As America slowly emerges from the COVID-19 pandemic, small businesses deserve special attention – because they have been hit especially hard and because they are vital to job growth. Local governments in Northwest Arkansas can set a national example by giving new businesses a break in paying startup costs.
Small businesses constitute more than 99% of U.S. businesses and new businesses create virtually all job growth in America. Yet 200,000 businesses closed permanently due to the pandemic and small businesses bore the brunt of that.
I know well the stress that small businesses are under as my bakery in Fayetteville has struggled because so many of our clients – restaurants and other food service providers – are struggling. They are trying to run their businesses at limited capacity or with service levels well below pre-pandemic ones. Some, tired of fighting, have closed for good. I also hear from other entrepreneurs in my capacity as an advocate for Right to Start, the national movement to advance entrepreneurship as a community priority.
One complaint that I hear over and over from entrepreneurs in Northwest Arkansas involves the fact that so many government fees essential to starting a business must be paid upfront – before the startup has any revenue. Why can’t those fees, they ask, be delayed for a year or two?
The governments would get the same revenue, while increasing the vitality of the business community and adding to the tax base. It would be a win-win for everyone.
Still, government at all levels wants its money upfront or quickly. Business licenses and inspections must be paid upfront. Business and property taxes must be paid in the first year of operation, even though it takes, on average, two to three years to become profitable.
That adds to the burden of startups at a time when they can least afford it. It increases the risk of failure, which hurts the long-term interests of government.
Government after all has a mandate to increase economic activity and a need to grow the tax base. New businesses not only increase that activity and the tax base, but they provide much-needed employment, which multiplies the economic activity and adds to income tax growth.
New businesses also diversify business ownership because they address needs in local communities, reflecting local heritage and talent. That in turn diversifies community wealth.
All of this is in the government’s interest, but regulators still impose these costs upfront. It’s time for government at all levels to consider whether its fees and taxes could be better structured to advance entrepreneurship. It’s time for government to consider why it is imposing short-term obstacles in the way of its own long-term interests.
Right to Start has created a Field Guide for Policymakers containing policy recommendations for local, state, and federal government officials. The first of its recommendations for local officials is this: Zero barriers to start. Eliminate all registration costs and licensing fees to cut red tape for new business at the start and in their early years.
The Field Guide notes that the average cost to start a business in the U.S. is $725. That’s far more than Canada ($166), China ($137), and the United Kingdom ($17). Also over the past 60 years, the percent of the workforce subject to licensing requirements has risen from 4-5% to over 25%.
There’s more that government can do to support local businesses, but this is the issue that I’m hearing raised consistently on the streets of Northwest Arkansas. This is the issue that frustrates entrepreneurs who are trying to better their lives and their communities.
Local governments in Northwest Arkansas can set an example nationally by looking at this issue, exploring how to remove unnecessary obstacles, and giving entrepreneurs a better chance to grow the economy for the benefit of all Northwest Arkansans.
Editor’s note: Daymara Baker is the owner of Fayetteville-based Rockin’ Baker, a bread supplier for several local food establishments. The opinions expressed are those of the author.