It’s no secret startups and businesses have a high failure rate. According to the U.S. Bureau of Labor Statistics, 20 percent of small businesses don’t last a year. Of those surviving, only 50 percent celebrate year five.
Some states make it easier for small business owners to operate and profit, while others make it near impossible. Wisely choosing the state you reside in can give your budding enterprise the head start and support it needs to thrive. Read below find out the 10 best and worst places in the U.S. to run a small business for the ultimate chance at long-term success.
Puerto Rico is preparing for an epic comeback in the wake of Hurricane Maria. There are structural reforms underway, new laws for an easier sharing economy, and a newly-designed energy grid. Coupled with astounding tax savings, Puerto Rico is easily the best place to run a small business.
While back in the states entrepreneurs in California or New York can pay up to a whopping 50 to 60 percent of their income on federal and state taxes, this U.S. territory enjoys a fixed four percent personal income tax rate. Residents also pay zero taxes on dividend income and capital gains.
Entrepreneurs in the manufacturing or export enjoy a 90 percent personal property tax exemption. Businesses in these same sectors receive a four percent income tax rate, a 100 percent tax exemption on earnings and profits distribution, and a 90 percent real property tax exemption. Some startups also qualify for a 100 percent property tax exemption during the first five years in operation.
Texas’ economy is booming, and ranks first for growth prospects and current economic climate. No corporate taxes make Texas an attractive option for a small business to launch, and business owners would be in good company since the startup activity is second in the nation, according to the Kauffman Foundation. Even better, the state has one of the highest business survival rates.
Entrepreneurs also have their pick of cities as Dallas, Houston, Austin, and San Antonio rank highly as startup-friendly cities. Rates for renting office space aren’t too bad either, ranging between $27 to $30 per square foot.
Pristine views in Utah are made all the sweeter by the state’s low corporate tax rates and a large population of college-educated residents ripe for tech and research-related businesses. It also has the highest percentage of approved small business loans in the country. Because it’s one of the best-ranked states for business costs, money stretches further than many other states.
Utah is also prized for its work-life balance. It ranks fourth on a list of best U.S. states by U.S. News, and WalletHub named Utah one of the top three happiest states. The state’s excellent economy, infrastructure, and abundant sights and outdoor recreational activities are leading reasons why.
Although the cost of living here is higher than the national average, Wyoming makes up the difference by having no corporate and state income tax and a high GDP of $58,821. With a four percent sales tax, it also has one of the best rates in the country. It’s no wonder Wyoming has the fourth-highest number of new entrepreneurs in the nation.
And those who open a company in Wyoming have the best odds of staying in business when compared to any other state. Wyoming’s ratio of companies that open to those that close is 1.61. Maybe the excellent startup success rate has something to do with the high quality of life residents experience. With median home prices being $194,800, there’s also plenty left over for fun.
Colorado has a great labor market for entrepreneurs looking to attract young talent. The state has the second-highest concentration of 25- to 34-year-olds and a robust economy that’s the second fastest-growing in the U.S. Small businesses are the backbone of Colorado’s economy—making up 97 percent all businesses. And let’s not forget the plethora of recreational opportunities Colorado offers to create an ideal work-life balance.
While sweeping views and an entrepreneurial spirit might be enough to consider running a business there, Colorado also has going for it low business startup costs, low income tax rates, and easier access to cash via the state’s microloan program. And at $25 to $30 per square foot to rent an office space, it’s a doable business expense—even if it’s not the cheapest around.
Temperate climates aren’t the only reason people are flocking to North Carolina; businesses love that labor expenses are nine percent below the national average and that business costs are some of the country’s lowest—including the 2.5 percent corporate tax rate.
While the state doesn’t have a high percentage of small business employees—only 44.8 percent—it does have a good startup density and new entrepreneur rates. North Carolina’s lack of bureaucratic red tape makes it easy to launch and run a company. The cost of living is average, but renting office space only set residents back between $22 to $27 per square feet.
Beaches and endless summers may come to mind whenever Florida is mentioned, but there’s still some serious work getting done in the Sunshine State. Florida scores third in the U.S. for startup activity, and small businesses make up nearly 100 percent of all businesses. Small business owners also profit from no state income tax.
The Sunshine State has a profusion of venture capitalists and angel investors, making for easier access to capital. Small businesses looking to grow have a variety of resources at their disposal, including Florida SCORE and Florida Small Business Development Centers.
The sky-high business survival rates and incredible tax climate earns South Dakota a spot on the list. There’s no state income tax and only a four percent sales tax. Besides having one of the smallest tax burdens, the state has an excellent business environment with low crime rates and energy costs. Plus it has the fourth-best opportunity share and small business employee percentage.
Proximity to large markets, above-average income levels, and low taxes make New Hampshire a win for people looking to run a small business. New Hampshire residents, for instance, can easily tap into nearby New England markets like Boston.
While corporate income tax rates are on the high-side at 8.5 percent, there’s no personal income tax or sales tax. New Hampshire does tax interest and dividends at a rate of five percent, but any other personal income remains untaxed. For pass-through business entities like LLCs, that means keeping more profits.
Montana’s high startup density and little government regulations mean barriers to entrepreneurship are low. For states with the highest number of entrepreneurs, it tops the list at number four. Like other states on the list, it’s part of the select few with no sales tax. And finding workers isn’t too difficult, thanks to its large number of college-degree holding citizens.
Business owners love that commercial office space rent is just $20 per square foot and that startup business fees are low. Its wild landscape and dramatic natural features are also nothing to complain about.
Hawaii might be a tropical paradise, but it’s paradise lost for many business owners. Its middle-of-nowhere location makes the cost of living and doing business on the island outrageous because so many of its materials and commodities are shipped in. Perhaps it also explains why Hawaii’s infrastructure is one of the worst in the nation.
To top it off, the government charges a general excise tax of up to four percent for businesses, and certain industries have burdensome governmental regulations to abide by.
Startup activity in Wisconsin is one of the worst in the nation, with a paltry 0.19 percent of adults becoming entrepreneurs each month. Onerous business regulations make it difficult for small businesses to thrive, explaining why the state has a middle of the road business climate.
Entrepreneurs’ access to financing and venture investment is also lower than many other states. And, the 7.9 percent corporate tax rate and 5.84 to 7.65 percent personal income tax rate makes it expensive to do business in the Badger State.
West Virginia has a high unemployment rate of 4.8 percent, and its workers are some of the least educated in America. Access to capital is also challenging. The state isn’t renowned for its innovation, and receives very little funding for scientific research. This adds up to startups being few and far between with an average of a mere 70 people per 1,000 setting up shop.
Infrastructure, economy, and cost of doing business rank at the bottom of the barrel for the Ocean State. Rhode Island is trying to make a comeback by using new truck tolls to fix its roadways and bridges, but economic growth has been slow, and tax and regulatory climates unfavorable. Corporate income tax rates are seven percent, and personal income tax rates are 5.99 percent.
Louisiana is one of the handfuls of states having a GDP decline in 2017. Its less-than-reliable infrastructure is a considerable issue costing commercial trucking over 2.3 billion in 2017.
Small business owners will be hard-pressed to find qualified talent as only 23.8 percent of adults have a bachelor’s degree or higher. Venture capital deals in 2018 were second-fewest in the country at 0.2 per 100,000 people.
Vermont’s low startup density, high startup costs, high tax rates, and high cost of living make many entrepreneurs think twice about opening up a business in the state. Personal income tax rates range from 3.55 percent to 8.95 percent, and corporate income tax rates are six to 8.5 percent—some of the highest in the country.
What New Mexico has going for it is the below-average cost of doing business and a pro-business tax structure. But poorly educated workers and an even worse economic climate make it a lousy place to run a business. The per capita GDP is also $7,000 below average.
Income and job growth have also been stagnant over the past few years, contributing to the state’s high crime rates and low quality of life rankings.
On top of a sluggish economy, the cost of doing business in Alaska is 14.4 percent higher than the national average. While “The Last Frontier” doesn’t have sales or state income tax, it’s current economic climate doesn’t make it a good state for businesses to survive and thrive.
Alaska’s economy fell 2.6 percent per year within the last five years thanks to oil price drops. Almost 80 percent of the state’s revenue comes from the oil and gas industry, so the outlook for the next five years isn’t promising. Also, net migration rates between 2017 and 2018 were -1,608, and the state doesn’t expect there to be additional jobs on a net basis.
New Jersey’s status of having the highest property tax rate in the country makes it a deal-breaker for entrepreneurs wanting to have a presence in the state. Property tax rates are 2.38 percent, more than 5.5 times that of Alabama’s. Corporate income taxes range from 6.5 percent to an eye-watering 11.5 percent for companies making more than $1 million.
Despite the downsides, the state still does have a high rate of new entrepreneurs and a high per-capita GDP.
South Carolina doesn’t hit rock-bottom in any category but instead struggles across the board. The state’s most significant blemish on its report card is a per-capita GDP of $37,063. Other strikes against it include low startup density and lackluster business survival rates.
Undeniably, choosing a business-friendly state can give entrepreneurs the tools they need to hit the ground running, find top talent, and avoid getting tangled up in bureaucracy. It can also provide them with an opportunity to grow their business faster because little to no taxation means they get to keep more of their income. These ingredients may be just what small business owners need to stay afloat during the precarious early years of a business’s life.
But the location businesspeople pick to run their company isn’t what determines its outcome. Instead, determination, grit, and strong work ethics are the best indicators of a small business’s survival and eventual success—not the advantages of being in a particular state.
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