Make the process of starting a business less paralyzing

As entrepreneurs and advocates for small business growth in Northwest Arkansas, we talk daily with other entrepreneurs and aspiring ones, especially in historically underserved communities. One comment that we hear regularly is that the prospect of starting a business is paralyzing. There are just too many government requirements, and it’s too hard to understand the process.

The problem is, of course, not unique to Arkansas, as a recent report from the Institute of Justice made clear. The report – titled “Barriers to Business” – reveals the regulations that restrict new businesses in 20 U.S. cities, and it provides a reason for every community in every state to examine the obstacles in their path to entrepreneurship.

The report reveals, for instance, that 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. To open a barbershop in those cities, an entrepreneur must complete an average of 55 steps, with eight different government agencies involved.

While no cities in Arkansas are included in the report, we looked at the four nearest cities that were included: St. Louis, MO; Des Moines, IA; New Orleans, LA, and Birmingham, AL. Opening a restaurant in Birmingham requires 16 fees – the highest of the 20 cities except for Jacksonville (20) and San Francisco (17) – at a cost of $4,403.

Starting a food truck in those four nearest cities involves six government agencies in Des Moines, seven in Birmingham, eight in St. Louis, and nine in New Orleans. Minneapolis, MN, leads the 20 cities with 11.

The point is that over-regulation is not only a national problem, but a regional one. Our conversations in Northwest Arkansas show that it’s a local problem as well.

The problem is not just the government fees and costs; it’s that those hurdles come on top of the cost of running the business and require the time, resources, and energy of the entrepreneurs. They act as barriers when new business growth is crucial to economic recovery from COVID-19 nationwide.

Based on our conversations, three steps that communities in Arkansas should take are these:

First, talk with local small business owners and aspiring ones to see what barriers are greatest to starting and growing a business. Then examine the state and local codes that create those barriers and explore ways of reducing them.

Second, make a special effort to engage historically underserved communities. Consider what inequities exist – including by gender, race, and heritage – and what efforts might enhance new business growth. Does the government staff that provides business assistance, for instance, know those communities? Are there language barriers? How could better connections be made?

Third, make reducing barriers to entrepreneurship a priority in this election year. Ask candidates for office to explain what they will do to make starting a business easier. Urge them to be specific. Right to Start’s “Field Guide for Policymakers” is a valuable resource in that regard.

We’ve made one proposal to the city of Fayetteville that is receiving significant attention. It concerns the timing of government fees required to start a business. Why do those fees have to be paid upfront – before a new business has any revenue? Why can’t they be delayed for a year or two? As a result, Fayetteville has included delaying those fees in its proposed five-year plan.

That’s a very encouraging sign, and it underscores two points: First, governments may be willing to change if they understand the barriers obstructing entrepreneurship. Governments depend, after all, on tax revenues, and those revenues are greatest when business is thriving. Second, Arkansas can create a strategic advantage over other states by making it easier to start a business.

That’s the fundamental point that Arkansas should take away from the Institute of Justice report. Look at the barriers that other cities and states have put in place. That’s a blueprint for Arkansas to take the needed steps to reduce the paralyzing effect of barriers to entrepreneurship.

Editor’s note: Daymara Baker and Irma Chavez are the authors of this guest commentary. They are both entrepreneurs and advocates in Northwest Arkansas for Right to Start, the national nonprofit that champions entrepreneurship as a community priority. The opinions expressed are those of the authors.