What makes your city work? Is it the tax rate? Sound enforcement of regulations? Some other unknown piece of magic?
For the third year in a row Thumbtack has partnered with the Ewing Marion Kauffman Foundation to ask nearly 13,000 small business owners: what makes your government friendly to small business? And the responses we get are frequently surprising. This year, Utah received the highest ratings from its small business owners, earning it an A+ grade for friendliness. Colorado Springs and Boise led the way for cities, earning the highest grades in the country and topping our rankings of 82 cities.
Other places didn’t fare as well – California, Illinois, and Rhode Island stood out for the negative responses their small businesses gave when asked how friendly they were. Each of those states earned an F grade for friendliness, along with the least friendly city in the country, Sacramento, California. The full results can be seen at www.thumbtack.com/survey
What are the elements that make a city or state friendly? Our analysis shows that three factors stood out in determining what made a government friendly to small business: small businesses respond well to regulations that are easy to understand and comply with, tax laws that are easy to follow, and training and networking programs that help create an environment where entrepreneurs can thrive.
Of all the regulatory factors we examined, professional licensing requirements were the single largest factor that determined how a professional viewed his or her city. Half of the professionals to complete our survey were subject to a professional licensing requirement at the local, county, state, or federal level, and these professionals were more likely to give their governments lower marks than those professionals not subject to such requirements. 62 percent of licensed professionals reported they were subject to licensing requirements at more than one level of government, and 25 percent said they were subject to licensing rules at city, county, state, and federal levels. The friendliness of licensing requirements had nearly twice the effect that the friendliness of tax rules did in determining a pro’s overall attitude towards their state government.
A common complaint regarding licensing was that pros who operate in more than one jurisdiction had to be licensed more than once to do the same work. Enforcement was also on many professional’s minds – many licensed business owners who compete against unlicensed professionals felt the unlicensed pros had an unfair advantage when it came to pricing because the unlicensed professionals didn’t bother to comply with local rules.
Ease of filing taxes was the second most significant factor in determining a state’s overall friendliness. 68 percent of businesses who said their taxes were “somewhat” or “extremely” easy to comply with said their state government was friendly, while only 42 percent of businesses who said taxes were “somewhat” or “extremely” difficult to comply with said their state government was friendly.
And what about the tax rate itself? It turns out that the tax rate generally wasn’t a top complaint for professionals and wasn’t a statistically significant factor in determining perceptions of overall friendliness. In fact, two thirds of our small business respondents said that the level of taxes they paid was “fair,” although larger businesses were overwhelmingly more likely to say they paid an unfairly high level of taxes.
The ease of complying with taxes was far more important to the businesses in our sample than the tax rates themselves when rating a location’s business friendliness.
Training and Networking
The non-regulatory factor that had the largest effect on perceptions of small business friendliness was the presence of training and networking programs offered by government agencies to help professionals succeed. Awareness of these programs raised overall perceptions of small business friendliness by 10 percent, and 76 percent of those who said they were aware of government-sponsored training programs for business owners ranked their local government as “somewhat” or “very supportive,” and only 8 percent of these said local government was unsupportive.
Small business owners still feel anxiety about providing health care for their families and their employees – 50 percent said it was “somewhat” or “very” difficult to obtain and keep health insurance at their business, and only 19 percent said they felt prepared for implementation of the Affordable Care Act.
Many professionals appreciated the use of technology by their state or local governments to help with compliance and keeping them informed, but governments that offered websites that didn’t work suffered for it in the ranks – ease of website use had a positive and statistically significant effect on state friendliness scores. While 62 percent of respondents who found a website easy to use thought their government was friendly, only 33 percent of those who found a website difficult to use thought their government was friendly.
And there were some gender differences as well – female entrepreneurs gave their state and local governments scores that were on average higher than their male counterparts, and male entrepreneurs were more likely to say the local economy was stronger than their female counterparts. In some states this effect was extremely pronounced with scores that differed as many as 10-20 percentage points between genders, though the reasons aren’t entirely clear.
Once again, our survey has helped provide insights into government policies that aren’t available elsewhere. With a respondent base of nearly 13,000 small business owners and a population that is largely representative of small service businesses across the U.S. economy, the Thumbtack/Kauffman survey is the only one of its kind to ask business owners and operators how they feel about the city and states where they live, and grade and rank those cities and states across a variety of metrics.
What do you think about the friendliness of your city or state towards small business? Please let us know in the comments, and keep the conversation going on twitter using #smallbizfriendly