Report dings Northwest Arkansas on ease of starting small businesses

Taptender Hannah Gilliam serves a sample flight of beers to a customer Sunday at New Province Brewing Co. in Rogers. A report from earlier this year ranked Northwest Arkansas 180th out of the 200 best metropolitan areas for small business.
Taptender Hannah Gilliam serves a sample flight of beers to a customer Sunday at New Province Brewing Co. in Rogers. A report from earlier this year ranked Northwest Arkansas 180th out of the 200 best metropolitan areas for small business.

Northwest Arkansas in recent years repeatedly has landed top spots in rankings of the best, most affordable and fastest-growing places to live in the country.

Realtor.com just last week named Fayetteville the seventh-best place in the country for recent college graduates to launch a career. The real estate website states Northwest Arkansas has a low cost of living and offers cultural options for young professionals.

At a glance

ValuePenguin, a company that compares and analyzes banking and insurance services and other topics, ranked Northwest Arkansas 180th in the 200 best cities for small businesses. It used several measures in three categories for its rankings. Measures are for the Fayetteville-Springdale-Rogers metropolitan area unless otherwise specified.

• Taxes

Average state and local sales tax rate, SalesTaxHandbook: Maximum 9.5 percent in Benton County and 9.75 percent in Washington County

Small Business and Entrepreneurship Council’s 2014 small business tax index: Arkansas ranked 35th

Tax Foundation’s 2017 state business tax climate index: Arkansas ranked 38th

• Economy

Unemployment rate, U.S. Bureau of Labor Statistics: 2.9 percent in May 2016

Median household income, U.S. Census Bureau: $51,000 in 2015

Forbes best states for business ranking 2016: Arkansas ranked 34th

Cost of living, 2010 Council for Community and Economic Research: Fayetteville-Springdale-Rogers more expensive than Conway, Fort Smith and Jonesboro but less expensive than Hot Springs and Little Rock

• Business Community

Percentage of population 25 years and older with at least a bachelor’s degree, U.S. Census: 19.9 percent in 2015 (compared to 19 percent for U.S.)

Number of Small Business Administration offices: Arkansas has 18

Number of mortgage and nonmortgage loan brokers, U.S. Census: 410 credit counselors and loan officers, 2008-2010 estimate

Number of corporate managing offices, U.S. Census: 737 in 2014

Source: Staff Report

By the numbers

A bigger share of Northwest Arkansans work at large businesses compared to two decades ago, matching a nationwide trend. Mervin Jebaraj, interim director of the University of Arkansas Center for Business and Economic Research, attributed the trend to individual businesses’ growth and more mergers and globalization of industry, which can hamper smaller businesses from entering the market.

Employer category by number of employeesPercentage of total employers falling in each categoryPercentage of all workers employed by each category*Percentage of total annual payroll paid by each category

1993

0-99 employees92 percent34 percent*30 percent

100-499 employees2 percent10 percent*10 percent

500+ employees6 percent56 percent*60 percent

2014

0-99 employees89 percent29 percent*20 percent

100-499 employees4 percent11 percent*8 percent

500+ employees8 percent60 percent*72 percent

Source: U.S. Small Business Administration

Cutting against the grain of top billings is another ranking that pegs the region as one of the toughest for small businesses.

The Fayetteville-Springdale-Rogers metropolitan area ranked 180th out of 200 metros in friendliness to small businesses in a February report from a company called ValuePenguin, which analyzes and compares financial and insurance services. The rankings are based on cost of living, local taxes and several other measures of the business climate.

Northwest Arkansas' high local tax rates and its number of headquarters for large corporations, which can be difficult for a small businesses to compete with, helped drag down its ranking to between Albuquerque, N.M., and Wichita, Kan., according to the report. Low cost of living and a healthy economy counted in the region's favor.

"We focused on areas of data that would help a small business be sustainable, but also flourish based on the economic traits of the city," the company wrote.

Local business owners and experts, however, said the list leaves out much of what makes the area ideal for businesses of any size.

Jeff Amerine, whose Startup Junkie Consulting spends every day assisting budding businesses throughout Northwest Arkansas for free, said there's always room for improvement to the legal process for starting a business or in the ease of finding investors. But he said the region's quality of life, the university, customer base, groups like his and other benefits make up for those needs.

"This place ought to be in the top 10 on every list, because it's that good," Amerine said.

How easy it is to grow new businesses can have widespread importance. Almost one-third of Northwest Arkansas' employees are working at businesses with fewer than 100 employees, according to 2014 data from the U.S. Small Business Administration.

The administration defines a small business as an independently owned and operated company that is limited in size and in revenue depending on the industry. Size runs the gamut from 10 people working in a local bakery to a manufacturer with fewer than 500 people.

That proportion locally and across the country has been dropping in the past two decades, with larger corporations employing a bigger share of people and paying a bigger share of all of the region's paychecks. Northwest Arkansas also has fewer new business establishments than similar cities such as Austin, Texas, though the number has been improving, according to the 2016 state of the region report from the University of Arkansas Center for Business and Economic Research.

Wal-Mart Stores Inc. and other powerhouses are important, stable and typically pay more per employee, but new economic growth and innovation is more likely to come from businesses that start as a shop on the corner, said Mervin Jebaraj, the university center's interim director.

"We haven't had one of those success stories in a while," he said. "The challenge for Northwest Arkansas is to make sure the entrepreneurship effort that we have in all its forms is supported and increased to make sure that we do have the next small business startup that grows into a successful large company."

A mixed picture

Omar Kasim graduated from the university in 2015, opened his first business early last year and typifies some of the strengths and weaknesses of the region's small business environment.

Starting a business is hardly easy no matter the circumstances -- Kasim recalled working more than 100 hours a week to get Con Quesos Fusion Tacos running on Martin Luther King Jr. Boulevard in Fayetteville. He pointed to some issues that could make the process more challenging.

Private and commercial lenders "wouldn't touch me," he said, and he eventually had to go to Texas to find an investor. Fayetteville also has a complex permitting process for new businesses, Kasim said. The city has acknowledged this perception and made streamlining the process a priority in its Fayetteville First development plan.

Amerine echoed the need for more private investment in nascent companies, suggesting the state raise its tax credit to get capital "off the sideline."

Arkansas has unusually high local sales tax rates, according to the ValuePenguin report and the nonprofit Tax Foundation. The average combined city, county and state sales taxes in Arkansas is about 8.5 percent, higher than all but three other states. Tax rates in Washington and Benton counties vary but on average total nearly 10 percent and go to roads, law enforcement, tourism, parks and other public services.

On the other hand, Kasim had the help of Startup Junkie and the university's Small Business and Technology Development Center to plan his first business at no cost. Now he's on to his next venture: an organic, cold-press juice and smoothie shop in uptown Fayetteville he hopes to open this fall. A local bank provided a Small Business Administration-backed loan.

"It felt like they were actually rooting for me," Kasim said, adding he plans to work with the university to give entrepreneurship students hands-on experience at a campus location for his shop next year. "My message has been, no matter what, you can do it. It's not easy, but it can be done."

Other rankings of Northwest Arkansas' small business environment reflect a mix of positives and negatives.

A WalletHub rating this year of the four major cities in the area put them roughly in the middle out of more than 1,200 small cities, dinging Fayetteville for its startups' financial success and faulting Springdale for access to financing and other resources. But Forbes last year named Fayetteville the 24th best place for business and careers thanks to its job growth.

Putting down roots

Local leaders have long said the region has much to offer prospective businesses. Startup Junkie is partnering with Wal-Mart and local organizations for a similar service in Bentonville called Exchange. Crystal Bridges Museum of American Art, the Razorback Greenway and other amenities can make the place more attractive for residents.

Even the higher taxes might be a good sign in some ways, though lower taxes can mean businesses can invest more in themselves and the rest of the community, said Dana Davis, president and CEO of the Greater Bentonville Area Chamber of Commerce. The chamber helps businesses find locations and connect with other resources.

"We want to have the best here. I think our citizens have been willing to step up to the table and say we need to make sure we have great transportation systems, we need to have great school systems," Davis said. "This is a place people want to live and want to start a business."

Derek McEnroe, who co-owns New Province Brewing Co. in Rogers with his wife, Megan, said he thought about going elsewhere for the business, perhaps returning to his native Arizona. But the small-town atmosphere with big-town amenities here easily won out, and the company's doors opened in early 2016.

"We definitely wanted to plant roots here," he said, adding the network of local brewers and restaurants have supported the family's venture. "The community was very helpful, particularly in our first year."

The area's offerings a decade ago attracted a company called CaseStack, which manages shipments for thousands of consumer products internationally and employs about 150 in Fayetteville. Dan Sanker, the company's founder and CEO, said the necessary expertise is concentrated in Northwest Arkansas.

"We're finding the kind of people we like to work with here," he said, adding he expects company and civic leaders and groups will increasingly share information and become involved in the community. "That's when you start to get great ideas."

photo

Taptender Hannah Gilliam pulls a beer while talking to a customer Sunday at New Province Brewing Co. in Rogers. A report from earlier this year ranked Northwest Arkansas 180th out of the 200 best metropolitan areas for small business.

photo

Six-packs of beer are available for sale Sunday at New Province Brewing Co. in Rogers. Co-owner Derek McEnroe said he considered opening the business elsewhere, but the small-town atmosphere with big-town amenities won out, with the company opening in 2016.

Sanker said CaseStack plans to spin off another, entirely technology-focused company in Fayetteville that could employ 85 people by next year. He praised the city school district and chamber of commerce for their assistance and willingness to make introductions and set up an internship program, for example. Those relationships convinced him to put the new company, SupplyPike, here instead of in California or elsewhere.

NW News on 08/07/2017

Upcoming Events