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Start Your Business Entrepreneurs

The State of Small Business: Missouri

The State of Small Business: Missouri

As part of our yearlong project "The State of Small Business," Business News Daily plans to report on the small business environment in every state in America. In this installment, we asked a few of Missouri's more than half a million small business owners about the challenges and opportunities of operating in their state. Here's what they had to say.

Entrepreneurs in Missouri reported an atmosphere of tempered enthusiasm for the future, noting that growth seems inevitable and ongoing, but also that things could be a bit better. Business owners face challenges in Missouri, such as a lower-than-average per capita income that is continuing to decline, and a gross domestic product that has only grown modestly over the past 10 years. Still, small business owners in the Show Me State said they believe they are faring better than their counterparts in neighboring Illinois.

Business owners in Missouri cited the low cost of living, ample networking opportunities and a business-friendly environment as pluses of doing business in the state. Even some of the challenges, such as a low unemployment rate that is making it more difficult for entrepreneurs to hire, are indicative of a healthy economy. Business News Daily spoke with entrepreneurs in Missouri to discuss some of the opportunities and challenges they've come across while operating in the state. Overall, they told us that Missouri is a pretty good place to do business.

[See Business News Daily's complete coverage of the State of Small Business in the U.S.]

Missouri has a remarkably low cost of living, like many states in the Midwest. Sperling's Best Places cost-of-living index lists Missouri as significantly cheaper than the U.S. average. The U.S. average cost of living is pegged at 100 on the index, and Missouri ranks as a 91.10, according to Sperling's. Particularly notable is the cost of housing, which Sperling's lists as a 78 on the index. Cheap housing and rents mean employees demand lower compensation, saving entrepreneurs a bit of money on their overhead costs.

"For startups and entrepreneurs, I think the low cost of living would be an awesome advantage," said Saeed Darabi, editor of MoneyPantry.com. "If you are just starting out and have not much fund to go by, you don't want to waste tons of money in buying/renting a warehouse or an office. The prices here are much lower compared to other places, especially compared to the Silicon Valley."

The U.S. Bureau of Labor Statistics reports that for the Midwest region, which includes Missouri, the cost of living is dramatically lower than the U.S. average. The Consumer Price Index (CPI) — a measure of inflation and, consequently, the level of prices for a set grouping of goods and services — stood at 223.196 for the Midwest in February 2016, while the U.S. as a whole had a CPI of 237.111. In fact, from 2014 to 2015, the CPI for the Midwest region actually decreased by half a point, while the CPI for the U.S. rose by 0.1.

"The cost of living in Missouri is helping entrepreneurs right now," said Chris LaRocca, founder of Crushed Red Urban Bake & Chop Shop. "We take a look at gas prices, and it looks great. It's proven that the lower the gas prices, the more people go out and spend money in their local business."

Entrepreneurs unanimously reported that community support, in terms of both customer loyalty and networking opportunities, is strong in Missouri. Between incentive programs like Arch Grants to accelerators and mentoring organizations, small business owners and startup founders said they have ample access to advice, discussions and opportunities to boost their professional network.

"We moved our business to St. Louis this past November after receiving an Arch Grant," said Samantha Rudolph, co-founder and CEO of startup Babyation. "The entrepreneurial community in St. Louis has been incredible — warm, welcoming and supportive. Thanks to the resources and access, we made more progress in the first three weeks here than we did in 18 months on the East Coast."

Cooper Mitchell, founder of Dane Financial, said he's particularly fond of community workspaces and organizations that help bring the state's entrepreneurs together to collaborate and grow. A few notable organizations he mentioned include the eFactory in Springfield and Exit 11 in the city of Washington.

"There are more networking groups than I ever thought our state could sustain," Mitchell said. "From groups like 1 Million Cups to Masterminds of Biz, there's something for everyone. There has also been more and more open/community workspaces … to help entrepreneurs have a place to work and meet other like-minded individuals at a low cost."

In addition to a personal income tax and property taxes, Missouri maintains a corporate income tax, sales and use taxes, and an employer withholding tax. However, most entrepreneurs said the rates are reasonable compared to those in other states in the region. Some small business owners suggested reduced rates or reforms would be desirable, but nearly all said they don't feel suffocated by regulations and tax policy at the state level. For assistance with state business taxes, the government created this guide to help entrepreneurs navigate the policy framework.

"No business ever thinks they pay too little in taxes, [but] taxes on small business in Missouri seem to rate fair or a little better than average compared to the rest of the country," said Tim Davis, sales manager at Workers' Compensation Shop.

Currently, the corporate income tax rate is 6.25 percent, while the sales tax stands at 4.225 percent. Where things can get dicey, small business owners told Business News Daily, is the local level. Because rates can vary from municipality to municipality, sales taxes can sometimes reach as high as 10 percent. Overall, however, Missouri's regulatory framework is not seen as extensively burdensome or restrictive.

"Overall, Missouri has a relatively competitive small business climate with respect to regulations,"said Wayne Winegarden, senior fellow in business and economics at the conservative Pacific Research Institute. "In the 50-State Small Business Regulation Index, published by the Pacific Research Institute, Missouri was ranked as having the 10th most competitive regulatory environment for small businesses."

Missouri's unemployment rate has been declining steadily and has hovered around 4.2 percent since the start of 2016. That may be good news for the state's economy, but it's a tough pill to swallow for small business owners looking to hire. Because there is less talent available in the labor market, strong candidates may be quickly snapped up by the competition.

"The labor market is becoming more competitive for great talent," said Susan Gerard, founder of the St. Louis-based Gerard Marketing Group. "We are seeing the people that are fully engaged and good at what they do get hired quickly. If you interview someone that is a strong candidate, if you don't act quickly, they will be unavailable."

Meanwhile, the state's labor force has been growing — evidence that more people are working and the declining unemployment rate is not the result of people giving up the search for a job. From December 2015 to January 2016, the labor force increased by almost 10,000 people. Through February 2016, it increased by an additional 16,500 people. Still, even as the labor force grows, demand for employees remains high, perpetuating the competitive climate.

"Our labor market is really kind of tough right now," said Jeremy Jacobs, president of Fitness Plus Equipment Services. "St. Charles County has the lowest unemployment in the state, and it makes finding people who fit well with our company culture, as well as skills, difficult."

Median household income in Missouri varies significantly depending on which county you live in. There are more affluent people in the northwestern and central-eastern parts of the state, while moderate wealth spans the northern and southwestern portions of the state between them. Southeastern Missouri is less well off than the rest of Missouri, and a cluster of counties in the center of the state is plagued by lower median household income as well.

"Missouri is divided into two areas: rural and urban. Urban St. Louis and Kansas City — most of the wealth is in the urban areas," said Holmes Osborne, owner of the money management firm Osborne Global Investors. "There is some wealth in the small towns but also a lot of poverty. Many people in small towns are either retired or on social services."

The geographic disparity in wealth can create strategic challenges for entrepreneurs who operate in less affluent areas of the state. It also leads to more intense competition in the regions that maintain higher average incomes.

The sporadic pockets of wealth are compounded by a problem Missouri has been experiencing on and off since before the 2008 financial crisis: The average per capita income in Missouri has been declining over the past decade. In recent history, per capita income peaked at 92 percent of the national average, according to the U.S. Bureau of Economic Analysis (BEA). However, it has now dipped below 90 percent of that average, according to the BEA.

The change is reflected in the growth of gross domestic product in the state. While Missouri never saw its economy contract even during the recession, its 2.6 percent compound annual growth rate (CAGR) from 2005 through 2015 trailed the nation's already modest CAGR of 2.8 percent.

"The climate is good, but it can be a hell of a lot better," LaRocca said. "Right now, there's not a lot of incentive for entrepreneurs to start their small business in Missouri." 

The numbers highlight the difficulty. In 2014, the Kauffman Foundation ranked Missouri 18th in the nation for startup activity. By the end of 2015, the state's ranking had plummeted to 27th.  Still, Missouri is faring far better in terms of startup activity than all of its neighbors.

If you're a small business owner in Missouri looking for resources to help you move forward, here are a few organizations you might want to learn more about.

Missouri SCORE

SCORE's volunteer business professionals and expert "mentors" give counsel and guidance to entrepreneurs looking to start or expand their businesses. The services are entirely free and volunteer-driven. Here are some of the chapters in Missouri. 

Lake of the Ozarks SCORE

Mid Missouri SCORE

SW Missouri SCORE

SCORE St. Louis

U.S. Small Business Administration District Offices

The U.S. Small Business Administration (SBA) offers financing and grants, as well as consultations and counseling services. There are also opportunities to apply for federal government contracts through the SBA and avenues for obtaining assistance in the wake of natural disasters.

U.S. SBA District Office (St. Louis)

U.S. SBA District Office (Kansas City)

eFactory

The eFactory is a tech-focused program out of Missouri State University that aims to assist startups and promote new small businesses with advice and mentorship. There are several different fee-for-membership options, including an incubator and an accelerator, that consider applications from startups and offer early investments in return for a percentage of equity. For more information, check out the link below.

The eFactory at Missouri State University

Arch Grants

Arch Grants is a nonprofit organization that offers $50,000 equity-free grants and free support services, such as legal and accounting services, to entrepreneurs who locate their startups in St. Louis. The stated mission of the program is to "create an entrepreneurial culture and infrastructure to build successful companies in St. Louis."

Arch Grants

Missouri Small Business Development Centers

Missouri hosts more than a dozen development centers for small businesses. Each is dedicated to supporting the development and retention of small business, helping entrepreneurs do everything from crafting business plans to navigating the state's tax code. You can find your region's small business development center at the link below.

Missouri SBDC Network

Are you an entrepreneurial organization or resource for small business owners, but are not listed here? Let us know. Contact the author at auzialko@purch.com.

Adam C. Uzialko

Adam received his Bachelor's degree in Political Science and Journalism & Media Studies at Rutgers University. He worked for a local newspaper and freelanced for several publications after graduating college. He can be reached by email, or follow him on Twitter.