Best States to Start a Business in 2022: Definitive Ranking of All 50 States

Cody Cromwell
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New Hampshire

While the cost of living in New Hampshire is about 7.0% below the national average, the high quality of life, affordability, tax environment, and entrepreneurship scene make it a logical place to start a business. No state has a greater concentration of universities and colleges per capita than New Hampshire. New Hampshire has more than 1,800 active entrepreneurs, and the state ranks 11th for ease of starting a business. The New Hampshire Business Review and Site Selection conduct a poll each year asking each state’s governor to name their top two business-friendly states. Hats off to Governor Chris Sununu who named New Hampshire first in his 2018 poll! The state ranks 5th for best quality of life and 13th for business costs for college graduates.

Massachusetts

Has a long history as an innovator and the site of some of the first major breakthroughs in the development of the American economy. The Port of Boston developed into a major seaport for transatlantic trade by the mid-18th century, and the state’s trolleys connected major industrial and population centers until the mid-20th century. Educational advancements in Boston’s public school system have made the city a national center for science and technology education, and its health care sector is regularly ranked among the best in the country.

Massachusetts ranked second in the U.S. for its total high-tech industry and third for high-tech startup activity, according to the Kauffman Index of Startup Activity. The state also ranked second for foreign exports and fourth for exports in general, while being one of the top states in the nation for venture capital investment.

However, Massachusetts also ranked eighth in the nation for the cost of doing business, based on the annual Cost of Doing Business Report published by S&P Global.

Wyoming

With a population of 584,000, Wyoming is located in the state of the mountain range known as the Rocky Mountains. It has a total elevations of over 7,000 ft. The state has a dry ecosystem with hot summers and mild winters.

Wyoming gained statehood on 10 January 1890, following approval by the U.S. Congress of the Wyoming Enabling Act. The Wyoming State bird is the sandhill crane, and the state flower is the Columbine. Wyoming Territory began to sell and auction snowslides in 1963 to help diversify its economy.

In 1969, the Wyoming Legislature officially changed the territorial affiliation to department status.

The naming of the Wyoming Highway 16 goes back to the territorial era. It first appears on a 1909 map. In 1917, the state is shown as the "Nebraska-Wyoming" highway. In 1919, the highway is shown as the "National Transcontinental" highway. In 1922, the "Yellowstone" highway. On U.S. Highway 16, the north end of the "Yellowstone" highway was in Custer, Montana, and the south end was in Casper, Wyoming. As Interstate 180 forms a loop around Casper, it is now a portion of the Yellowstone and three-quarters of the National Transcontinental highways. The "Yellowstone" highway eventually became U.S. Highway 30.

Nebraska

Best State To Start A Small Business

Here you’ll find everything you need to know about starting a business in Nebraska. From the cost of living to the regulatory climate, beat the competition and open up your new small business in Nebraska today.

South Dakota

South Dakota is a great place to start a business for so many reasons. The people in South Dakota are friendly and care about their community and country. In addition to that, South Dakota is the best state to start a business thanks to low taxes and low business costs.

In fact, South Dakota is one of the cheapest states to start a business, thanks to its low tax rates. It has a 4.95 percent tax rate, which is the 29th lowest of the 50 states. Taxes can easily make up 40 percent of your operating costs, so you’ll appreciate the low taxes in South Dakota.

Additionally, there are low business costs in the state. According to data from NACE, the cost of operating a business in South Dakota is 34.9 percent lower than the national average. Since low business costs matter a great deal in attracting businesses, you’ll find it easier to start a business in South Dakota than in most other places.

The unemployment rate in South Dakota is a full percentage point lower than the national rate. This indicates a lot of high paying jobs in the state. As a result, you’ll find there are an excellent number of jobs available to you. Therefore, you’ll have no trouble finding qualified workers to hire.

North Dakota

In the wake of President-elect Donald Trump’s election, how do the states stack up in the business-friendly arena?

In this infographic, we decided to focus on one key factor based on each state’s strengths: overall population, median income, cost of living and, of course, their business-friendliness.

And since we know that the starting costs of business are much higher in major metro areas, we also took the cost of living into consideration; after all, many find that the added expenses of running a business, such as the office cost, clothes and transportation, significantly raise the cost of launching a company.

Even those starting companies on a budget will have to weigh the additional costs of living in a major city versus the potential returns.

The state rankings below are based on the data from each state’s online business portal, provided by the U.S. Small Business Administration.

Iowa

In recent years, the Hawkeye State has quietly been cleaning its act up by providing a stable and business-friendly regulatory environment. Iowa today enjoys the honor of having seven local governments that maintain a ” We work for business” initiative, according to the National Association of State Budget Officers. The state’s Commerce Department has made it clear that the state will encourage job creation by supporting the entrepreneurial spirit and continuing to reform archaic regulations and antiquated economic hurdles. In his detailed report, ” Start Small. Live Big: Entrepreneurs and Small Businesses Create Jobs, Grow Economies, and Uplift Communities,” economist W. Earl Boeke concludes that policies that increase entrepreneurial spirit and decrease regulation are the most effective ways to do so.

Colorado

Colorado is the place to be if you’re looking to start a business. Various studies have ranked Colorado as number one for various aspects of starting a business. Although Colorado is the home of Denver (number two on our list of the top ten best cities for business), you don’t have to be an entrepreneur to find success in the state. Some of the best-known corporations of the world call Colorado home, and there are plenty of jobs available in a variety of industries.

Colorado is home to a wide range of companies in a variety of industries. For example, Pepsi Cola (fountain drink), Coors Brewery (beer and distilled spirits) and Budweiser (beer) are all headquartered in Colorado.

In addition, Avaya, HubSpot, and Manning & Napier are leaders in the field of business management software. Along with these major players, Colorado boasts an expansive list of additional companies including REI (outdoor clothing and equipment) and Gore (garments) to name just a few.

When it comes to jobs, Colorado has more than enough available for new business owners. Search jobs available in Colorado.

  • Gain an understanding of the cost of starting a business in Colorado.
  • Understand the cost of operating a business in Colorado.

Utah

Buying a business in Utah can be a good investment if you are interested in making significant and recurring annual revenue. Utah ranks 7th for best states to start a business in 2018. Utah has a cost of living index of 115, below the national average (118) and significantly lower than neighboring states Idaho, Wyoming, and Nevada. Utah has a lower unemployment rate (5.1) than the national average of 5.1, with Wyoming and North Dakota being tied for the highest unemployment rate in the country at 7.1. Utah has a lower tax burden than Idaho and Nevada. However, because Utah has a population of 2 million, it is outperformed by adjacent states in most other categories. Despite this, Utah is still an attractive market.

Kansas

Is a great state for new businesses to grow in because of how business friendly the state is.

Other States to Consider

Texas

The Texas state capital of Austin has the highest concentration of successful start-ups in the United States.

Business, as it turns out, thrives in Texas. Part of this is due to its central location. The state’s capital of Austin is also just 70 miles from Mexico City and about 80 miles from Guatemala City. With access to a tri-border region where Mexico, Guatemala and Belize meet, the state is the top destination for Mexican migrants who are looking to simply cross the border and start up businesses. This makes the area the 12th highest concentration of Mexican migrants in the United States.

Firms that move their corporate headquarters to the city can also benefit. All businesses in the city of Austin qualify for a full refund on minimum franchise taxes, real property tax and business impact fees.

The Texas state capital of Austin also has the highest concentration of high technology firms in the nation, with Texas having 360,000 such firms-a 100% increase in the last 20 years. This is the state’s largest industry sector, making up 17% of the total jobs in the state. Because the area is a major exporter of mobile devices, it is also home to half of all companies in the United States that are producing mobile devices and software.

Florida

Hot, humid and near major sea shipping routes makes this a good state to start a business or expand your existing business. Florida has a long history of growth and community development, a great climate for tourism and a tepid property tax growth rate. Florida has no personal state income tax and no sales tax. Thanks to a robust population of young families, (qualifying for the Cadillac tax may be possible) along with large markets of families and empty-nesters, Florida is a popular state for retirement. Florida ranks 11th among the best states to start a business and price indices favor operating expenses here. Florida is the fourth largest state by population with over 20% of Americans living here, and more than one million new businesses are established here each year — more than any other state.

California

8.35

It is not surprising that California ranks as the most popular state to start a business. One of the most densely populated and wealthiest states in the nation, California has the highest number of millionaires, multinational corporations, and venture capital investments. So, starting a business there is relatively affordable – but more importantly, it’s a very diverse marketplace.

Some industries, like computer software and hardware, manufacturing, and information services, thrive in California. Or maybe you are interested in marketing, sales, or distribution and you’re open to working in any of the numerous cities in the state. There are also 800 counties in California, so you’ll have access to the population centers that are providing strong growth.

If you are a startup entrepreneur, California is definitely a great place to be. If you are a small business owner already operating in the state, it’s likely that you are facing higher than average competition in some areas, but it is a great place to set up shop. If you are a recently graduated college or university student, the cost of living is definitely higher than other states, but it’s not a bad place to spend some time and learn some real world business skills.

Methodology

50 states, 50 states, 50 states … heck, we can’t even agree on what constitutes a sandwich or how long we should stay in one place! So why should it be any different when it comes to starting a business?

There’s compelling evidence that there’s a direct correlation between climate and the ease with which a new business can establish itself. But until now, there’s been no consensus on which states are the best places to start a business.

Well, that changes today thanks to The WalletHub survey of all 50 states and the District of Columbia in 2017. Their decision was based on 26 key metrics of business-friendliness taking into account five key areas of competitiveness: Cost of Doing Business (Startup & Scale-up), Economic Environment (Employment, Credit Health, Economic Freedom, Technology), Workforce & Nature of Business (Percentage of New Hires & Interns, Education), Cost of Living (All-Items Consumer Price Index), and Quality of Life.

WalletHub ranked all states and the District of Columbia across seven key metrics. The data points were then adjusted based on the latest 2017 data so that the ranks are as current as possible. They then used eight key metrics to determine the final score.

Cost of Starting a Business : 15 Percent

The costs of starting a small business depend largely on whether you need to pay cash for equipment or lease the equipment. When you pay cash, you’re generally not paying penalties for not using the equipment for a certain length of time, and you’re free to use the equipment for a reasonable period of time. Most landowners who don’t use their land for a certain amount of time will charge you for the entire length of time the land is not used.

Businesses using machinery, equipment and furniture need to estimate their costs first and budget accordingly. Charge accounts and financing are available to help businesses with money problems or start-up cash. There are many ways to get funding for your business, such as business bank loans, business grants, business loans and bond financing. However, funding takes time, patience, and persistence. It can take months to get funding for your business venture.

Besides paying for equipment, there are additional fees you may have to pay to get your business off the ground. You may have to pay business licensing fees, taxes, maintenance fees, inventory fees, advertising fees, monthly statements and more.

Taxes : 20 Percent

All 50 states have their own business tax rates. The business tax rate is the annual tax that business owners or sole proprietors pay on their net income measured by receipts. Businesses in Puerto Rico, Guam, the United States Virgin Islands, American Samoa, and Northern Mariana Islands also pay tax on their net income earned from sources outside of the United States. This percentage includes the federal income tax.

The business tax rate in Wyoming is 20%, the lowest in the country.

At the income tax level, all 50 states follow the same federal tax code with some nuances. For example, North Dakota requires its residents to file taxes that include both state and local income tax whereas six states (Delaware, Montana, New Hampshire, Oregon, Rhode Island, Utah) don’t have a local income tax. Some states also have varying tax rates, from 6% to 13%.

Labor Market : 20 Percent

One of the most important decisions for people considering starting a business is where to locate. If you want to be able to start a business in a state with a strong labor market, then it helps to know which states are most friendly toward entrepreneurs.

Every year, the U.S. Chamber of Commerce releases its Benchmarking the Business Climate report, which ranks all 50 states on how friendly they are to business owners. This year, the Chamber of Commerce was updated data from the American Chamber of Commerce in China and replaced its labor force statistics with the latest numbers from the U.S. Bureau of Labor Statistics. This new report provides more accurate data on labor market indicators and statistically demonstrates that states with properly functioning economies generate an average of 20% more businesses and four times as many jobs as those with subpar economies. Every state in this year’s report saw its score improve, with the top three states getting the strongest possible scores of 16 out of a total of 17 points.

The highest scoring states for business climate all rank favorably for many factors, including a low cost of doing business, access to financial capital, and access to quality health care. All three of the leading states also procured scores that are close to the national average for job entrepreneurship, indicating that there is a good supply of business start-ups for entrepreneurs looking to work for themselves.

Cost of Living : 15 Percent

Tops, Measured by Overall Quality of Life.

The best states for business can be broken down into two categories: the best states to buy a business and the best states for entrepreneurs to start a business. The results show that of all the states, New Hampshire, Delaware, Wyoming, Montana and South Dakota have the best business climates for entrepreneurs. The state with the highest median home value (Tasmania) ranks fifth overall.

Startup Activity : 10 Percent

While many people think that business environment is the main reason for moving to a specific country, in reality, most entrepreneurs move for lifestyle reasons – welcoming business opportunities a new country provides.

The freedom to start a company, create a product or service, grow revenues, and eventually hire your own employees is a key reason for this entrepreneurial fire in most people. Even though there are definitely business friendly states with lots of capital available, we have found that the best states to start a business are the ones where there is no red tape, there is a no forced waiting period to get things done, and you can raise money without having to go through a lengthy and expensive application process.

The following is our detailed, in-depth research on the best states to start a business. This research considers a number of different metrics like; total number of startups and companies, venture capital funding, startup growth, startup activity, local workforce, support network, market potential, and startup costs.

Access to Capital : 5 Percent

Access to technology : 5 Percent Entrepreneurial Ecosystem (SMEs)

Affordability : 25 Percent Entrepreneurial Ecosystem (SMEs)

Advanced Manufacturing Sector : 5.53 Percent Entrepreneurial Ecosystem (SMEs)

Agriculture Sector : 7.45 Percent Entrepreneurial Ecosystem (SMEs)

Average Hours Worked : 36.5 Percent Entrepreneurial Ecosystem (SMEs)

Business Tax Climate : 9.5 Percent Entrepreneurial Ecosystem (SMEs)

Federal Funding : 24.3 Percent Entrepreneurial Ecosystem (SMEs)

Global Innovation : 9.45 Percent Entrepreneurial Ecosystem (SMEs)

Governance and Regulation : 5 Percent Entrepreneurial Ecosystem (SMEs)

Health Care Sector : 15 Percent Entrepreneurial Ecosystem (SMEs)

Human Capital : 6 Percent Entrepreneurial Ecosystem (SMEs)

Infrastructure : 10.7 Percent Entrepreneurial Ecosystem (SMEs)

Innovation : 5.5 Percent Entrepreneurial Ecosystem (SMEs)

Individual Income Tax Rate : 15 Percent Entrepreneurial Ecosystem (SMEs)

Quality of Life : 15 Percent

If you want a higher quality of life, move to Utah. Isolated from much of the hustle and bustle of big city life, the 40th state is also home to some of the nation’s most spectacular sights, from the Great Salt Lake to the Wasatch Mountains. But there are trade-offs to living in such a remote area. One of the biggest is its lack of diversity, with only a few cities to provide a range of opportunities for work and entertainment. Still, in a place like Utah, getting a job isn’t always the primary pull in choosing a place to live. Because of the great weather and excellent health care, the state attracts young people to keep them here to raise their families.

Bottom Line

When you're thinking about starting a business, start by taking a look at your location. While it's true that location is important, it doesn't have to be the biggest part of your business plan. So, what if you're already well established in your career or established in your current home? What if you're in need of a change? Starting a new business can be risky and with the right state laws and business environment, this venture can pay off.

Going on a state-by-state basis, we've put together the best states to start a business in 2017 by weighing several different factors, including business costs, business regulations, tax incentives, education levels, startup and development costs, and more. While this won't be the last time you'll be hearing about this topic, it’s a good way to determine what conditions are best for starting a business in 2017… and beyond.

"The personal costs of establishing a new business are the highest in California and the lowest in Utah, while Utah also ranks first for personal costs associated with maintaining a solo self-employed business," said Duncan Macfarlan, chief economist at the Tax Foundation. "Looking at tax policy alone, however, would miss the fact that Californians pay the nation's second highest income tax rates, and that Utah has no personal income tax at all."