Set Up for Success: Best States to Start a Business

Where you choose to open up shop is one of the biggest and most critical decisions, you need to make when writing your business plan. However, location does not just mean picking the right street or building. It is also about selecting the state to conduct business in.

Some states are more entrepreneurship conducive than others, offering new business owners better resource access and supportive environments.

If you are flexible about where to start your venture, the list below of the best states to start a business provides an excellent foundation for making a smart decision. Keep reading and see what states make the cut.

Factors to Consider When Choosing the Best States for Starting a Business 

Before finding out the best business-friendly states in the U.S., it is important to examine what makes them superior. After all, there must be a reason for ranking the states so high.

Here are five things to consider when choosing the perfect state for your new business.

Financial Opportunities Available for Small Business Owners

Starting a business without funds is close to impossible. The money for starting and running your venture will help see your dream take off.

Unfortunately, few small business owners have the financial resources to boost their enterprises. The alternative is to seek business finance opportunities.

Top financing options for small businesses and startups include:

• Your savings (bootstrapping)
• Credit cards
• Friends and family-friendliness
• Small Business Administration (SBA) or business loan
• Community Development Finance Institutions (CDFIs)
• Venture Capitalists (VCs)
• Invoice factoring or financing
• Convertible debt
• Crowdfunding

 

The options for financing your small business idea are many. However, financing is more readily available in some states than in others.

For example, South Dakota, North Dakota, and Utah states offer the most accessible financing, according to a WalletHub report. Nevada, Arizona, and Oregon states provide the least accessible financing.

Unless you are bootstrapping your venture or borrowing from friends and family, choose a state offering accessible financing options.

Quality Workforce Availability

The success of any depends on the workforce. Employees without the right industry knowledge, skills, and attitude are a recipe for financial ruin.

As you choose a state, make sure you consider:

• Human capital availability—An important consideration for labor-intensive businesses, so make sure you select a state with high availability of human resources. WalletHub lists Hawaii, California, and New York as states with the highest human capital availability.
• Labor force skills and education—You may require employees with a specific set of skills and educational qualifications. The states with the most educated populations, according to WalletHub, are Massachusetts, Colorado, and Maryland.

 

Other workforce-related considerations when choosing the right state for your business include:

• The number of employees you will require
• Range of positions and skills that fit business needs

Look for Business Growth Trends

You hope that the business will grow once you start. This means expansion by giving the company your time, energy, and putting in hard work.

Small business growth may mean several things to different people, but the most common indicators are:

• An expanding customer base
• High inventory turnover
• Increasing revenue or profits
• Improving cash flow
• The buzz around your company

 

Business growth trends in Georgia, Texas, and California are the highest.

An Attractive Tax System and Corporate Income Tax Rate

Some states and cities are more business tax liability friendly than others. Other states place significant tax responsibilities on businesses through high and complicated tax rates.

A tax-friendly state features an appealing tax system for business owners. Factors that make a state tax-friendly include:

• Individual income tax
• Corporate tax
• State sales tax
• Property tax
• Unemployment insurance tax

 

According to the Tax Foundation, the most tax-friendly states are Wyoming, South Dakota, and Alaska. These states also simplify taxes, so business owners pay easy-to-understand flat or tiered tax rates.

Other states have complicated tax systems. Such states may make you jump through hoops when registering your business and getting permits and licenses.

Living, Office Space, and Labor Costs

Another thing to consider while determining the best state to start your business is cost. Look at your figures and see how much you can spend on living, labor, and office space.

The cost-of-living measures how much money it takes to live a fairly average life in a state. Food, transport, housing, taxes, healthcare, and energy are some things that help measure the living cost. A low cost of living drives your expenses down while affecting wage averages for the state.

Employee wages are expensive business costs. How much you will pay employees depends on the location. The BLS provides wage data based on location and occupation for this reason.

Securing an inexpensive office space is critical if you are not running your venture from a home office. Iowa offers some of the cheapest office spaces, according to WalletHub.

Ranking Method a Conducive Business Environment

Data on the most business-friendly states listed below comes from WalletHub and Thumbtack. Each platform ranks the 50 states depending on different factors.

WalletHub ranks states using 28 metrics, including job growth, GDP growth, human-capital availability, and labor costs. However, the metrics fall into one of these major categories:

• Business environment
• Resource accessibility
• Business costs

 

The Thumbtack report states ranking looks into various aspects of doing business, including:

• Hiring ease
• Employment, labor, and hiring
• Licensing
• Ease of starting a venture
• Tax code

Top 8 Most Business-Friendly States

1. Texas — Best Overall

The Lone State state offers business owners an exciting and friendly environment from different fronts. The state realizes tremendous economic growth. Further, the number of new entrepreneurs in Texas is increasing monthly, as over 400 Texans set up businesses daily!

No corporate or personal income taxes make Texas an attractive business host. Starting your business in the state also means that you are in one of the best states for tax.

As home to the second-largest population in the nation, you will never experience a labor shortage. Plus, an impressive number of universities and cities in Texas guarantee a steady supply of a skilled, young workforce.

Other critical factors position Texas as one of the best places to start a business, including:

• Infrastructure—Texas is in a central location, so businesses access multiple modes of transportation. These include sea, land, and air, which means you and your products can get anywhere in the world. 
• Diverse industries—Texas is home to advanced industries and manufacturing companies such as Tesla and Toyota. The state also leads in energy production. 
• Quality of life—Texas is home to a mix of country and city lifestyles. Residents can engage in multiple activities for a work-life balance while enjoying a low cost of living. 

2. Georgia — Best for Labor Cost

The strongest selling points for Georgia are a skilled workforce, a sturdy economy, and a developed infrastructure. The South’s Empire State has a government keen on helping a business achieve growth and ensuring small businesses get financing easily.

Small businesses have access to the highest venture capital levels, making Georgia an excellent destination for startups looking for financing. Easy payroll laws in the state mean that the hourly wage rates are some of the lowest in the nation.

Georgia is a leader in multiple industries, including electrical equipment, fabricated metals, machinery, and heavy equipment.

Other factors making Georgia an excellent place to open your business include:

• A skilled labor force
• High-quality universities, including the University of Georgia and Georgia Tech
• Excellent tax breaks for job creators and manufacturers
• Superb transportation and manufacturing infrastructure
• Low unionization rates

3. California — Best for Innovation

Starting your business in California offers an opportunity to experience growth. You can find all the resources at the California Office of the Small Business Advocate (CalOSBA). The office represents the views and interests of small businesses across the state.

Some business resources available for entrepreneurs from CalOSBA include:

• The California Tax Service Center for income and payroll tax help
• California Government Online to Desktops (CalGOLD) for issuance of business permits and licenses

 

California is also home to Silicon Valley and 53 Fortune 500 companies. The state leads in innovation, and businesses have access to a highly-skilled labor force and capital. However, the 8.84% corporate tax rate makes California an expensive state to do business.

Starting your business in California offers several benefits, including:

• Excellent networking opportunities—Calm weather and a large population make the Golden State the ideal destination to carry out business. You get many opportunities to link with similar-minded people at events strewn out across the state. 
• Diverse industries—California is a thriving economy from hosting two cities leading in different industries. Los Angeles is the world’s entertainment heaven, while San Francisco leads the tech world. Other industries are also contributing to the growth of California, such as farming. 
• A large talent pool—California is the most populated state with an impressive talent pool. The state is getting wealthier and its citizens more educated, so you have a large pool of qualified candidates. 

4. Florida — Best Tax Climate

What do West Palm Beach, Fort Lauderdale, Orlando, and Jacksonville cities have in common? Well, they are all in Florida and are also the most small business-friendly cities in the U.S.

Florida is an SMB heaven with no state income tax for an individual and a 5.5% corporate income tax rate. The state also has other state tax types that make it the perfect destination for your new business for tax purposes.

Part of the reason Florida keeps sales taxes on businesses and residents low is that it makes more on tourist-related taxes. The state receives over 20 million visitors each year!

Florida is also experiencing a growth in the number of venture capitalists and angel investors supporting entrepreneurs to launch their businesses. Education institutions are also pumping money into business ventures. For example, the Florida High Tech Corridor program is offering $80 million grant money for research projects at over 400 companies.

Other reasons Florida ranks high on the list of the best states to start a business include:

• Government incentives—State and local level government officials are offering new business various incentives. Some include tax refunds for businesses that develop idle commercial sites, tax credits for job creators, and special tax exemptions for engaging in the defense, space, and semi-conductor sectors. 
• Consistent growth—Florida is now the fourth-largest economy among the states. It would be the 15th largest economy in the world if it was an independent country!
• Diverse economy—Some of the biggest sectors in Florida are homeland security, information technology, aviation and aerospace, defense, and life sciences. Further, major companies are moving or expanding their operation in Florida. For example, KPMG, InnovaCare Health Inc., and Disney have expansion or relocation plans for the Orlando area. 

5. Idaho — Best for Real Estate Businesses

Idaho presents you with one of the strongest economies and business-friendly policies. The state boasts a safe physical environment with a very low risk of natural disasters, offering a vast untapped potential to boost your new business.

The state is also famous for its immaculate natural landscapes and wilderness. Over the last couple of years, total real estate appreciation in Idaho is 47.64%, and an appreciation rate of a whopping 162.85% over the last ten years.

Whether you choose to buy a house and rent or fix and flip in Idaho, investing in real estate is a sound way to grow your money. The wild appreciation rate results from increased real estate demand. Further, the cost of living in the state is 2% lower than the national average, and the mortgage rate at 2.9%. More people are looking at Idaho as a place to settle with their families or invest.

If you are looking to invest in technology, science, tourism, mining, and chemicals, Idaho is an excellent location. The state is also tax-friendly and experienced the highest population change in mid-2020 of 2.12%. You also get an excellent job market with access to an affordable workforce.

6. Utah — Best for Business Financing

Also crowned as one of the best states to raise a family, Utah is also the second-best state to register your business. The state has a fast-growing working population and a thriving economy. Easily accessible business financing, the supporting regulatory environment, and an excellent labor supply system make the Beehive State a good choice for starting your business.

Utah is also experiencing the second-highest small businesses growth rate and the 2020 number one state for entrepreneurs. Venture capital is readily available if you are looking for a state that makes it easier to start a business. Corporate and individual income tax rates are 4.95%, which is lower than most states.

The state is not the most affordable when you consider the overall cost of doing business and the cost of labor. However, excellent consumer spending and a 50% five-year business survival rate make Utah an excellent base for your business.

Adult residents in Utah boast high college completion rates. All these and more advantages establish Utah as a formidable contender for the best state to start your business title.

7. Tennessee — Lowest Cost of Living

Tennessee is a haven for businesses looking to reduce their overhead costs. The state’s cost of living is the lowest in the country and spenders gain more freedom to grow the local economy. The dollar power is better in Tennessee, so your business should have greater purchasing power.

A low cost of living means the prices of most services and products are lower. Your employees require less stimulus in Tennessee to live a comfortable life. Starting your business in Tennessee will also help slash down your real estate budget.

The state is home to multiple household companies, such as AutoZone, FedEx, Cracker Barrel, and Dollar General. Tennessee is also a central location for the healthcare industry because half of the biggest companies in the state fall under this category.

A low cost of living in the state also means affordable office rents. For example, office space in Knoxville will only cost you $20 and $23 in Memphis.

8. Oklahoma — Best Doing Business Costs

The state boasts the third-highest business survival rates in America. Close to 82% of new businesses in Oklahoma survive the first 12 months and 50% survive beyond five years.

Oklahoma also has a low cost of living, making it another excellent state for starting a venture with limited resources business costs. Entrepreneurs in the state also have access to plenty of venture capital opportunities. Longer average workweeks in the Sooner State make it one of the hardest working in the country. However, lower consumer spending and a less skilled workforce can affect a business’s success.

Thriving industries in Oklahoma include entertainment, hospitality, business services, logistics, energy, and biotechnology. The state also has strong healthcare, transportation, and aviation sectors. Licensing and employment regulations in Oklahoma are business-friendly.

Oklahoma is also a great place for manufacturing businesses. United Dynamics, HIS Paint, Duracoatings Holdings, and The Climate Control Group are just a few manufacturers showing the diversity and scalability of Oklahoma.

The state is in an ideal location for making products at affordable rates and distributing them around the country. Equidistant from the west and east coasts and central location between the Mexican and Canadian borders makes Oklahoma an ideal spot for any company looking to distribute its products further.

Wrapping Up

Researching the best states to start a business is a critical task if you are looking to move. Each business is unique and has its unique set of priorities, but the list above provides an excellent starting point!