When it comes to business, not all states are created equal, and for entrepreneurs just starting out, it matters more than you may realize. Starting a business in a state that’s experiencing a decline in population, has unfavorable taxes and has an economy that’s wanting could leave you wondering why you didn’t move to a different state first. The best state to start a business ideally needs to have the economic, financial and social conditions that are conducive to entrepreneurial success.

10 Best States to Start a Business

Below you’ll find an overview of the top 10 best states to start a business, which includes the overall ranking as well as four select factors from among the 21 used in scoring the study. The 10 best states to start a business are a mix of states from the West and South.

Here are the best states to start a business:

Overall Rank State 5-Year Working-Age Population Growth Rate of New Entrepreneurs Jobs Created per Startup in First Year Venture Capital Invested per New Company
1 Utah 9.0% 0.29% 5.67 $11,537,129
2 Florida 6.9% 0.46% 6.41 $8,184,906
3 Texas 7.7% 0.43% 5.74 $6,750,477
4 Colorado 7.2% 0.35% 6.45 $6,340,736
5 California 1.9% 0.45% 6.47 $26,942,360
6 North Carolina 4.0% 0.27% 4.61 $15,147,746
7 Idaho 7.2% 0.38% 6.10 $1,814,400
8 Oklahoma 0.7% 0.39% 5.51 $4,390,833
9 Georgia 4.0% 0.42% 5.88 $10,244,018
10 Wyoming -4.6% 0.45% 4.79 $2,424,000

10 Worst States to Start a Business

On the opposite end, the 10 worst states to start a business represent a combination of Northeast and Southern states. Most states of the Midwest came in scattered across the middle of the rankings.

Here are the worst-ranking states for starting a business:

Overall Rank State 5-Year Working-Age Population Growth Rate of New Entrepreneurs Jobs Created per Startup in First Year Venture Capital Invested per New Company
50 Rhode Island -0.7% 0.12% 4.16 $2,468,696
49 Connecticut -1.9% 0.20% 4.03 $7,851,954
48 New Jersey -1.4% 0.29% 5.38 $8,819,398
47 Maine -2.3% 0.31% 4.25 $1,275,455
46 Alabama -0.7% 0.21% 4.17 $1,463,333
45 Maryland -0.6% 0.27% 4.04 $10,498,626
44 New Hampshire 0.0% 0.22% 3.87 $4,726,296
43 Arkansas 0.6% 0.29% 4.38 $1,660,357
42 Louisiana -2.2% 0.34% 5.03 $2,052,222
41 Pennsylvania -1.8% 0.19% 3.70 $5,987,000

It seems geographically-speaking, the worst area for starting a business these days is the Northeast. Major cities like Boston, New York and Philadelphia might stand out as major business centers, but their respective states have declining populations, high taxes and mediocre-to-barely-any startup activity. Find out where your state ranks among the best states to start a business.

How the Best States to Start a Business Were Determined

In order to identify the best states to start a business, Seek Capital conducted a study that analyzed all 50 states in the United States using a research methodology that analyzed 21 critical factors. Here’s a  brief overview of the factors considered:

  • Five-year growth in the working-age population
  • Employment statistics like labor force participation rate and the unemployment rate
  • Business tax climate based on corporate taxes, individual income taxes, sales taxes, property taxes and unemployment taxes
  • Venture capital deal flow based on the number of companies that received venture capital funding
  • Economic statistics such as GDP growth, 10-year establish growth rate and 10-year establish growth in strong industry clusters
  • Cost of living and real labor compensation cost per hour
  • One-year and five-year business survival rate

One category of factors — startup activity — was weighted more heavily in the study. These factors were sourced from the Kauffman Indicators of Entrepreneurship. The startup activity category includes four factors that are particularly important to potential entrepreneurs:

  • Rate of new entrepreneurs: The percent of the population that starts a new business
  • Opportunity share of new entrepreneurs: The percent of entrepreneurs who started their business by choice (opportunity) instead of out of necessity
  • Startup early job growth creation: Average number of jobs created by each startup in their first year
  • Startup early survival rate: The percentage of startups that are still active after one year

Geographically, the best states to start a business show some interesting patterns. The Census Bureau divides up the U.S. up into four regions:

  • Midwest: Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota and Wisconsin
  • Northeast: Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island and Vermont
  • South: Alabama, Arkansas, Delaware, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia and West Virginia
  • West: Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, Wyoming

The results of the study reveal many interesting geographic, economic and social patterns shared by both the best states for entrepreneurs and the worst. Read on to find out the best and worst states to start a business.

Looking for a startup business loan to launch or grow your business? Contact us today to see how we can get you the money you are looking for. 

Alabama

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Alabama

  • Overall Rank: 46
  • Business Tax Climate Rank: 40
  • Startup Activity Rank: 40

The recent tariff policies of the Trump administration have negatively impacted businesses in Alabama, mainly because the state is a hub of manufacturing. Alabama also isn’t too conducive to starting a business. 

The rate of new entrepreneurs in Alabama is far lower than the national rate, 0.21 percent versus 0.32 percent, respectively. This doesn’t bode well for entrepreneurs evaluating the state, and neither does its record of few venture capital-funded companies and low amounts dished out. One factor that’s reassuring is Alabama’s five-year business survival rate, 52.1 percent, is better than the U.S. average of 50.9 percent.

Read: 13 Lessons Entrepreneurs Wish They’d Learned Sooner

Alaska

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Alaska

  • Overall Rank: 22
  • Business Tax Climate Rank: 3
  • Startup Activity Rank: 27

The big benefit for employees when you own a business in Alaska is there’s no state income tax. Alaska also does not charge a sales tax, another boon for small business owners. On the downside, Alaska has one of the highest corporate taxes, with a top marginal corporate income tax rate of 9.4 percent. 

Though the working-age population has been declining, the labor force participation rate remains very strong at 67.9 percent, providing potential new business owners with an active workforce. Alaska’s startup activity isn’t bad either, with 0.41 percent of the population starting a new business as compared with 0.32 percent for the U.S. population overall.

Arizona

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Arizona

  • Overall Rank: 15
  • Business Tax Climate Rank: 20
  • Startup Activity Rank: 28

Along with Florida, Arizona has become a major home for retirees. However, like Florida, Arizona has also proven to be a good state to start a business. Though retirees have been flocking to the state, Arizona’s working-age population has grown by 6.8 percent over the last five years. 

Arizona’s economy is booming, growing by a robust 3.8 percent in GDP from 2018 to 2019. The cost of employees is on the cheaper side, with real labor compensation averaging $35.75 per hour. The main factors that hold Arizona back from ranking higher are its one-year and five-year survival rates for new businesses, both of which are noticeably below the national averages.

Read: Why Traditional Funding Might Not Be Right for Your Startup

Arkansas

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Arkansas

  • Overall Rank: 43
  • Business Tax Climate Rank: 46
  • Startup Activity Rank: 31

Arkansas suffers from a low labor force participation rate, which reduces the pool of available employees for your business. Entrepreneurial activity is fairly low as well, with only 0.29 percent of Arkansas’s population becoming entrepreneurs. Arkansas economic growth was mediocre in the last year, seeing a 2.5 percent increase in GDP.

California

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California

  • Overall Rank: 5
  • Business Tax Climate Rank: 48
  • Startup Activity Rank: 1

California shines the most when it comes to its startup activity. California has the second-highest rate of new entrepreneurs, with 0.45 percent of the population starting a business. Startups in California create a large number of jobs, and their first-year survival rate is better than the national average. What’s more, the five-year survival rate of businesses is even better, with 53.2 percent of California new businesses founded in 2014 still in operation as of 2019, higher than 50.9 percent for the U.S. overall.

California also dominates the study in terms of venture capital flows, with 2,869 companies receiving $26.9 billion in funding. The main drawback of California is its business tax climate, where it comes in as the 48th worst state in this category. California’s top marginal corporate income tax rate of 8.84 percent is one of the highest rates in the country. 

Related: How to Start a Business in California

Colorado

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Colorado

  • Overall Rank: 4
  • Business Tax Climate Rank: 17
  • Startup Activity Rank: 7

Early startup survival is high in Colorado, with 81.12 percent of startups remaining in business a year after starting. Another great indicator is the high number of jobs created by Colorado startups. Business taxes are favorable too with Colorado ranking among the 10 best states in terms of corporate taxes.

Economically, Colorado is very conducive to starting a business. Its working-age population has grown by 7.2 percent over the last five years, one of the fastest rates in the U.S. Its GDP growth from the first quarter 2018 to the first quarter 2019 is also robust. This all makes Colorado fertile ground for starting a new business.

Read: How to Safeguard Your Small Business for the Next Recession

Connecticut

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Connecticut

  • Overall Rank: 49
  • Business Tax Climate Rank: 47
  • Startup Activity Rank: 37

Rhode Island’s neighbor is also not very conducive to starting a business. Like a couple of New England states, Connecticut’s working-age population has declined over the last five years. The cost of living remains above the national average and labor is expensive for businesses. Real labor compensation cost for businesses in Rhode Island is $43.68, making it one of the costliest states in terms of labor. 

What’s more is Connecticut’s five-year new firm survival rate is the worst in the study. Of businesses established in March 2014, only 44.3 percent remain in business as of March 2019. To make matters more frustrating, Connecticut ranks the worst in terms of business property taxes out of all 50 states.

Learn: 10 Best Books for Business Owners Recommended by Real Entrepreneurs

Delaware

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Delaware

  • Overall Rank: 20
  • Business Tax Climate Rank: 11
  • Startup Activity Rank: 10

Delaware is an interesting state when it comes to businesses. It is a well-known home to many corporate headquarters, thanks to state laws that allow incorporation without requiring board members to reside in the state, among other laws. The downside to doing business is the corporate tax, where Delaware ranks 50th

If you are looking for small business loans to take your company to the next level, contact Seek Capital today. 

Florida

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Florida

  • Overall Rank: 2
  • Business Tax Climate Rank: 4
  • Startup Activity Rank: 2

Corporate taxes in Florida are generally favorable towards business, with a top marginal corporate income tax rate of 5.5 percent. What’s great for your business’s employees is Florida’s lack of state income tax for individuals. Additionally, employees are cheaper in Florida with real labor compensation costs per hour among the lowest rates in the study.

Florida’s startup activity is very impressive. Florida has the highest rate of new entrepreneurs, with 0.46 percent of its population starting businesses. The average number of jobs created by startups is excellent, with startups each creating an average of 6.41 jobs within their first year in Florida. And businesses seem to get off the ground for fairly cheap, with 18.8 percent of businesses started with less than $5,000.

Find Out: Cities With the Most Female Entrepreneurs

Georgia

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Georgia

  • Overall Rank: 9
  • Business Tax Climate Rank: 32
  • Startup Activity Rank: 6

Georgia is a southern state that has been on the rise lately, with Atlanta especially leading the way. Venture capital has been plentiful in Georgia for new businesses. In 2018, 112 companies received $1.14 billion in venture capital funding, about $10.2 million per company, which is one of the highest amounts in the study. 

Most entrepreneurship indicators are favorable for starting a business in Georgia. The percent of the population that started a new business, 0.42 percent, is much higher than the national rate. The percentage of entrepreneurs who started their business out of opportunity rather than necessity was also better than the U.S. average. The one factor potential entrepreneurs in Georgia should note is the poor early survival rate of startups, with only 76.12 percent of them making it through one year of business.

Learn: 8 Ways to Support Small Businesses

Hawaii

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Hawaii

  • Overall Rank: 36
  • Business Tax Climate Rank: 37
  • Startup Activity Rank: 25

Starting a business in Hawaii is tough due to several factors. The cost of living is the highest in the U.S., meanwhile, the working-age population has fallen by 2.4 percent in the last five years from an already small population.

On the positive side for business owners, Hawaii has the cheapest real cost of labor compensation in the U.S., meaning employees are cheaper on average here than elsewhere. Plus, Hawaii’s one-year startup survival rate and five-year survival rate are both better than the national average.

See: 5 Lessons You’ll Learn When Looking for Startup Funding

Idaho

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Idaho

  • Overall Rank: 7
  • Business Tax Climate Rank: 21
  • Startup Activity Rank: 8

Similar to other western states, Idaho’s working-age population has grown by an impressive 7.2 percent in five years. Startups in Idaho on average create 6.10 jobs per company, among the best rates in this study. Idaho also has a higher rate of new entrepreneurs than the national average, with 0.38 percent of the state population starting a business.

A major boon for business is the low cost of employees. Real labor compensation cost for employers is $32.21 per hour, one of the cheapest rates in the study. Additionally, entrepreneurs in Idaho are able to get their companies off the ground for relatively cheap, with 17.1 percent of businesses started with less than $5,000.

Illinois

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Illinois

  • Overall Rank: 38
  • Business Tax Climate Rank: 35
  • Startup Activity Rank: 34

Economic conditions for starting a business in Illinois are mixed. For one, the working-age population has declined by 2.8 percent over the last five years, not an insignificant amount. Other negative signs are the low rate of entrepreneurs produced from the population and low opportunity share of new entrepreneurs.

Read: 4 Habits to Get Your Business Approved for More Financing

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Indiana

  • Overall Rank: 21
  • Business Tax Climate Rank: 10
  • Startup Activity Rank: 35

Indiana has actually fared better than some of its Midwest neighbors. The state’s working-age population has increased, though small, whereas Ohio’s has fallen over the last five years. Corporate taxes are favorable to running a business in Indiana. In terms of both one-year startup survival and five-year new business survival, Indiana boasts better-than-average rates.

See: Small Business Tax Guide

Iowa

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Iowa

  • Overall Rank: 23
  • Business Tax Climate Rank: 42
  • Startup Activity Rank: 23

A good sign for starting a business in Iowa is the survival rate of new businesses. More than 80 percent of Iowa startups survived their first year. For businesses established in 2014, 55 percent are still in business today, second-best in the U.S. and much better than the national average.

Read: 5 Steps to Take After You’ve Been Rejected for a Small Business Loan

Kansas

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Kansas

  • Overall Rank: 28
  • Business Tax Climate Rank: 34
  • Startup Activity Rank: 42

What makes starting a business in Kansas a little iffy is the poor rate of early startup survival. Only 76.49 percent of Kansas startups survive their first year, notably below the U.S. average. Kansas’s five-year business survival rate is less than stellar as well.

Read: 8 Morning Habits of real Entrepreneurs

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Kentucky

  • Overall Rank: 31
  • Business Tax Climate Rank: 24
  • Startup Activity Rank: 33

Employment numbers in Kentucky aren’t very reassuring for a new business owner looking for employees. Kentucky’s labor force participation rate of 59.3 percent is very much on the lower end of the spectrum. Startup activity in Kentucky is also unimpressive, with numbers that are all worse than the overall figures for the U.S.

On the plus side, Kentucky has a comparatively cheap cost of living and cost of real labor compensation paid to employees. Despite these cheap costs, only 14.6 percent of businesses were started with less than $5,000 in Kentucky.

Not sure which startup business funding option is right for you? Contact Seek Capital today to figure out which option is best for your business. 

Louisiana

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Louisiana

  • Overall Rank: 42
  • Business Tax Climate Rank: 41
  • Startup Activity Rank: 32

Like its northern neighbor Arkansas, Louisiana’s labor force participation rate is on the low side. Louisiana’s working-age population has also decreased over the last five years, which limits your choice of potential employees. More entrepreneurs in Louisiana began their business out of necessity, with only 71.9 percent starting their company due to opportunity reasons.

Read: Business Line of Credit vs. Loan — Which Is Right for Your Business?

Maine

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Maine

  • Overall Rank: 47
  • Business Tax Climate Rank: 33
  • Startup Activity Rank: 44

Maine already has a small working-age population, 844,170 in 2018. Unfortunately, that’s down 2.3 percent from 2013. In terms of business tax climate, Maine leans toward the less favorable side, ranking poorly for its corporate taxes and property taxes. But Maine’s most foreboding figure is its startup early survival rate. Only 72.24 percent of startups survive their first year in Maine, the second-worst rate in the study.

Maryland

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Maryland

  • Overall Rank: 45
  • Business Tax Climate Rank: 43
  • Startup Activity Rank: 47

The prospects for starting a business in Maryland are not great. The state ranks among the 10 worst states in terms of business tax climate. What’s more, a much lower rate of new entrepreneurs began their business due to opportunity versus necessity. 

On the plus side, venture capital money flows heavily in Maryland. In 2018, 131 companies were funded a total of $1.37 billion, just under $10.5 million per company, by venture capital deals. Unfortunately, only 48.7 percent of businesses formed five years ago remain in operation today.

See: 5 Lessons You’ll Learn When Scaling Your Business

Massachusetts

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Massachusetts

  • Overall Rank: 19
  • Business Tax Climate Rank: 36
  • Startup Activity Rank: 17

Massachusetts companies received sizeable amounts of venture capital. In 2018, 624 companies were funded nearly $11.9 billion in total, equivalent to over $19 million per company, in venture capital deals. 

Startup activity in Massachusetts is a mixed bag. On the one hand, the rate and opportunity share of new entrepreneurs are on the low end. On the other hand, Massachusetts startups create more jobs and have a better survival rate than the national average. In fact, an impressive 55 percent of businesses established in 2014 are still in business as of 2019.

Learn: How Does My Personal Credit Affect My Business?

Michigan

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Michigan

  • Overall Rank: 24
  • Business Tax Climate Rank: 12
  • Startup Activity Rank: 30

New business activity in Michigan is undermined by a declining working-age population, low rates of new entrepreneurs among the population and fewer jobs created by startups. That being said, the business tax climate is conducive to starting a business in Michigan. And despite reduced startup activity, their one-year survival rate is very good in Michigan compared to other states.

See: How to Leverage Financing Today to Grow Your Business Tomorrow

Minnesota

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Minnesota

  • Overall Rank: 27
  • Business Tax Climate Rank: 45
  • Startup Activity Rank: 43

Minnesota ranks poorly in terms of its business tax climate, especially its corporate tax and individual income tax. All of its indicators of entrepreneurship — rate of new entrepreneurs, opportunity share of new entrepreneurs, startup early job growth and startup one-year survival rate — are all worse than the national average. With $40.46 per hour going towards labor compensation on average, employees can be expensive for a company in Minnesota.

However, it’s not all bad for those starting a business in Minnesota. Perhaps its best area is in the five-year survival rate of businesses. Of new businesses established in 2014, 54.8 percent of them remain in business as of 2019, the third-best rate in the country.

Learn: 5 Creative Ways to Fund Your Startup Without Investors

Mississippi

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Mississippi

  • Overall Rank: 37
  • Business Tax Climate Rank: 31
  • Startup Activity Rank: 24

Overall socio-economic conditions in Mississippi make it less than ideal for starting a business. Its working-age population has been in decline and it suffers from a low labor force participation rate. On the positive side, a high rate of startups in Mississippi survive their first year. However, only 49.9 percent of businesses formed in 2014 remain in business as of 2019.

Find Out: The 6 Types of Business Structures to Choose From

Missouri

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Missouri

  • Overall Rank: 30
  • Business Tax Climate Rank: 14
  • Startup Activity Rank: 41

Of the best states to start a business, Missouri gets knocked hard for having the lowest one-year startup survival rate, 70.94 percent versus a national rate of 79.43 percent. Missouri’s five-year survival rate is also below-average.

On the positive side, the cost of living in the state is cheap, and it ranks well in terms of corporate taxes, property taxes and unemployment insurance taxes.

Read: How to Get a Business License

Montana

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Montana

  • Overall Rank: 12
  • Business Tax Climate Rank: 5
  • Startup Activity Rank: 14

Montana’s business tax climate ranks No. 5 out of 50, making it one of the best in terms of taxes. A major plus is Montana’s no state income tax. 

Another bonus for small business owners is that employees are inexpensive. Montana has the second-lowest-cost of real labor compensation at $31.56 per hour on average. New business prospects look bright as 0.4 percent of Montana’s population started new businesses, much higher than 0.32 percent for the U.S. overall.

Read: 10 Tips for Female Entrepreneurs From Female Founders 

Nebraska

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Nebraska

  • Overall Rank: 17
  • Business Tax Climate Rank: 28
  • Startup Activity Rank: 21

Nebraska is one of the powerhouses of the Midwest. In terms of starting a business, opportunity seems plentiful as 92.49 percent of new entrepreneurs said they created their business by choice rather than necessity. The economic climate is healthy, with a high labor force participation rate and low unemployment.

Nevada

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Nevada

  • Overall Rank: 13
  • Business Tax Climate Rank: 7
  • Startup Activity Rank: 12

Nevada’s economy has seriously rebounded from the depths of the housing crash. Nevada has experienced substantial growth in its working-age population over the last five years, behind Arizona but ahead of Washington. Equally impressive is Nevada’s 4 percent growth in GDP in a year from the first quarter 2018 to the first quarter 2019, the sixth fastest-growing state economy in the study.

Employees in Nevada also enjoy no state income tax on their wages. This makes the real cost of compensation of employees cheaper for businesses in the state. 

Some caution is needed in terms of Nevada’s taxes. The state doesn’t have a corporate income tax, but it does have a gross receipts tax, which has implications for businesses in general and certain ones in particular.

New Hampshire

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New Hampshire

  • Overall Rank: 44
  • Business Tax Climate Rank: 6
  • Startup Activity Rank: 45

Businesses in New Hampshire benefit from no state sales tax, but corporate taxes are fairly unfavorable. In general, startup activity in New Hampshire is lower compared to other states. The percentage of the population that starts a new business is much lower-than-average. Startups created fewer jobs in their first year in New Hampshire compared to the national average. Startups in New Hampshire also have difficulty making it through a year of operation, with only 76.86 percent surviving.

See: 8 Home Office Essentials for Small Business Owners

New Jersey

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New Jersey

  • Overall Rank: 48
  • Business Tax Climate Rank: 50
  • Startup Activity Rank: 20

New Jersey is one of several Northeast states to rank on the lower end of the best states to start a business. New Jersey’s working-age population has declined from 2013 to 2018, and its growth rate of business establishments from 2006 to 2016 was also in the negatives. 

In 2018, 83 venture capital-funded companies received $732.01 million in funding, equivalent to about $8.8 million per company, which is among the highest in the study. Unfortunately, the startup early survival rate is below the national average, and its five-year rate of 48.6 percent isn’t great either.

Related: 5 Questions to Ask Yourself Before Starting a Business

New Mexico

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New Mexico

  • Overall Rank: 35
  • Business Tax Climate Rank: 22
  • Startup Activity Rank: 36

Demographically, New Mexico’s working-age population has declined over the last five years. The state’s low labor force participation rate isn’t a good sign when you’re a business owner looking for qualified employees. 

In terms of startup activity, New Mexico scores well for its high percentage of the population who started a business. On the other hand, for many of these entrepreneurs, they started their businesses out of necessity, with only 69.47 percent starting them due to opportunity.

New York

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New York

  • Overall Rank: 26
  • Business Tax Climate Rank: 45
  • Startup Activity Rank: 9

New York is home to the Big Apple, which is the center of the global financial system. And yet, economic conditions and taxes make starting a business in New York somewhat problematic.  First off, New York’s working-age population has been on the decline over the last five years. While New York’s top marginal corporate income tax rate isn’t bad, its overall business tax climate is hurt by high individual income taxes, high sales tax and high property taxes.

On the positive side, startups in New York create a good amount of jobs. On average, each startup creates 6.11 jobs, better than the national average of 5.2 jobs and one of the best rates in the study. Another good sign is the massive flow of venture capital funds to new companies in New York. In 2018, 981 companies received over $14.3 billion in venture capital funding, equal to nearly $14.6 million per company on average.

Read: 9 Ways to Increase Business Profits

North Carolina

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North Carolina

  • Overall Rank: 6
  • Business Tax Climate Rank: 15
  • Startup Activity Rank: 18

North Carolina is impressive in terms of its venture capital numbers. In 2018, $2.62 billion in venture capital funding was dealt out to 173 companies, equal to a little over $15.1 million per company. North Carolina’s startup early survival rate is better-than-average, with 81.2 percent of startups surviving their first year.

As the No. 14 best state to start a business, North Carolina shines most with its corporate tax. Ranked third-best in this category, North Carolina has a relatively low flat tax on corporate incomes. Economic prospects look good as well, with the working-age population rising by 4 percent over the last five years. The percentage of new entrepreneurs in North Carolina who created a business by choice instead of necessity is 90.35 percent, an impressive figure higher than the national average 86.16 percent.

See: 3 Alternatives to Business Bank Loans

North Dakota

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North Dakota

  • Overall Rank: 14
  • Business Tax Climate Rank: 16
  • Startup Activity Rank: 15

North Dakota has been on fire in terms of economics. Its GDP grew by 3.9 percent from the first quarter 2018 to the first quarter 2019, one of the largest growth rates in the country. The 10-year growth rate of establishments from 2006 to 2016 is the largest in the study at 1.44 percent. North Dakota also has an energetic workforce, boasting a labor force participation rate of 69.6 percent, the highest rate in the U.S. Startup activity too is better than average in terms of the rate and opportunity share of new entrepreneurs.

Ohio

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Ohio

  • Overall Rank: 32
  • Business Tax Climate Rank: 38
  • Startup Activity Rank: 46

Startup activity in Ohio is pretty muted. Only a small fraction of the population, 0.20 percent, have started new businesses. And startups created only 3.6 jobs per company on average within their first year, one of the worst rates in the study. That said, venture capital funds flowed to 141 companies in 2018, equivalent to $7.28 million on average for each company.

Read: 4 Signs It’s Time to Get a Business Line a Credit

Oklahoma

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Oklahoma

  • Overall Rank: 8
  • Business Tax Climate Rank: 27
  • Startup Activity Rank: 4

Oklahoma’s startup activity makes it very conducive to starting a business there. Oklahoma has a higher rate of new entrepreneurs compared to the national average, with 0.39 percent of the population starting a new business. On top of that, Oklahoma has the third-best survival rate for startups, with 81.51 percent of new companies surviving through their first year. 

Although venture capital flowed to only 12 companies in Oklahoma in 2018, the amounts per company are equal to about $4.39 million. This is more, for example, than the venture capital dealt out to 88 companies in Indiana, which came out to $4.18 million per company.

Oregon

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Oregon

  • Overall Rank: 18
  • Business Tax Climate Rank: 8
  • Startup Activity Rank: 19

If you’re looking to start a business in Oregon, the conditions are favorable. The working-age population is up 4.4 percent from 2013 to 2018, the ninth-largest increase in the U.S. Oregon ranks among the 10 best states in terms of business tax climate, especially the no state sales tax. 

Prospects look good for those starting a business in Oregon, with just under 90 percent of new entrepreneurs founding their companies out of opportunity not necessity. Another auspicious sign is Oregon’s 52.7 percent five-year business survival rate, which is higher than the national rate.

Find Out: How to Write a Great Business Plan

Pennsylvania

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Pennsylvania

  • Overall Rank: 41
  • Business Tax Climate Rank: 29
  • Startup Activity Rank: 39

Pennsylvania’s working-age population is declining, which doesn’t correlate well with new business success. Corporate taxes on businesses in Pennsylvania rank among the worst in the country. In terms of startup activity, Pennsylvania has one of the lowest rates of new entrepreneurs and startup job creation in the study.

Rhode Island

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Rhode Island

  • Overall Rank: 50
  • Business Tax Climate Rank: 39
  • Startup Activity Rank: 50

Rhode Island ranks as the worst state to start a business, with good reason. Its rate of new entrepreneurs, defined by the Kauffman Indicators of Entrepreneurship as the percentage of the population that starts a new business, is the lowest in the study at just 0.12 percent. 

Rhode Island’s 10-year establishments’ growth rate is in the negatives. Also, its one-year startup survival rate of 74.3 percent and the five-year survival rate of 47.4 percent both rank among the worst in the study. With a declining working-age population to boot, Rhode Island is not ideal for starting a new business.

South Carolina

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South Carolina

  • Overall Rank: 25
  • Business Tax Climate Rank: 30
  • Startup Activity Rank: 29

South Carolina lands right in the middle of Seek Capital’s list of the best states to start a business. Working-age population growth is solid, and the cost of employees is on the cheaper side in South Carolina. The state also has favorable business taxes, with a top marginal corporate income tax rate of 5 percent.

South Carolina is weak in terms of entrepreneurial activity. Only 0.26 percent of South Carolina’s population has started a new business. And the survival rate of new businesses isn’t great either. From 2014 to 2019, only 48.9 percent of businesses founded in the first year remain in operation after five years.

South Dakota

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South Dakota

  • Overall Rank: 11
  • Business Tax Climate Rank: 2
  • Startup Activity Rank: 16

South Dakota might have a smaller population than most states, but it boasts a high labor force participation rate. This means that a large portion of South Dakota’s working-age population is either employed or actively seeking employment, the latter being especially important for small business owners. 

South Dakota’s business tax climate is excellent, the second-best in the country. South Dakota levies no corporate income tax nor an individual income tax, something both employers and employees enjoy. And although only three companies received venture capital funds in 2018, the average funding per company was $7.16 million, which is actually larger than the amount companies received in Texas last year ($6.75 million).

Tennessee

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Tennessee

  • Overall Rank: 29
  • Business Tax Climate Rank: 18
  • Startup Activity Rank: 22

Tennessee’s working-age population has been steadily rising over the last five years. The business tax climate in Tennessee is fairly favorable, ranking 18th out of a possible 50 in this category. Tennessee employees enjoy no state income tax on wages; only dividends and interest are taxed. 

The reasons why Tennessee isn’t a great state to start a business are due to a handful of categories. For example, less than 50 percent of businesses founded in 2014 have survived to 2019. And the rate of new entrepreneurs from the population is an unimpressive 0.27 percent, less than the 0.32 percent for the U.S. population overall.

Texas

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Texas

  • Overall Rank: 3
  • Business Tax Climate Rank: 13
  • Startup Activity Rank: 5

Where to begin when it comes to Texas as one of the best states to start a business? Texas has experienced the second-biggest growth in state GDP in the country, surging by 5.1 percent in only one year. The state with the biggest growth, West Virginia, has a much smaller economy and therefore a lower floor to rise from. The working-age population growth in Texas is stellar as well, rising by over 1.3 million people from 2013 to 2018, an increase of 7.7 percent.

Texas is comparatively affordable in terms of the overall cost of living and property prices compared to much of the U.S. Texas also boasts the fifth-highest amount of venture capital invested, with more than $2.68 billion invested in 2018.

Read: How to Start a Business In Texas

Utah

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Utah

  • Overall Rank: 1
  • Business Tax Climate Rank: 9
  • Startup Activity Rank: 13

As the No. 1 best state to start a business, Utah has top marks across several categories in the study. From 2013 to 2018, Utah’s working-age population grew by 9 percent, from a little over 1.8 million to now closing in on 2 million. 

Venture capital flows freely in Utah, with 101 companies receiving $1.16 billion in funding, equivalent to a little over $11.5 million per company. That ranks as the fifth-highest amount in the study, behind New York and ahead of Maryland. The growth rate of establishments in Utah from 2006 to 2016 is among the best in the study. Meanwhile, job creation by startups in Utah is better-than-average, as is the opportunity share of new entrepreneurs.

Utah ranks well in terms of its business tax climate. While LLCs in Utah pass their profits and losses onto the members’ personal tax returns, corporations do not. Fortunately, Utah taxes a comparatively low flat corporate income tax of 4.95 percent, reduced from 5 percent in 2018.

Vermont

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Vermont

  • Overall Rank: 34
  • Business Tax Climate Rank: 44
  • Startup Activity Rank: 26

Demographic and tax conditions aren’t that conducive to starting a business in this state. Vermont’s working-age population is on the decline, down by nearly 15,000 people out of a population of only 400,000 in five years. Vermont’s business tax climate isn’t helpful either, with a top marginal corporate income tax rate of 8.5 percent, which is very much on the high side. On the bright side, startups have above-average rates of survival, with 80.53 percent of them surviving their first year.

Vermont

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Virginia

  • Overall Rank: 33
  • Business Tax Climate Rank: 25
  • Startup Activity Rank: 48

The percentage of the population in Virginia that starts a new business is only 0.18 percent, among the lowest rates of new entrepreneurs in the study. The share of entrepreneurs who started their business due to opportunity is lower in Virginia, implying that the share that started them out of necessity is higher. 

But the biggest negative for starting a business in Virginia is the poor survival rate. Only 46.7 percent of new businesses founded in 2014 have survived to 2019.

See: How to Know When It’s Time to Expand Your Business

Washington

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Washington

  • Overall Rank: 16
  • Business Tax Climate Rank: 19
  • Startup Activity Rank: 11

Washington’s economy is booming thanks in part to excellent growth in its working-age population, up by 6.3 percent in just five years. A business’s employees benefit from no state income tax, though corporate taxes in Washington aren’t great for business owners. That said, startup activity is solid, with more than 90 percent of new entrepreneurs starting their business by choice instead of necessity. Plus, nearly 81 percent of startups survive their first year of business, better than the U.S. average.

West Virginia

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West Virginia

  • Overall Rank: 40
  • Business Tax Climate Rank: 23
  • Startup Activity Rank: 38

West Virginia’s economy is hot. The state’s GDP grew by 5.2 percent from 2018 to 2019, the largest rate of growth in the U.S. This is balanced out, however, by a declining working-age population, low labor force participation rate and low rate of new entrepreneurs. 

New companies have a tougher time surviving multiple years of business in West Virginia. Only 49.3 percent of those established in 2014 remain in operation in 2019. Fortunately for employers, compensation costs for employees are cheaper in West Virginia than in most other states.

West Virginia

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Wisconsin

  • Overall Rank: 39
  • Business Tax Climate Rank: 26
  • Startup Activity Rank: 49

Startup activity in Wisconsin is on the weak side. Only 68.43 percent of new entrepreneurs started their business because of opportunity factors versus out of necessity. The percentage of Wisconsin’s population that start new businesses is also on the low side, with just 0.25 percent becoming entrepreneurs compared to 0.32 percent for the U.S. population overall.

Wyoming

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Wyoming

  • Overall Rank: 10
  • Business Tax Climate Rank: 1
  • Startup Activity Rank: 3

Wyoming’s business tax climate is even better than South Dakota’s, ranking No. 1 out of all 50 states. Like its neighbor, Wyoming does not charge a corporate income tax or an individual income tax. 

One notable negative mark for Wyoming is its decline in the working-age population. However, Wyoming makes up for this with one of the highest rates of new entrepreneurs in the study, with 0.45 percent of the population starting a new business. Startups in Wyoming also have a high rate of early survival, with 81.66 percent of startups remaining in business after their first year.

Looking for a startup business loan to launch or grow your business? Contact us today to see how we can get you the money you are looking for. 

The Bottom Line

Although no state ranks at the top for all 21 factors, the best states to start a business received top marks across a majority of the factors. For instance, California’s individual and business taxes can be a pain, but due to booming economy, growth in the working-age population, access to finance and other factors, it made it one of the best states to start a business. The success of your company depends on your vision, work ethic and business concept, among other things. But even if you shine in terms of those traits, factors like geography, economics and policy all can hugely affect your business’s success.

Methodology

To determine the best states for to start a business, Seek Capital analyzed data from multiple sources using the following criteria: (1) five-year working-age (16 to 64) population growth, (2) annual labor force participation rate, (3) annual unemployment rate with data sourced from the U.S. Census Bureau’s 2013 and 2018 American Community Survey 1-Year Estimates; business tax climate rankings, sourced from Tax Foundation’s 2020 Business Tax Climate report, including (4) corporate tax, (5) individual income tax, (6) sales tax, (7) property tax, (8) unemployment insurance tax ranks, based on a scale from 1 to 50; (9) rate of new entrepreneurs, (10) opportunity share of new entrepreneurs, (11) startup early job creation, (12) startup survival rate, all sourced from the Kauffman Indicators of Entrepreneurship; (13) five-year rate of new business survival, March 2014 to March 2019, sourced from the Bureau of Labor Statistics (BLS); (14) venture capital deal flow, sourced from National Venture Capital Association’s 2019 Yearbook report; business cluster data from the U.S. Cluster Mapping Project, including (15) establishment growth rate, 2006-2016, (16) cluster strength, which refers to the level of high employment specialization of a cluster, which is a regional concentration of related industries in a particular location, (17) employment growth in strong clusters, 2006-2016; (18) GDP change from the first quarter 2018 to the  first quarter 2019, sourced from the Bureau of Economic Analysis (BEA); (19) real labor compensation per hour, sourced from the BLS; (20) state cost of living index, sourced from the Missouri Economic Research and Information Center; (21) percentage of new businesses started with less than $5,000, sourced from the Census Bureau’s 2016 Annual Survey of Entrepreneurs. All data compiled Nov. 1, 2019.

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