Some of the most creative people I have ever met are small business owners. It takes a special kind of person to continually find new ways to sell more, cut costs, generate interest among finicky buyers and keep employees motivated day in and day out. But many business owners are running out of ideas on how to combat the weak economy.
If you’ve run out of ideas on how to change your business from the inside, perhaps it’s time to take a look at the area around your business. Maybe you should follow the example of tens of thousands of business owners around the country and start a Business Improvement District or BID.
What is a BID?
A BID is a geographic area within a town or city where businesses pay additional fees and taxes to fund specific improvements within the area. The purpose is to improve the overall appearance of the area and enhance the experience of consumers entering the BID. The belief is that these improvements and enhancements will increase sales and property values, more than compensating for the additional fees paid.
Benefits of a BID
The specific benefits for businesses located in a BID vary depending on what the BID administrators choose to offer. These include:
- Enhanced security. If crime is a problem, BIDs can hire private security to patrol the BID and work with local law enforcement to minimize vandalism, robbery, theft and assaults. This reduces losses for owners, can serve to lower insurance premiums and will make consumers feel more secure. This could boost sales at night when many consumers would not go out due to safety concerns.
A study recently published in Injury Prevention, an international peer review journal, analyzed crime rates at more than 30 BIDs over an 11-year period. The results indicate that the formation of a BID tasked with enhancing security led to a 12 percent reduction in the number of robberies and an 8 percent reduction in the number of violent crimes committed. These are significant improvements.
- Marketing, promotion and tourism development. These efforts invite consumers, new merchants and others to engage businesses within the BID. Effective marketing efforts can reduce vacancy rates, increase foot traffic to stores and drive tourists to the area. The Downtown Denver Business Improvement District, founded in 1982, has conducted some very effective marketing campaigns including the sponsorship of community events and the distribution of publications (both electronic and print) highlighting businesses and services within the BID.
- Improved maintenance. While taxes go to pay for basic municipal services like trash collection, BIDs pay separately for enhanced services. This could include more frequent trash collection, washing sidewalks, removing graffiti, snow removal, picking up litter, investment in additional parking spaces or valet parking services, landscaping of common areas, preparation of seasonal and holiday displays and more.
How much does it cost and who pays?
BID budgets vary depending on the type of BID, geographic size, scope of services, the assessed values of properties in the area and more. In general, smaller BIDs have budgets in the $100,000 to $200,000 range while larger BIDs can have budgets exceeding $1 million.
BIDs can be organized into two categories: Merchant-based BIDs and Property-based BIDs. Merchant-based BIDS are funded by business owners while property-based BIDS are funded by the property owners located within the BID area. The fees are usually calculated as an additional tax based on the assessed value of a property and are collected by the municipality. In some cases, vacant land and residential property owners pay reduced rates.
Are BIDs just a fad?
There are over 1,000 BIDS in the United States with new ones being proposed weekly across the country. Despite the fact that they don’t receive national attention, there is an important BID movement taking place. The first BID was launched more than 40 years ago and with the rate of domestic and international growth, it is very likely that this trend will continue. As local municipalities are forced to cut spending to address funding shortfalls, BIDs will continue to become more popular.
What if I want to start a BID?
Starting a BID is not an easy process. It can take several years. It requires convincing numerous stakeholders that this is a worthy investment. It may take as much effort as it did to start your own business especially if you meet initial resistance. Recent efforts to create new BIDs in a borough of New York City have not gone well because business owners feel they are already paying too much in property taxes. If owners already feel overburdened, it will be challenging to achieve a critical mass of support.
That’s why it is important first to identify specific needs for your area and calculate the return on investment for owners. Unlike property taxes, business owners do have a direct say in how the BID uses its funds.
Then you will have to convince other business owners, as well as your local elected officials, in close proximity to you that it is a worthy investment. It is a good idea to work with BID consultants that are familiar with the process and local laws to determine the proper procedures. It may require a petition drive and a vote in order to obtain approval.
Alternatives to starting a BID
While BIDs have clear benefits, it can be challenging to gain the necessary community, political and business support to actually make it happen. Even if the desire exists, the costs may be prohibitive. But that doesn’t mean all is lost. Take a gradual approach. Before launching a formal BID, you can organize a group of local merchants to address a specific problem in your area or organize a local event. This would serve as a great pilot project to determine if a BID is feasible. This can be done in conjunction with a local chamber of commerce or a subset of their membership in the impact area.
With over 1,000 existing BIDs across the country, you always have the option to move your business to an existing BID and enjoy the fruits of someone else’s hard work establishing a BID.
Question: Is your business located in a BID? Share your experiences (good and bad) with fellow readers.
Mike Periu is the founder of EcoFin Media, LLC an independent producer of financial, economic and entrepreneurial content for television, radio, print and the internet. Over the past ten years he has started three companies and advised over 50 companies on financial strategies including fundraising. Mike also hosts regular small business webinars on a range of topics relevant to business owners.