The 5 Best States to Start Your Small Business

Alexander Huls

[This article has been updated to reflect the new tax law that went into effect on January 1, 2018]

Not all states are created equal when it comes to where to start a new small business. Some states, not surprisingly, are a better fit for budding entrepreneurs than others. Now you might think that “better” means “cheaper,” or “lower taxes,” but these days that’s not what matters most for a small business. As The Economist has written, “America’s states and cities have traditionally tried to attract businesses by offering them tax breaks and other cash incentives. Yet there may be a more effective way, and one which puts no strain on stretched budgets: make life simpler.”

To help determine which states can make your life as a small business owner simpler, consider the rankings of the “best” or “top” states for business from Forbes and CNBC, as well as the Thumbtack Small Business Friendliness Survey, which in 2017 included data from over 13,000 U.S. small business owners who rated their states across 11 categories (ranging from ease of starting a business and ease of hiring, to licensing, environmental issues, and more). Utilizing a combination of the ratings from these three sources, here are five of the best states to start — or grow — your small business.

1. Texas

There are plenty of reasons to settle your small business in Texas. Forbes ranked Texas #1 overall for economic climate. The Lone Star State also has excellent infrastructure to support budding businesses — most notably, its prosperous cities like Austin, Houston, Dallas, Fort Worth, and San Antonio. Texas was one of eight states that received an A+ overall in the Thumbtack Small Business Friendliness Survey. (The other A+ ratings [in order of overall friendliness to small businesses] went to Wyoming, Delaware, Idaho, Louisiana, Maine, Utah, and Indiana.)

2. Utah

The Beehive State is a prime spot to launch a small business. Like Texas, it’s also in a strong position economically, and offers added benefits like low business costs and an extremely small business-friendly environment. And, as Forbes noted, “companies benefit from energy costs that are 16% below the national average, according to Moody’s Analytics.” The U.S. Chamber of Commerce Foundation has recognized Utah for its tech-ready workforce, STEM job growth, and startups seeded — all of which combine to make Utah a great home for small businesses.

3. Georgia

If it’s southern hospitality you’re seeking, then the Peach State definitely should be on your list. CNBC’s survey rated Georgia #2 in the nation overall as a top state for business, with high marks for the quality of the state’s economy (#1), workforce (#3), and infrastructure (#4). Among Forbes‘ best states for business, Georgia ranked among the top 10 for labor supply, regulatory environment, and economic climate. Specific to small business, Georgia earned an A for overall friendliness in the Thumbtack survey, with an A+ grade for its tax code.

4. Colorado

The Centennial State has become a thriving center of Rocky Mountain high economic growth in recent years, receiving an A grade from Thumbtack for its overall small business friendliness. Thumbtack also gave Colorado A grades for ease of starting a business, health and safety regulations, and quality of government websites. Forbes rated Colorado as #1 in the nation for labor supply, #3 for economic climate, and #4 for growth prospects. Colorado scored highest on the CNBC rankings for workforce (#4) and technology and innovation (#7).

5. Virginia

If you’re looking for a business-friendly environment in which to launch your business, perhaps Virginia is the place for you: In the Forbes survey, Virginia ranks second overall “for its regulatory climate because of its strong incentive offerings and business-friendly government policies.” Along with its other virtues, the Mother of Presidents (eight U.S. presidents were born there) also offers an appealing consistency. In the Thumbtack survey, Virginia has never earned less than an A- for its overall small business friendliness.

Next Steps

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2 Responses to "The 5 Best States to Start Your Small Business"

    • Lisa | August 29, 2018 at 6:20 am

      I disagree with Virginia being on this list. Fairfax county is full of road blocks. From finding a place to rent to dealing with zoning and inspection. I had landlords refuse leasing to me because they said I would fail in a year. I turned a profit in 14 months. I had zoning stop me dead in my tracks for over a year on a non issue that had to go before the county board of supervisors for approval. I had an inspector stop me from finishing on the final inspection on a non issue. Had to go over her head. What should have taken 6-9 months to open took 2 painful long years. I want to open a 2nd location due to growth, but do not have the energy to deal with landlord rejection and faulty zoning and inspection officials. I am 2 yrs ahead of my projected business plan….and growing no thanks to Fairfax County in Northern Virginia.

    • Mary | August 29, 2018 at 4:42 pm

      These may be great states for small business but what about the quality of life, e.g., cost of living, cost of insurance, quality of public schools, etc. It does not address the clientele one might expect nor the environmental risks (e.g., wildfires, drought, hurricanes) that come with locating in these states. Friendly to small business is only one aspect of locating your business.

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