The 5 Best States to Start Your Small Business

Alexander Huls + Janet Berry-Johnson

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 all that matters for a small business. While both the cost of living and lower taxes are among six key factors that attract small businesses to a particular state, according to CNBC, it’s also important to look at the regulatory environment, available talent pool, access to funding, and investment in infrastructure.

To help determine which states can make your life as a small business owner simpler, consider the rankings of these “best” or “top” states for business from Forbes and CNBC, as well as the Thumbtack Small Business Friendliness Survey, which in 2018 included data from over 7,500 U.S. small business owners who rated their states across nine categories (ranging from ease of starting a business to licensing regulations, training and networking programs, 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.

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1. Utah

As the only state to appear among the top five states in all three data sources—Forbes, CNBC, and Thumbtack—the Beehive State is a prime spot to launch a small business. Utah is in a strong position economically, and offers added benefits like low business costs and an extremely small business-friendly environment. As Forbes noted, “Utah tech companies are aided by energy costs 15% below the national average, per Moody’s Analytics.”

In an editorial for Deseret News, Derek B. Miller, president and CEO of the Salt Lake Chamber and Downtown Alliance, pointed to four elements that make Utah a great home for small businesses: an educated workforce, low taxes and regulation, incentives for job creation and sustainable growth, and an economy that benefits from a healthy amount of international trade.

2. Texas

There are plenty of reasons to settle your small business in Texas. Forbes ranked Texas #3 overall but gave the state the #1 ranking for growth prospects, while also stating, “Employment, income and economic forecasts for the [Lone Star] State all rate among the top four in the nation.” Texas also has excellent infrastructure to support budding businesses—most notably, its prosperous cities like Austin, Houston, Dallas, Fort Worth, and San Antonio.

Texas is one of only eight states that received an A or better overall in the Thumbtack survey. The other A+/A ratings—in order of overall friendliness to small businesses—went to South Dakota, Tennessee, Alaska, Michigan, Utah, Georgia, and South Carolina.

3. North Carolina

If it’s southern hospitality you’re seeking, then the Tar Heel State definitely should be on your list. For the second consecutive year, Forbes rated North Carolina #1 in the nation overall as the top state for business, noting, “North Carolina’s labor, energy and tax costs are all well below the national average and rank as the second lowest in the U.S. overall, per Moody’s Analytics.” North Carolina was the only state to rank among the top 12 states in all six categories that Forbes ranks, including a #2 ranking for business costs.

In the CNBC ratings, North Carolina ranked among the top 10 states both overall and for its economy and the quality of its workforce. And the state received an A rating in the Thumbtack survey for the friendliness of its employment, labor, and hiring regulations.

4. 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 ranked #4 overall, while ranking #1 both for its regulatory environment and for its quality of life; its labor supply was ranked #3.

Along with its other virtues, the Mother of Presidents (eight U.S. presidents have been born in Virginia) offers an appealing consistency: Virginia has taken the #1 spot on the Forbes list five times since the rankings began in 2006. (Utah has claimed the Forbes #1 spot six times, and North Carolina has ranked #1 in both 2018 and 2017.)

5. Georgia

Adding to the list of southern states that also are top states for business, Georgia ranked among the top 10 states across all three surveys. Coming in at #6 on Forbes‘ 2018 list, the Peach State was ranked #5 for its economic climate, and also ranked among the top 10 for its regulatory environment and growth prospects. In CNBC’s survey, Georgia came in at #7 overall, but was rated higher for its economy (#2), infrastructure (#3), and work force (#4).

Specific to small business, Georgia continued its strong performance in the Thumbtack survey, earning an A for overall friendliness to small business, along with As for licensing and ease of starting a business, plus an A+ for ease of hiring.

Where do you own a small business, and how did you choose your location? Let us know in the comments below.

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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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