You shouldn’t need a law degree to start the small business of your dreams. But too often, entrepreneurs struggle with local regulatory burdens, finding themselves trapped by high fees, long wait times, and complex paperwork. These burdens amount to a death by a thousand cuts, unless aspiring business owners can successfully navigate them before reaching opening day. Local officials must make it cheaper, faster, and simpler for entrepreneurs to start a business—and this report presents specific recommendations to make those needed changes.
In cities across the country, the path for getting a business up and running is riddled with steep costs, frustrating delays, and confusing steps. Not only must entrepreneurs satisfy a tangled web of regulatory requirements, but they also must often do so without receiving clear guidance from local officials. Red tape on the books and officials’ poor communication and lack of transparency all contribute to the hurdles small businesses face from local government.
It is hard enough to turn an innovative idea into a successful small business, but these hurdles further complicate an entrepreneur’s start-up journey—and can even force some aspiring business owners, especially those with fewer resources and limited access to capital, to choose between giving up altogether or having to operate in the informal economy.
To better understand the challenges small businesses face and to offer recommendations, we analyzed the codes of 20 large to mid-sized cities, interviewed entrepreneurs from across the country, and mapped out 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 for permits, licenses, and compliance that hamstring those with limited resources. Starting a restaurant in the 20 cities studied requires entrepreneurs to pay an average of 13 different fees for permits and licenses totaling more than $5,300. And in fee-heavy San Francisco, the regulatory cost of starting a restaurant is more than $22,600.
- Complying with local rules doesn’t just cost money but also an entrepreneur’s valuable time. Regulations are often opaque, and on average, cities do a poor job of creating comprehensive portals—one-stop shops—that give entrepreneurs reliable step-by-step guides on how to navigate rules. None of the cities studied meet all five of the one-stop shop criteria measured, and half of the cities fail to make the grade. Birmingham and Des Moines do not meet any of the criteria. Eight cities—Boise, Boston, Jacksonville, Phoenix, Raleigh, San Antonio, Seattle, and St. Louis—only meet one or two.
- Starting a small business involves navigating unnecessarily complex bureaucratic processes, especially zoning rules and building permit requirements, which tend to be the most burdensome parts of starting a small business. For example, to open a barbershop in the 20 cities studied, an entrepreneur must complete an average of 55 steps, with eight different government agencies involved in the process.
Establishing a cheaper, faster, and simpler regulatory environment for small businesses is possible—and crucial. City officials can use the actionable reforms and best regulatory practices from across the country included in this report as a roadmap for streamlining rules in their own backyards. Cities should:
Make it cheaper
Cut fees to lower the cost of doing business. This will open a pathway to entrepreneurship for all residents, including those from disadvantaged communities.
Make it faster
Streamline the compliance process and introduce one-stop shops to help entrepreneurs navigate rules on the books, allowing entrepreneurs to invest time in getting their business ventures off the ground rather than complying with unnecessary regulations.
Make it simpler
Reduce the number of steps for starting a business to ensure that entrepreneurs, especially those without the resources to hire lawyers or expediters, do not get caught in the procedural weeds.
Two years into the COVID-19 pandemic, America’s downtowns and small-business corridors continue to struggle with tight profit margins, staffing shortages, and vacant storefronts. By removing the legal and regulatory obstacles that make it challenging for small businesses to open and operate even under the best of circumstances, officials can bolster—rather than hinder—entrepreneurs who are seeking to revitalize the economy. Instead of spending money on creating regulatory workarounds, cities can invest in small businesses by removing barriers that are on the books. By pursuing our targeted recommendations for reform and following best practices from across the country, city officials can make a true difference for their entrepreneurs.
The 20 Cities Studied
Starting a business is already an expensive endeavor, but local regulations pile on additional costs.
- For example, entrepreneurs who want to start a restaurant in the 20 cities surveyed must pay, on average, more than $5,300 in fees for permits and licenses.
- To start a barbershop, applicants must pay, on average, 13 different fees to agency officials just to get up and running.
Complying with local rules consumes not just capital, but also an entrepreneur’s valuable time.
- For example, regulations are often opaque, and on average, cities do a poor job of creating comprehensive portals— one-stop shops—that give entrepreneurs reliable step-by-step guides on how to navigate and quickly comply with rules. None of the cities studied meet all five of the one-stop shop criteria measured. Birmingham and Des Moines do not meet any of the criteria. Eight cities—Boise, Boston, Jacksonville, Phoenix, Raleigh, San Antonio, Seattle, and St. Louis—only meet one or two.
- Home-based businesses that require special zoning approval from government must not only obtain a time-consuming permit— often after enduring a public hearing—but also must interact with, on average, nearly six different agencies before being allowed to open.
Starting a business involves navigating complex bureaucratic processes that are often unrelated to public health and safety.
- For example, to open a barbershop in the 20 cities surveyed, an entrepreneur must complete, on average, 55 steps with eight different government agencies involved in the process. Many of these steps have little to do with sanitation or public safety, but still serve to trap aspiring barbers in a complex maze of rules and restrictions.
- Even though they do not operate out of brick-and-mortar space, applicants for food truck licenses and permits must complete, on average, 35 steps with 11 forms and seven agencies involved in the process.