The Best States to Start a Business, According to Research

When it Comes to Costs and Resources, These Are the Best States to Start a Business

Ah—location, location, location. Choosing where you’re going to open up shop is one of the first and most important decisions you’ll make when starting a business. But, location isn’t just about picking a building on a popular street corner. It’s also about selecting a state to do business in.

Which state should you choose for your business? Your home state? What about your dream state? The most populated state?

These are the best states to start a business in, according to research.

The best states to start a business: 5 things to look out for

So, what makes the best states for small business so superior? Business-friendly states earn their names for a reason.

Read on to learn about five things that make a state perfect for business success.

1. Financing opportunities

You can’t start a business without funds. If you don’t have the money to start and run your company, you won’t be able to see your dream take flight.

Most business owners don’t have the money to completely bootstrap their enterprises. Instead, they need to seek opportunities for financing a small business.

Business financing options include:

  • Personal savings (bootstrapping)
  • SBA or business loan
  • Credit cards
  • Crowdfunding
  • Family or friends
  • Venture capital

As you can see, there are a number of financing options you can pursue to fund your small business idea. However, financing is more accessible in some states than others.

According to a WalletHub study, North Dakota, Utah, Iowa, South Dakota, and Nebraska are states with the most accessible financing. On the other hand, Florida, California, Oregon, Nevada, and Arizona offer the least accessible financing.

Unless you’re able to bootstrap your business or rely on family and friends, consider the states with accessible financing.

2. Attractive tax systems

Some states and cities are more friendly than others when it comes to business tax liability.

Many states tack on significant tax responsibilities for businesses, including high and complicated tax rates.

Tax-friendly states earn their name because their tax systems are appealing to business owners.

States with attractive tax systems don’t have one of the following major taxes, or they have a low tax rate:

  1. Corporate income tax
  2. Individual income tax
  3. Sales tax

Additionally, tax-friendly states simplify taxes. This can either mean that business owners pay a flat rate or that tiered tax rates are easy to understand.

So, what’s the best state to start a business for tax purposes? According to one study, Wyoming scores the top spot for being tax-friendly.

Along the lines of complicated tax systems, states might also make other aspects of starting a business complex.

Some states make entrepreneurs jump through hoops when it comes to registering their businesses and getting licenses and permits.

3. Top-tier workforce

A big part of business success depends on employees. Hiring workers without the skills, knowledge, or attitude to excel is a recipe for disaster. Something as bad as (or worse than) not hiring the perfect fit is not being able to hire anyone at all.

When choosing a state to start your business in, consider one or both of the following:

  • Availability of human capital
  • Whether the labor force has the necessary skills

If your business needs as much labor as it can get, consider starting your venture in a state with high human resource availability. WalletHub found that Alaska and West Virginia have the highest availability of human capital.

Depending on your niche, you may need employees with specific skill sets and education. So, which states have the most educated populations? According to WalletHub, Massachusetts has the most educated population.

Before starting your business, estimate how many employees you’ll need. And, determine the range of positions and skills your business needs to successfully operate.

4. Low office space, labor, and living costs

Something else that determines the best states to start a business in is cost. How much are you willing to pay for office space, labor, and living?

Securing inexpensive office space only matters if you don’t run your business from home. But if you are in need of cheap office space, Iowa takes the cake, according to WalletHub.

Employee wages are one of the most (if not the most) expensive costs business owners have. Deciding how to set salaries for your workers largely depends on location. This is why the BLS offers wage data based not only on occupation but on location as well. The state with the lowest labor costs is Mississippi.

Cost of living goes hand in hand with low labor costs. Cost of living is the cost of necessities like housing and food. Not only does a low cost of living drive down your personal expenses, but it also impacts wage averages for the state or city. According to one study, Mississippi has the lowest cost of living.

5. Appealing business growth trends

Who doesn’t want a future filled with business growth when starting a company? Most business owners hope that their startups will grow and expand with hard work, time, and energy.

So, what exactly does growing your small business mean? An expanding customer base, profits, and overall business are three main indicators of business growth.

According to the WalletHub study, business growth is more common in some states than others. The state with the highest average growth is North Dakota.

Another WalletHub study broke things down even further to analyze which cities have businesses with the highest average revenue. According to the study, businesses that are in cities in Texas, Illinois, and California have the highest average revenue.

And the top 10 states to start a business are…

Now that you know what contributes to a state’s “best state for business” ranking, it’s time for the big reveal. What is the best state for business owners?

Using factors like business environment, access to resources, and costs, WalletHub ranked Texas as the best state for business owners.

According to the study, the 10 best states for business are:

  1. Texas
  2. Utah
  3. Georgia
  4. Montana
  5. Oklahoma
  6. Florida
  7. North Dakota
  8. California
  9. Arizona
  10. Colorado

If you want to get into specifics, these are the 10 best small cities for starting a business:

  1. Holland, Michigan
  2. St. George, Utah
  3. Fort Myers, Florida
  4. Redmond, Oregon
  5. Cheyenne, Wyoming
  6. Huntsville, Texas
  7. Bozeman, Montana
  8. Aberdeen, South Dakota
  9. Bend, Oregon
  10. Wilson, North Carolina
Ready to start your business?

Learn more information about how to get your venture going by checking out our FREE guide, Starting a Business Resources & Checklist.

Our ultimate infographic

Check out our infographic below to learn what the best states to start a business are, according to research:

best states to start a business

The takeaway

Your takeaway shouldn’t be to flock to the number one business-friendly state or city. Instead, you should consider all the factors that go into deciding on a location, like costs and resources.

What your startup needs likely differs from what another startup needs. For example, things like cheap office space or high human capital availability may not be relevant to your business.

So before you rush to Texas to open up shop, remember that there are many factors to consider. And again, some factors that go into the “best states to start a business” rankings may not apply to your business needs.

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