Key Takeaways
South Dakota ranks as the best state for small businesses, offering the lowest business costs nationwide. Coupled with its well-balanced business environment, this state is ideal for new businesses to take off.
With no income or corporate taxes and low living costs South Dakota is the most sustainable place for a business.
Colorado’s workforce is one of the most educated in the country and holds the biggest percentage of working-age population, 67.4%.
Minnesota holds one of the highest business survival rates in the country as well as good funding opportunities, which promotes healthy business growth.
Virginia’s access to high internet speeds, and relatively low energy costs boast higher business efficiency.
California has the most economic potential, with high job creation rates and consumer spending growth.
Louisiana is the least favorable state for new businesses. Due to its weaker economic prospects, business costs and business environment, entrepreneurs would face more challenges with their startups.
While the U.S. offers a thriving and diverse economy, not every state provides the same conditions for businesses to succeed. South Dakota ranks as the top state in the country for entrepreneurs looking to launch a small business in 2024, according to our study.
To establish the best and worst states to start a business, the research team at LLC Geek evaluated 20 relevant factors, spread across the following categories: business costs, workforce, business environment, infrastructure, and economy. Each factor was graded on a 100-point scale, with a score of 100 representing the best conditions for small businesses.
Finally, they determined each state’s weighted average across all factors to calculate its overall score and used the results to produce a final ranking.
1. South Dakota
South Dakota takes the top spot on the list as the best state for small businesses. The state does not levy any income or corporate taxes, making investment and sustainability easier for business owners, a clear indicator of why more than 40% of small businesses opened 10 years ago are still running.
Economically, South Dakota has been one of the least affected by inflation and is meeting a 9.5% consumer spending growth rate, pointing towards a healthy financial climate. The state also boasts the lowest commuting time in the country, an average of 17,4 minutes, which could help increase business efficiency.
With more than 3000 new small businesses launched last year South Dakota is undoubtedly the friendliest state for new businesses.
South Dakota's lack of income and corporate taxes, stable economy, and efficient infrastructure make it the top choice for entrepreneurs. The state's low inflation impact, strong consumer spending growth, and short commuting times further enhance its appeal as a business-friendly environment. With a steady stream of new small businesses, South Dakota is the ideal destination for entrepreneurial success.
2. Texas
Texas comes second on the list. With a GDP growth of 7.7% and the second highest GDP in the country, Texas’ economy offers highly lucrative opportunities for entrepreneurs, also reflected by its lack of income and corporate taxes. If you're considering starting an LLC in the state, our pick of the best LLC service in Texas can help with the process.
More than 4000 new small businesses received SBA loans, and the state clearly wants to push its industry further as it ranks third for the highest investment in R&D. These factors further point out to Texas’ stability, but also to the many opportunities it offers for businesses to grow.
The working age population is the fifth highest in the US, at 66.1%, offering a larger workforce than most states and a healthy growth of consumer spending, at almost 10%.
Texas is a good state for small businesses due to its robust GDP growth, lack of income and corporate taxes, and proactive support for entrepreneurs. With a sizable working-age population and strong consumer spending growth, Texas offers good business growth and success opportunities.
3. Ohio
Ohio has the fourth lowest income tax rate 3.5%, and does not impose corporate taxes. Overall it is the 12th state with the lowest business costs allowing entrepreneurs to start their business activities with fewer obstacles.
Ohio is known for its vibrant startup culture, the state actually has the best SBA loan approval rate per new business in the U.S., 15.94. Because of this, starting a business in Ohio is much easier compared to other states, and it might be the reason why it has the seventh highest survival rate of the country, 40.5%.
Ohio ranks highly for entrepreneurs, offering favorable tax rates, low business costs, and a vibrant startup culture. With an excellent SBA loan approval rate and a high survival rate for businesses, Ohio provides a supportive environment for entrepreneurial success.
4. Colorado
Colorado has the highest percentage of working population in the country, with 67.4% of Coloradans being of working age, offering a bigger and active workforce for businesses. The minimum wage is the sixth highest in the US, $16.28 per hour, which poses a great incentive for workers.
These factors combined might be the reason why the job creation rates in the state are the third highest. Additionally, around 41.6% of the population in Colorado has a Bachelor’s degree or higher, making it the second academic achieving state in the country.
Colorado also has the 6th highest consumer spending growth, at 10.2%, and a GDP growth of 5.8%, which indicates a growing economy in the western state.
Colorado's high percentage of working-age residents, a competitive minimum wage, and a well-educated population foster a thriving economy and strong business incentives. The state's impressive job creation rates and robust consumer spending growth underscore its attractiveness as a dynamic market for business ventures.
5. Florida
The high inflation in the state is not enough to stop it from ranking among the top 10, as it excels in other categories. Florida is seeing a 10.9% increase in consumer spending, the fourth highest in the country.
This state does not impose a personal income tax, and it is also fourth nationwide for consumer spending growth totalling a 10.9% increase from the previous year, which helps business owners maximize their benefits. Entrepreneurs looking to leverage Florida’s favorable tax laws and consumer market might consider exploring the best LLC service in Florida to ensure a smooth start.
The state’s GDP is the 4th highest in the US, and it is experiencing a 6.1% growth. To add to this, it has the fourth highest R&D investment, at more than $180 million.
Florida's thriving economy, highlighted by impressive consumer spending growth, lack of personal income tax, substantial GDP, and significant investment in research and development, cements its place among the top states for businesses despite high inflation. This favorable environment offers ample opportunities for business owners to flourish and maximize their benefits.
6. Washington
Washington is in sixth place, with the third lowest business cost. There are no corporate taxes in the state, which has the seventh highest working age percentage, at 65.9%. Washington is also fourth in the overall workforce rank of this study. This makes the northwestern state an attractive place to open a business.
Washington has the fourth-lowest inflation rate in the country, and its GDP is the eighth-highest, making it one of the richest American states. The internet speed is the fourth-fastest in the US, and energy costs are the seventh-cheapest. You will not have wifi issues there.
The state also has the highest minimum wage in the US, with around 36.7% of the population having a bachelor’s or higher degree.
Washington's favorable business environment, highlighted by low business costs, no corporate taxes, a strong workforce, and robust economic indicators, makes it an attractive place for entrepreneurs. With its low inflation rate, high GDP, affordable energy costs, and highest minimum wage in the US, Washington provides a promising landscape for businesses to succeed and grow.
7. Alaska
Alaska does not impose personal income taxes, and has the second lowest sales taxes in the country, 1.82%, ranking ninth for the lowest business costs.
It also ranks fifth in the nation for its working-age population, ensuring a great pool of talent for businesses to recruit from. This abundant workforce contributes to Alaska's overall workforce rank, which stands at an impressive tenth nationwide.
Alaska's survival rate of 41.9% for small businesses highlights the viability of entrepreneurial ventures in the state, backed by its stable consumer spending growth, ranking tenth in the country with a notable increase of 9.5%.
The state is a top spot for small businesses thanks to its friendly tax policies, ample workforce, strong economy, smooth transportation, and lively consumer market. Alaska stands out as a quality destination for entrepreneurial success and long-term prosperity.
Alaska's friendly tax policies, strong workforce, stable consumer spending, and efficient transportation make it an attractivestate for entrepreneurs. Alaska offers a promising environment for long-term business success with no personal income taxes, low sales taxes, and a high small business survival rate.
8. Oregon
Oregon does not levy sale taxes, which makes it easier for businesses to be competitive. Oregon also records the joint fourth lowest inflation rates in the country, which adds to the stability of overall business in the state.
Oregon ranks among the top of the list for sustainability and longevity, with a survival rate of 39.20% of businesses opened 10 years ago.
Around 64.8% of the population of Oregon is of working age, among the highest in the country, and around 34.4% of this population has a college or higher degree, also ranking high among other states.
Oregon's tax-friendly policies, stable inflation rates, and high business survival rate make it an inviting area for small businesses. With no sales taxes, a large working-age population, and a significant percentage of educated residents, Oregon offers a conducive environment for businesses to thrive and succeed in the long term.
9. Montana
Ninth on the list is Montana, the state with the highest survival rate for small businesses. Around 45% of businesses established 10 years ago were able to survive and are still going. This might be the reason why so many businesses keep opening in the state.
Nationally, Montana has a strong consumer spending growth, 9.7%, and high job creation rates, this equals significant potential for business expansion within the state.
The state ranks fourth for overall business environment which has clearly favored Montana to rank third for the biggest number of new businesses this past year, 476 per 100K people.
Montana's high small business survival rate, robust consumer spending growth, and favorable business environment make it a promising location for entrepreneurs. The state's appeal is evident in the number of new businesses opening annually, highlighting its potential for business success and growth.
10. Vermont
Vermont is last on the top ten. With no corporate or income taxes, Vermont provides a fertile ground for investment and business sustainability. This favorable tax environment allows entrepreneurs to establish and grow their ventures, leading to a remarkable survival rate of almost 40% for small businesses launched a decade ago.
Economically, Vermont has weathered inflationary pressures, having the lowest inflation rate in the country, 15.1%, and maintaining a steady consumer spending growth rate of 8.3%. This robust economic climate provides a solid foundation for businesses to thrive and expand.
Vermont offers great opportunities to small businesses, a stable business environment characterized by favorable tax policies, economic resilience, efficient infrastructure, innovation incentives, and a skilled workforce. These factors establish Vermont as a destination for entrepreneurial success and long-term business growth.
Worst States for Small Businesses
1. Louisiana
Louisiana is arguably the worst state for business owners, it has one of the lowest number of new businesses, with only 231 businesses per 100K people. This state also ranks 38th in terms of job creation rates and is also among the ones most affected by inflation.
While not the most suitable for entrepreneurs in these aspects, Louisiana still imposes a low income tax rate of 4.25% and is among the top 15 states with the lowest cost of living. This state does have a lot of potential, it simply needs more effort.
Louisiana fails to offer new business owners the necessary means for businesses to thrive, with high business costs, weaker workforce and not the best business environment. This state needs to follow the necessary steps to create a more accessible place for small businesses.
2. Mississippi
Mississippi faces significant challenges for small businesses, ranking second to last in workforce availability and offering limited support in its business environment. The state's poor internet speed and infrastructure hinder operational efficiency for businesses. These factors collectively create barriers to new businesses, making it a challenging environment for them to thrive.
Additionally, Mississippi's above-average inflation, lower GDP figures, and slow GDP growth contribute to its unfavorable economic landscape for business ventures. These economic indicators, coupled with the state's limited workforce and infrastructure capabilities, underscore the significant hurdles faced by entrepreneurs and small businesses in Mississippi.
3. West Virginia
While West Virginia boasts lower business costs, this is offset by lower education levels. The state's limited R&D funding, infrastructure shortcomings, and lower job creation rates further make it difficult for businesses to thrive and grow.
Additionally, West Virginia grapples with economic hurdles, including one of the highest inflation rates and the eighth-lowest GDP in the country. This unfavorable economic landscape, combined with lower GDP growth, presents significant barriers for entrepreneurs and small businesses. Collectively, these factors contribute to West Virginia's ranking as the third worst state for entrepreneurial ventures, highlighting the substantial challenges faced by businesses operating within the state.
4. Arkansas
Arkansas ranked second to last in terms of the economic factors considered for this study, with the lowest GDP growth rate in the country, 0,7%. The state also had one of the lowest rates of SBA loan approvals per new business, which does not make it an ideal place for a new business to start things off.
Arkansas presents challenges for new businesses due to its low GDP growth rate, which is the weakest in the country, and a low rate of SBA loan approvals per new business. These economic factors indicate potential hurdles for entrepreneurs starting businesses in the state.
5. New Mexico
New Mexico is yet another state with questionable conditions for small businesses, with low job creation rates and high inflation rates. Around 5,800 jobs were created in the southern state, one of the lowest numbers.
Loan approvals are harder to come by in the state, with only around 211 recorded last year. The cheaper cost of living is not enough to push New Mexico higher on the list.
In summary, New Mexico offers a challenging environment for entrepreneurs, characterized by low rates of job creation and high inflation. The state faces challenges in obtaining loan approvals, and more than its lower cost of living is needed to boost its ranking. These factors combine to create a less favorable landscape for entrepreneurial endeavors in New Mexico, underscoring the need to carefully assess various aspects when exploring business prospects in the state.
| Rank | State | Business Cost Rank | Workforce Rank | Business Environment Rank | Infrastructure Rank | Economy Rank | Total Score |
|---|---|---|---|---|---|---|---|
| 1 | South Dakota | 1 | 38 | 14 | 22 | 35 | 50.56 |
| 2 | Texas | 7 | 37 | 7 | 6 | 2 | 49.90 |
| 3 | Ohio | 12 | 33 | 3 | 32 | 28 | 49.43 |
| 4 | Colorado | 10 | 1 | 27 | 25 | 10 | 49.04 |
| 5 | Florida | 6 | 43 | 13 | 40 | 3 | 48.90 |
| 6 | Washington | 3 | 4 | 39 | 4 | 14 | 48.24 |
| 7 | Alaska | 8 | 10 | 10 | 38 | 27 | 47.83 |
| 8 | Oregon | 11 | 14 | 15 | 13 | 23 | 47.62 |
| 9 | Montana | 31 | 18 | 4 | 42 | 30 | 47.43 |
| 10 | Vermont | 34 | 7 | 9 | 16 | 22 | 47.05 |
| 11 | Massachusetts | 36 | 2 | 6 | 44 | 16 | 46.86 |
| 12 | Utah | 32 | 6 | 21 | 9 | 4 | 46.77 |
| 13 | Maine | 25 | 21 | 12 | 47 | 11 | 45.64 |
| 14 | Delaware | 5 | 35 | 42 | 2 | 21 | 45.33 |
| 15 | Nevada | 2 | 39 | 36 | 15 | 7 | 44.81 |
| 16 | Indiana | 27 | 36 | 8 | 18 | 15 | 44.64 |
| 17 | Minnesota | 50 | 11 | 1 | 27 | 36 | 44.29 |
| 18 | Wyoming | 4 | 27 | 29 | 12 | 41 | 44.25 |
| 19 | Pennsylvania | 40 | 23 | 17 | 10 | 6 | 44.20 |
| 20 | New York | 42 | 20 | 5 | 48 | 8 | 43.90 |
| 21 | New Hampshire | 14 | 3 | 32 | 45 | 25 | 43.61 |
| 22 | Idaho | 38 | 32 | 22 | 24 | 5 | 42.96 |
| 23 | Arizona | 9 | 41 | 46 | 11 | 13 | 42.39 |
| 24 | Illinois | 28 | 15 | 19 | 39 | 20 | 42.22 |
| 25 | North Carolina | 22 | 25 | 20 | 26 | 24 | 42.07 |
| 26 | Michigan | 17 | 24 | 18 | 34 | 42 | 41.89 |
| 27 | Nebraska | 18 | 26 | 48 | 8 | 12 | 41.88 |
| 28 | California | 49 | 30 | 2 | 50 | 1 | 41.69 |
| 29 | New Jersey | 37 | 12 | 28 | 41 | 18 | 41.67 |
| 30 | Kansas | 44 | 22 | 30 | 5 | 9 | 41.43 |
| 31 | Connecticut | 15 | 5 | 40 | 46 | 33 | 41.33 |
| 32 | Maryland | 19 | 8 | 43 | 17 | 45 | 40.74 |
| 33 | Rhode Island | 20 | 13 | 33 | 33 | 34 | 40.73 |
| 34 | Wisconsin | 47 | 17 | 16 | 30 | 29 | 40.22 |
| 35 | Iowa | 43 | 28 | 11 | 31 | 44 | 40.01 |
| 36 | Virginia | 16 | 9 | 50 | 1 | 37 | 39.89 |
| 37 | Missouri | 13 | 31 | 47 | 29 | 32 | 39.68 |
| 38 | North Dakota | 23 | 16 | 37 | 7 | 48 | 38.71 |
| 39 | Tennessee | 33 | 34 | 31 | 19 | 17 | 38.69 |
| 40 | Kentucky | 26 | 44 | 23 | 36 | 40 | 37.07 |
| 41 | Georgia | 46 | 19 | 34 | 20 | 19 | 36.83 |
| 42 | South Carolina | 39 | 42 | 38 | 14 | 26 | 36.63 |
| 43 | Oklahoma | 35 | 40 | 45 | 3 | 31 | 36.44 |
| 44 | Hawaii | 41 | 29 | 24 | 49 | 39 | 35.55 |
| 45 | Alabama | 45 | 45 | 25 | 21 | 38 | 34.29 |
| 46 | New Mexico | 21 | 46 | 49 | 23 | 43 | 33.53 |
| 47 | Arkansas | 24 | 48 | 41 | 35 | 47 | 33.12 |
| 48 | West Virginia | 30 | 50 | 26 | 37 | 50 | 32.44 |
| 49 | Mississippi | 29 | 49 | 35 | 43 | 49 | 30.62 |
| 50 | Louisiana | 48 | 47 | 44 | 28 | 46 | 29.07 |
Methodology
This study identified 20 different factors to indicate which US state is the best for small businesses. Each of these factors fell into one of five different umbrellas: business cost, workforce, business environment, infrastructure, and economy. The data for each factor was collected for all states, and then represented in a score scale from 0 to 100, where 100 was given to the best performing states.
These scores were then weighted for each factor, depending on their impact on the success of new small businesses, and finally put together to achieve a final score and ranking.
Here are the factors, along with their respective weights and sources:
- State income tax rate (The Tax Foundation) - 6%
- Corporate income tax rate: (The Tax Foundation) Maximum corporate tax rate, 2023 (Federation of Tax Administrators) - 6%
- Sales Tax (The Tax Foundation)- 6%
- Cost of living (World Population Review) - 4%
- State Minimum Wage (U.S. Department of Labor) - 8%
- Educational attainment (World Population Review) - 5%
- Percentage of Working Population (U.S. Census Bureau) - 5%
- SBA 7(a) and 504 loan funding (U.S. Small Business Administration) - 6%
- Number of new businesses (U.S. Bureau of Labor Statistics)- 3%
- Survival rate for businesses by state (U.S. Bureau of Labor Statistics)- 10%
- R&D (National Center for Science and Engineering Statistics) - 6%
- Average Internet Speed (World Population Review) - 4%
- Average Electricity Cost (World Population Review) - 3%
- Average Commute Time (U.S. Census Bureau) - 3%
- Job creation rate (U.S. Census Bureau) - 4%
- Consumer spending growth (Bureau of Economic Analysis)- 5%
- Regional inflation as of Nov. 2023, relative to Jan. 2021 prices (U.S. Senate) - 3%
- GDP as of 3rd quarter 2023 (Bureau of Economic Analysis) - 4%
- GDP Growth - 4%
