Bureaucracy named as most common difficulty for start-ups

• One in three start-ups see bureaucratic requirements as problematic
• However: paperwork rarely causes start-ups to give up
• Start-ups estimate they spend an average of two hours a week on paperwork

According to the KfW Start-up Monitor, administrative obstacles and delays have been the most common problems encountered by entrepreneurs for many years. One in three entrepreneurs in Germany view bureaucratic rules and obligations as a strain. Other difficulties encountered include pressure on family life (27%), the acquisition of orders (26%), and the economic and financial risks posed by self-employment (22% each).

A study by KfW Research shows that start-ups spend around 10% of their weekly working hours on dealing with administrative obligations, equivalent to two hours a week (on average). "While bureaucracy places strain on an entrepreneur's time and stress levels, it very rarely causes start-up projects to be closed down or plans to be left on the shelf," explains KfW's Chief Economist, Dr Jörg Zeuner. The biggest obstacles during the planning phase tend to be financial risks; existing start-up projects are normally shut down due to more attractive job offers or dissatisfaction with earnings, rather than due to the paperwork.

One of the most frequent complaints among entrepreneurs is the effort needed for various registration processes and the complexity of taxation. Over half of the entrepreneurs who encounter difficulties with bureaucracy name one of these areas as the greatest problem at the time of founding their business. Once the business has been set up, challenges relating to the taxation system become even more prominent. Moreover, the recruitment of staff also results in new obligations and difficulties.

Opinions on bureaucratic challenges vary depending on the industry and the size of the start-up. For instance, 43% of entrepreneurs in the construction industry see administration as an obstacle, though this figure falls to just 28% in the retail sector. Entrepreneurs who require third party funding are much more likely (45%) to list paperwork as a problem than those who do not require funding (26%). In contrast to younger entrepreneurs, older business founders are less likely to consider bureaucracy as a difficulty (only 28% of over 50s).

"While there has been real progress in the breakdown of bureaucracy over the past few years, there is still plenty of room for improvement," says Zeuner. "Digitalisation in particular has huge potential; Germany needs to make sure it doesn't miss the boat. The ongoing expansion of e-government could help to make administrative processes quicker and more efficient. Dealings with officials could be avoided through online offers while registration requirements could be processed automatically. However, for the biggest coup, we would need a set of nationwide minimum standards and standardised IT infrastructure.

KfW Research's study "Start-ups and bureaucracy: A difficulty for one in three but rarely a cause to give up" is available at: Innovations and Start-ups