Entrepreneurs often find that while any one license, form, or fee may not impose insurmountable barriers on its own, individual steps and costs often add up to make it difficult or even impossible for them to get their business off the ground. This leads to a death by a thousand cuts—when entrepreneurs get overwhelmed by the totality of all the rules and requirements to get up and running. Our research reveals that for aspiring small business owners, dealing with local red tape becomes a nightmare due to three primary, interrelated problems: costs, delays, and complexity. 

Costs

Starting a business often requires complying with expensive rules and paying fees to file mountains of paperwork—not just for permits and licenses at the city level, but also for additional county and state requirements, such as occupational licenses or corporate entity registration.

With so many agencies involved in regulating small businesses—each one with its own set of fees for signing-off on an entrepreneur’s journey—overall regulatory costs to get up and running add up quickly. For example, out of all the cities studied, San Francisco has the highest average cost to start up across all five business types, at $10,474. This is much more expensive than the already-high $2,555 average for all cities studied. Of the five business types we studied, restaurants frequently face the highest start-up costs (see Table 1). ¹

Table 1: Entrepreneurs pay a high price to start a restaurant

City	Total number of fees to start a restaurant	Total cost to start a restaurant
Atlanta	14	$5,308
Birmingham	16	$4,403
Boise	10	$2,946
Boston	12	$5,554
Des Moines	10	$2,473
Detroit	15	$6,545
Indianapolis	13	$3,285
Jacksonville	20	$2,794
Minneapolis	14	$13,973
New Orleans	13	$2,253
New York	8	$2,882
Newark	14	$4,765
Philadelphia	11	$3,160
Phoenix	11	$4,546
Pittsburgh	9	$1,700
Raleigh	11	$1,346
San Antonio	12	$2,477
San Francisco	17	$22,648
Seattle	12	$7,466
St. Louis	8	$6,642

At the city level alone, applicants typically pay costs associated with applying for a business license, getting all building permits approved and inspections authorized, filing any applicable zoning or other permits (such as a sign permit), and requesting other relevant agencies, such as the health or transportation department, to sign off on business plans. In some cases, a single fee can reach into the thousands of dollars. In Minneapolis, for example, many brick-and-mortar business owners must pay a fee associated with the impact their business will have on the sewer system; in the case of a restaurant, this fee reaches $8,275—bringing the total cost of legal permission to start a restaurant in Minneapolis to $13,973.

In many cases, duplicative rules also exacerbate costs. For example, Indianapolis requires registering a trade name at the state and county level, whereas most cities only require doing so at one level of government. Des Moines brick-and-mortar businesses must complete at least six separate inspections related to construction and health code compliance before starting up. Each inspection may need to occur multiple times before an inspector’s sign-off is earned. This is a high number of minimum inspections required compared to other cities. In addition to these inspections and obtaining local business licenses and permits, barbers in Des Moines also need double sign-off from the state: All barbers in Iowa must be licensed by the state to practice barbering, and they need a separate facility license for the shop itself. ² Acquiring multiple licenses—or completing duplicative requirements—adds significantly to the final cost of starting up in all cities.

One of the biggest financial barriers of all is the cost of time: When an entrepreneur needs a permit or license that triggers months of back-and-forth with zoning, building, or health officials, the resulting delays cost that entrepreneur thousands of dollars in rent and utilities paid while the business remains shuttered. Opening day gets pushed back as the applicant waits for a permit to be issued or an inspection to be completed.

High costs create even steeper barriers for those who come from disadvantaged communities. Lower-income entrepreneurs and applicants from at-risk communities are often stunned by steep price tags when applying for licenses and permits—all of which must be paid before the business even earns a dime. ³ Many cities charge similar rates for large enterprises as they do for brand-new or smaller-scale businesses, making it difficult for new or growing businesses to pay up.

High fees also affect certain business models in pronounced ways. For example, even though restaurants are common and often small-scale, food businesses experience unique regulatory challenges. They must obtain expensive state or local permits—for example, aspiring restaurant owners in Phoenix must pay $1,265 just to obtain a food permit with the accompanying plan review—while dealing with poorly articulated food-safety protocols that confuse entrepreneurs who themselves want to keep customers safe (or risk going out of business). And while some small businesses, such as retail sellers, may not automatically encounter extremely high fees to start up in every city, they still frequently require other approvals, like zoning and sign permits, that create serious cost barriers.

Navigating these high costs contributes to the overall death by a thousand cuts, as individual fees contribute to a large final bill for entrepreneurs looking to get their businesses off the ground. Many may run out of funds before even reaching opening day.

Delays

Local government agencies are often siloed and bureaucratic, making starting a business a slow process for entrepreneurs—a reality that engenders frustration among the small-business community while imposing additional expense.

While it is difficult to systematically predict how long it takes to start a business in cities—timetables for processing paperwork are not always immediately available or adhered to by officials, a challenge in and of itself for applicants—many of the entrepreneurs we speak to tell us that it can take months just to get all the paperwork in place for opening day. If agency staff fail to meet promised timetables for how long a sign-off will take, a few months becomes many months, or even more than a year. Uncertainty pervades this waiting game: Entrepreneurs do not know if staffers and inspectors will consistently issue the same approvals or denials, as many residents cite being given a hard time by an official for something that a different official had previously approved. Guidance can change based on which city employee the applicant talks to. And due to the lack of good step-by-step guides and a one-stop shop for applicants, entrepreneurs are left in the dark on how to proceed—or, even worse, given wrong information on how to complete the regulatory process.

Take Jesse Rice, the owner of Black Circle Brewing and Loom bar in Indianapolis. According to Jesse, the process of getting all the permits, both state and local, for starting a business in the city is made even more difficult by agencies’ lack of coordination. At one point, Jesse remembers getting failed in an inspection on something that a previous inspector had already approved, highlighting how inconsistent enforcement by officials can lead to frustration, delays, and wasted resources.

The cities surveyed in this report lack true one-stop shops—online portals or websites that allow applicants to complete all requirements for starting a business in one place. They present key regulatory information in disjointed ways while forcing entrepreneurs to create multiple logins for permitting and licensing portals. Out of five criteria that measure how well each city’s website organizes information for entrepreneurs, cities, on average, succeed on just 2.5 of them—and no city succeeds on all five (see Table 2). Birmingham and Des Moines both score the lowest, each picking up a score of zero out of five.

Table 2: Cities lack true one-stop shops to help entrepreneurs start a business, causing frustrating delays

City	County and state requirements included	Forms through one portal	All city requirements covered	User-friendly single log-in	Effective step-by-step guides	Final one-stop shop score (X/5)
Atlanta	Yes	No	Yes	Yes	Yes	4
Birmingham	No	No	No	No	No	0
Boise	No	Yes	Yes	No	No	2
Boston	No	No	No	No	Yes	1
Des Moines	No	No	No	No	No	0
Detroit	Yes	No	Yes	Yes	Yes	4
Indianapolis	No	No	Yes	Yes	Yes	3
Jacksonville	Yes	No	Yes	No	No	2
Minneapolis	Yes	No	Yes	No	Yes	3
New Orleans	Yes	No	Yes	Yes	Yes	4
New York	Yes	No	Yes	Yes	Yes	4
Newark	Yes	No	Yes	Yes	No	3
Philadelphia	No	Yes	Yes	No	Yes	3
Phoenix	Yes	No	Yes	No	No	2
Pittsburgh	No	Yes	Yes	Yes	Yes	4
Raleigh	Yes	No	No	No	No	1
San Antonio	Yes	No	Yes	No	No	2
San Francisco	Yes	No	Yes	Yes	Yes	4
Seattle	Yes	No	No	No	Yes	2
St. Louis	Yes	No	No	No	Yes	2

Poor communication between city agencies and officials also contributes to the delays small businesses face from local government. Once entrepreneurs begin applying for licenses and permits, they soon find that they typically have to work with several agencies to get all their paperwork in order—something made more difficult and time-consuming due to the lack of communication between agency officials. This lack of communication often leads to entrepreneurs being given poor advice or inconsistent information, which in turn causes additional delays.

On average, food truck entrepreneurs in the 20 cities studied must interact with seven agencies—and their rules and regulations—to start a business (see Table 3). In many cases, staff require that entrepreneurs make trips in person to agency offices to file forms and attend meetings, slowing down the process even further and introducing additional frustration and headaches. Entrepreneurs must complete, on average, six in-person activities to get up and running. Newark requires entrepreneurs to complete an average of 13 in-person activities to start a business, more than any other city we studied.

Table 3: High numbers of agencies involved and required in-person visits severely delay food-truck entrepreneurs

City	Minimum number of in-person activities to start a food truck	Number of agencies involved to start a food truck
Atlanta	7	8
Birmingham	3	7
Boise	5	6
Boston	7	9
Des Moines	2	6
Detroit	5	6
Indianapolis	5	6
Jacksonville	3	8
Minneapolis	5	11
New Orleans	5	9
New York	5	6
Newark	7	8
Philadelphia	1	6
Phoenix	3	8
Pittsburgh	2	6
Raleigh	2	6
San Antonio	5	7
San Francisco	6	7
Seattle	6	9
St. Louis	6	8

Long delays affect certain business models in particularly serious ways. For example, if a business like a barbershop needs to renovate its storefront space, it often is required to obtain zoning approvals or building permits before work can begin. The process of starting up often becomes bogged down by the need to wait for sign-offs on renovation plans and inspector reviews. Businesses like barbershops also face an additional set of rules and permits before they can practice their trade, including those issued by state occupational and professional licensure boards. These requirements involve completing trainings or schooling and undergoing testing in order to be certified by state officials to practice an occupation—requirements that translate into more time spent getting to opening day.

Complexity

To start their dream ventures, entrepreneurs must navigate regulatory processes that are difficult to understand, often replete with duplicative steps and unnecessary procedural hurdles. Red tape with nitpicky requirements trips up applicants, exacerbating back-and-forth communication issues with agency officials and causing frustration for the end user. Overly confusing and complex requirements bog down entrepreneurs in process, further contributing to the high costs and long delays associated with starting a business.

Regulatory complexity is draining: Few entrepreneurs—especially those who have yet to successfully get up and running—have the resources to hire lawyers or expediters to handle the process for them. Forced to navigate tricky rules on their own, entrepreneurs often find compliance challenging as they attempt to make their way through the maze of steps, forms, and registrations (see Table 4).

Regulatory complexity at the local level poses barriers on a number of fronts. Cities that have heavy business licensing requirements often force entrepreneurs to get licensed for activities that pose little threat to public health and safety. For example, New Orleans licenses aspiring tour guides, who must have a clean criminal record, pay a $50 fee, and pass a test on “the history and culture of New Orleans” before going into business. ⁴

In some cases, multiple licenses are required for one business—such as a grocery store, which may need multiple food- and retail-related licenses—increasing time and money spent on compliance. San Francisco has 212 business license categories—the highest number of all cities studied, forcing entrepreneurs there to navigate complex lists of licenses to figure out which apply to their business. Applying for licenses and permits involves submitting pages and pages of supporting documentation, and city websites are not always clear on what needs to be submitted and what kind of deadlines applicants must meet. For example, New York City requires 24 individual forms, copies, and other pieces of supporting documentation when applying to open a barbershop (see Table 5).

Table 4: Starting a business is complex, typically requiring entrepreneurs to complete dozens of regulatory steps

City	Total steps to open a restaurant	Total steps to open a bookstore	Total steps to open a food truck	Total steps to open a barbershop	Total steps to open a home-based tutoring business
Atlanta	76	46	44	68	12
Birmingham	48	18	34	40	10
Boise	59	35	30	50	7
Boston	92	34	37	81	7
Des Moines	66	22	31	64	9
Detroit	77	32	43	60	6
Indianapolis	69	44	34	62	6
Jacksonville	66	37	33	66	19
Minneapolis	69	32	37	58	7
New Orleans	43	44	25	37	16
New York	52	33	28	56	7
Newark	57	74	31	64	19
Philadelphia	58	41	42	46	17
Phoenix	58	39	37	55	21
Pittsburgh	48	30	25	48	12
Raleigh	60	31	33	59	18
San Antonio	59	24	30	58	6
San Francisco	61	34	44	45	7
Seattle	63	44	45	49	10
St. Louis	35	17	32	27	14

But business licensing is often just the beginning. Entrepreneurs, especially those looking to start brick-and-mortar businesses, frequently cite zoning rules and building permits as the most burdensome part of getting to opening day. Aspiring business owners often need a slew of building and zoning permits to get their commercial space ready to open to the public—from sign and construction permits, to trade permits and special-use authorizations. While some cities, such as San Antonio, only require a certificate of occupancy for businesses that have changed the zoning use of the lot they occupy, others, such as Jacksonville, automatically require a new certificate for any new brick-and-mortar business. Zoning procedures get bogged down in hearings, politics, and administrative actions, even if the applicant conforms to the city’s zoning rules. In Jacksonville, for example, when a new business triggers an exception to restrictive zoning rules, the entrepreneur must navigate an additional, separate world of fees and steps. In the case of applying for a zoning exception, the Jacksonville entrepreneur must complete 13 steps—five of which are in person—and two forms, while paying $1,366 in fees. Two agencies are involved, and the applicant must notify neighbors and attend a public hearing where their application will be discussed and any member of the public may object to the proposed project.

Table 5: Starting a barbershop involves navigating complex red tape

City	Total steps to start a barbershop	Total forms to start a barbershop
Atlanta	68	20
Birmingham	40	15
Boise	50	11
Boston	81	21
Des Moines	64	11
Detroit	60	12
Indianapolis	62	15
Jacksonville	66	13
Minneapolis	58	18
New Orleans	37	15
New York	56	24
Newark	64	19
Philadelphia	46	16
Phoenix	55	10
Pittsburgh	48	13
Raleigh	59	17
San Antonio	58	17
San Francisco	45	9
Seattle	49	14
St. Louis	27	10

Once entrepreneurs get a handle on the start-up process, they still have to worry about complex roadblocks hidden in city codes and elsewhere that trip up residents. For example, “clean hands” rules make it impossible to obtain or renew paperwork if the applicant owes even small sums of money to city government. This puts entrepreneurship out of vulnerable residents’ reach over petty amounts of debt. Criminal history checks are often part of the process to obtain various permits as well, which may deter returning citizens and entrepreneurs from other at-risk populations from starting businesses, a crucial option for people who might have difficulties being hired by other employers. These rules especially disadvantage those who are unsure if their past will be held against them in the licensing process, even if unrelated to the skills they have developed to be a successful entrepreneur in their chosen field.

Complex rules and requirements affect certain business models in pronounced ways. For example, entrepreneurs wishing to start food trucks face a litany of restrictions at the local level that are often designed to protect established brick-and-mortar restaurants and have nothing to do with public health and safety. In Atlanta, for example, mobile vendors may not operate within 200 feet of a stationary business selling the same or similar products, meaning that their options for where to set up shop in high-traffic corridors are severely limited by rules unfairly designed to protect established businesses from competition. And while otherwise relatively simple to start up, home-based businesses are often hindered by zoning restrictions—such as square-footage or employee limits—that make it difficult for entrepreneurs to operate out of the home by limiting their ability to grow or serve customers. In rare cases, home-based businesses are required to obtain a conditional use permit—an onerous and expensive zoning process that forces these entrepreneurs to gain approval from neighbors while defending themselves at a public hearing.

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.