Best states to start a business

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(Photo by ADRIAN DENNIS / AFP) (Photo by ADRIAN DENNIS/AFP via Getty Images)

DALLAS (STACKER) — When it comes to starting a business in America, not all states are created equal. About one-fifth of all startups do not survive past their first year of operation, and almost half don’t make it to five years, according to U.S. Census Bureau data.

Location makes a big difference. Some states have a low cost of living and affordable housing to make it easier to attract workers, while others have tax-friendly policies to make entrepreneurship easier. Some have a shortage of available and able workers, while others have a growing, well-educated labor pool. Overall, the goal for most startups is to find an affordable location that will provide access to skilled workers as well as plenty of resources to get a business up and running.

To determine the best states to start a business, Stacker ranked all 50 states based on a 2019 WalletHub study that looked at 26 key indicators of startup success. Three key factors were considered in the ranking: business environment, access to resources, and business costs. To determine these, the study looked at the number of startups per capita, the five-year business survival rate, and access to financing, among other influences. Other factors were the accessibility of financing, the length of an average workweek, insurance costs, the variety of surrounding industries, and access to higher education.

States that ranked highest tended to have low taxes, reasonable housing prices, and well-educated workers. Business-friendly Utah, for example, has high growth among its small businesses, plenty of access to financing, and a well-trained and growing workforce. The business environment in Texas is unrivaled. Real estate is reasonable, incentives abound, and small businesses tend to do well. Those at the bottom of the ranking tended to have a heavy tax burden, a high cost of living, and expensive real estate.

States successful at nurturing new business also have a broad array of creative and innovative incentives, initiatives, and financing avenues. Georgia, where hundreds of startups are flourishing, encourages new business with research alliances, incubators, accelerators, and supportive workspaces.

Read on to see how each state measures up.

#50. Rhode Island

– Total score: 35.29
– Business environment rank: #50
– Access to resources rank: #24
– Business costs rank: #36

Rhode Island ranks at the bottom of the list, based on its business environment score. That includes factors such as its number of engaged, committed workers; startups per capita; the five-year survival rate of businesses; and the variety of industries around the state. They do, however, have an Innovation Voucher program to help companies seeking research and development by underwriting studies at a university medical center.

#49. New Jersey

– Total score: 36.42
– Business environment rank: #44
– Access to resources rank: #15
– Business costs rank: #50

The Garden State offers a bounty of resources for starting a business, including training for small business owners and a micro-business credit program, and its population is among the most educated in the country. But dragging the state down are high business costs, from taxes and the cost of living to the affordability of office space.

#48. New Hampshire

– Total score: 37.94
– Business environment rank: #46
– Access to resources rank: #46
– Business costs rank: #39

A lack of available workers and limited access to resources make starting a business difficult in New Hampshire. But the NH Tech Alliance aims to make the state a technology hub through incentives and funding. Also, New Hampshire has no income tax, and its tax rate for businesses is lower than those of its neighbors.

#47. Hawaii

– Total score: 38.05
– Business environment rank: #30
– Access to resources rank: #49
– Business costs rank: #41

Hawaii is a tough place to start a business, due to its low access to resources such as financing and educated workers, and its labor costs are among the highest in the country. Added to that are its expensive cost of living and housing market—according to Zillow, the median value of a home in Hawaii is $614,500.

#46. Connecticut

– Total score: 39.31
– Business environment rank: #48
– Access to resources rank: #4
– Business costs rank: #48

A population that is among the most educated in the country and financial resources make Connecticut attractive to aspiring business owners. However, it scores poorly in terms of its business environment, such as its small business growth and entrepreneurship; the state is also home to some of the most expensive places to live in the country, including New Haven-Milford, Worcester, and Hartford. 

#45. Pennsylvania

– Total score: 40.18
– Business environment rank: #47
– Access to resources rank: #22
– Business costs rank: #37

Hampering startups in Pennsylvania is the state’s business environment, which lacks a diversity of industries and fast-growing firms. The cost of housing is among the nation’s lowest, but its taxes can be grueling: The tax of 58.7 cents per gallon of gasoline is the highest in the nation.

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