in the report.
- Restaurants, food trucks and barbershops each require six in-person visits as part of the compliance process, and a general lack of information online can make the process even more complicated than it seems. Some requirements are vague, such as “receiving approval from the comptroller’s office” after obtaining a health permit, with little instruction on how to do this. St. Louis scores only two out of five on our one-stop shop criteria.
- St. Louis requires entrepreneurs to complete a multitude of forms and visits to get going. Home-based businesses require 14 total steps to get started while a restaurant requires 35 steps. They also require five and 11 separate forms to be submitted, respectively. And multiple business licenses are required for some types of businesses. Restaurants, for example, must obtain a business license and graduated businesses license, and register with the license collector’s office in person.
City policies also block would-be entrepreneurs who owe taxes to the city from applying for a business license. This includes delinquent personal property taxes, earnings taxes, payroll taxes, license taxes and permit and certificate fees due to the city. Policies like these hurt the most marginalized St. Louis residents, including entrepreneurs who may not even realize they owe the city money due to the city’s confusing business licensing regime.
”The regulatory labyrinth that aspiring small-business owners experience not only frustrates entrepreneurs and makes compliance difficult, but also deters some residents—daunted by the prospect of dealing with city rules—from even starting at all,” said IJ City Policy Associate and report co-author Alex Montgomery. “Small businesses are the backbone of the American economy. St. Louis should make opening one easier, not unnecessarily difficult.”
Barriers to Business 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.
Barriers to Business
Too often entrepreneurs struggle with local regulatory burdens, finding themselves trapped by high fees, long wait times, and complex paperwork.