The Best And Worst US States To Start A Small Business

Published on
  • Florida takes top spot as the best US state to start a small business
  • Texas comes in second
  • Vermont is revealed as the ‘worst’ state to start a business

The Best And Worst States To Start A Small Business

Capital on Tap, a business credit card expert, has conducted a new research study to determine the best and worst US states for starting a small business. The study analyzed eight factors including new firm survival rates, corporate tax rates, and the number of entrepreneurs per state to determine the viability of starting a small business in each state.

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  1. Florida

Florida emerged as the best state to start a small business with a 5.5% corporate tax rate, allowing more money to flow back into the business, and the third-largest amount of small business loans secured per total number of employees at $4,913.

When compared with all other states, Florida came out on top as providing the most jobs created by start-ups per 1,000 residents living in the state. This factor not only shows that businesses in Florida are viable enough to employ staff, but that these businesses are improving the local economy.

  1. Texas

Texas is the second-best state to start a business due to its small-business-friendly tax framework.It is one of the only five US states that do not levy any business tax or personal income tax.

In Texas, all businesses with total revenues of less than $1.08 million, or total tax liabilities of less than $1,000, owe no franchise tax. Additionally, small businesses in Texas secured the fifth-highest average loan per employee at $4,811.

  1. Idaho

Idaho has the eighth lowest labor cost when compared with all 50 states; a positive for a small business that may not have generated much cash flow to start.

This state also has a 13.84% rate of new employer business actualisation, meaning that for every 100 business applications, nearly 14 become employers within the first two years. Idaho’s start-ups are also responsible for creating 6.1 jobs per 1,000 residents.

  1. Nevada

Nevada ranks as the fourth best US state to start a small business. The state performs well in areas such as start-up early survival rate, with new firms having an 83.2% chance of surviving past its first year. Nevada also doesn’t have a corporate income tax, only levying a gross receipts tax -, making the area a tax haven and drawing many businesses to use the state for their headquarters.

  1. North Carolina

North Carolina has a particularly low percentage of corporate tax at a rate of 2.5%. It also has the eighth highest percentage of firms with a chance of surviving after its first year at 82.7%, helping to secure its position as the fifth best US state to start a business.

  1. Colorado

Colorado performs well in factors such as entrepreneurial population. The state has the sixth highest percentage of adults becoming entrepreneurs every month at 0.42%. Colorado also has a particularly low corporate tax rate at 4.55%, making it the sixth best US state to start a small business.

  1. Washington

Washington has the largest start-up ‘early survival rate’ with 89.2% of small businesses in this state have survived one year after founding.89.2% of small businesses in this state survive past their first year. It also has the 12th lowest number of business bankruptcy filings compared to all fifty states.

The state also ranks as having the fourth highest rate of new employer business actualisation – this means that for every 100 business applications, 13.83% became employers within the first two years.

  1. Georgia

Georgia has the third highest overall rate of new entrepreneurs at 0.47% per month, this puts it in the top 20% of states to start a small business - meaning the area is filled with like-minded people looking to succeed.

 

  1. California and Montana

California comes in as the ninth best state to start a small business as 50% of their workforce comes from small businesses. Overall, the Golden State scored 63.8 out of 100 when combining factors used to determine the ranking.

It has the highest number of new business establishments started in one year, and the ninth highest percentage of firms surviving past their first year at 82.6%. However, California has the tenth highest labor costs with an average hourly wage of $24.04.

Montana comes in joint ninth and had the tenth lowest number of bankruptcy filings in the year 2022. Only 37 businesses in this state filed for bankruptcy, while it also came 11th out of 50 states for percentage of all new businesses that make a first payroll within eight months.

  1. Utah

When combining all eight factors, Utah has a steady performance, coming in sixth for the number of jobs created by start-ups at 6 per 1,000 people. The state also experiences a very low corporate tax rate of 4.85%, nearly three times less than the residents of New Jersey.

Damian Brychcy, COO at Capital on Tap, said: “Entrepreneurship is driven by the desire for independence. This includes the freedom to pursue your passion, choose your workplace and working hours, and foster personal growth.”

“While starting a business entails significant risks, including financial, reputational, and scalability risks, this research provides valuable insights when it comes to the business climate in different states to help new entrepreneurs in making informed decisions, and creating a favorable environment for their business.”


About Capital on Tap

Capital on Tap makes it easy for small businesses to manage their business spending, access funding, and earn cash back, travel, and gift card rewards. Over 200,000 small businesses have spent more than $5 billion on their Capital on Tap Business Credit Cards across the US and UK.