The 10 Best and Worst States to Start a Small Business

There are many important things to consider when starting your own business or side hustleAND the location is at the top of the list. According to US Small Business Administration.

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After all, about 20% of new businesses fail within the first two years of opening, according to US Bureau of Labor Statistics (BLS). The BLS also found that 45% of businesses fail within the first five years. This number goes to 65% after 10 years.

Tangible capitala company that offers a credit card and expense management platform for small business owners, analyzed BLS data to determine the percentage of startups that are still active after three years — and divided the US states with the highest and most likely low three-year survival rates. – and five-year timelines.

“There are over 30 million small businesses in the US, which make up a large percentage of the economy, and as that number continues to grow, so will the innovation and commercial drive,” says Damian Brychcy, executive director at Capital on Tap. “This research should serve as a positive sign for entrepreneurs in the top ten states who are thinking about starting a business.”

^{Image Credit: John Coletti | Getty Images. Boston, Massachusetts.}

Qualities of business-friendly states

Before diving into the data, it's important to consider what factors make a state attractive to new business owners. And it's about more than just that starting a business. The following factors can help keep small companies afloat and lead to continued success:

taxes

Perhaps the most important factor of all, a business-friendly tax environment can lower costs and put more money in your pockets. There are payroll, employment, income and corporate taxes to worry about, all of which can influence decisions about hiring and expansion. Some states also offer tax incentives for small businesses, which can remove expensive barriers. Review ia self employed tax chart in your area may help.

Workforce

If you want to run a healthy and growing business, you almost certainly will be employment of employees. The best states for small businesses will have an abundance of available talent and a workforce with high levels of college education. Starting a business near a college or university may also attract interest from recent graduates. This is particularly evident in the technology industry.

Regulations

State policies regarding small businesses involve more than just that taxes and deductions. Government programs can provide business owners grants and loans and fostering investment from larger financiers. Compatibility is another factor. States can lower business costs by removing regulatory red tape, such as government-required approvals or permits.

Growth potential

You want to start your business somewhere that can thrive in both the short and long term. A number of factors can support this – for example, funding, investment in infrastructure and liveability. A proximity to funding sources can help your company grow, as long as the area can support your workers and their families. States and cities with a low cost of living, good schools and solid infrastructure will not only attract talent, but retain it.

US states/territories with the highest small business survival rates, per Capital on Tap
State	average 1 year (%)	average 3 years (%)	average 5 years (%)
Massachusetts	81,91	64.96	54,38
Wisconsin	81.13	64.93	54.97
South Dakota	80.44	64.03	54,88
MINNESOTA	80,96	63.97	53,51
Iowa	80,85	63,71	53,65
North Dakota	79.55	63,63	53.98
PA	80.69	63.51	53.18
Montana	79.60	62.79	53.03
Hawaii	79.37	62.22	52.21
North Carolina	79.85	61.91	51.25

Massachusetts

With elite universities, a thriving tech hub, a strong economy and a highly educated workforce, Massachusetts tops the list. Nearly 82% of small businesses survive their first year. Boston is also a growing center for STEM jobs and is home to many potential investors and employees. The state also boasts a strong Economic Development Incentive Program (EDIP) that provides tax and property benefits INCENTIVES for job creators.

Wisconsin

Not only does Wisconsin have a relatively low cost of living, but the state has one of the nation's best public university systems (read: highly educated workforce) and a business-friendly government that offers tax credits, low-interest loans low and grants for small. companies. Wisconsin also leads a public-private capital initiative through the Wisconsin Economic Development Corporation (WEDC), which recently announced a 100 million dollars investment in state startups.

South Dakota

Taxes are the big selling point for starting a business in South Dakota. With no corporate income, personal income, property or business inventory taxes, the state makes it affordable for owners to run a small company. The state is very affordable and has very few regulations, both of which lower the overall costs of doing business.

MINNESOTA

Almost 81% of small businesses survive their first year in Minnesota, an achievement that can be credited to the state's supportive business environment, educated workforce and relative affordability for a high quality of life. Minnesota also has nine small business development centers throughout the state that offer counseling, mentoring, networking opportunities and access to capital.

Iowa

With a high quality of life and low cost of living, Iowa is an attractive place to start and expand a small company. One of the biggest factors is extremely low energy and utility costs, which is particularly important for production. Iowa cities also offer property tax incentives for small businesses and some of the lowest workers' compensation costs in the nation.

US states/territories with the lowest small business survival rates, per Capital on Tap
State	average 1 year (%)	average 3 years (%)	average 5 years (%)
Washington	75.12	54.60	42.75
District of Columbia	76.04	54,73	43.73
New Mexico	76,64	56,58	45,58
Florida	77.00	56,82	44.95
Nevada	77,18	57,38	46.79
New Hampshire	76.65	57,52	46,63
Arizona	77.34	58.00	46.74
Tennessee	78,46	58,21	46,81
Arkansas	77.64	58,24	47,25
Rhode island	76,76	58.30	47.75

Washington

Fewer than 43% of new businesses in Washington are still operating after five years, thanks to expensive real estate, complex regulations and the nation's highest minimum wage ($16.28 an hour). State business and occupation tax is also calculated based on gross receipts, not gross profits, so businesses with thin margins will struggle especially.

District of Columbia

Washington, DC, is one of the most expensive metro areas in the country, both in terms of real estate and overall cost of living. This means high salaries and high rents for offices or storefronts. The city's business income tax and regulatory requirements are also relatively high, both of which can cut into profit margins.

New Mexico

High unemployment fees and limited access to capital make New Mexico a challenging state to open a small business. Skilled workers are in short supply compared to surrounding states, and complex regulations can be a burden for business owners. More than 23% of small businesses fail within the first year.

Florida

Although Florida pretends to be a thriving hub for entrepreneurs and small businesses, the data tells a different story: More than 55% of small businesses fail within five years. One of the biggest factors is the increasing frequency and severity of hurricanes, which has driven up insurance costs. This affects both the available workforce and a company's bottom line as premiums skyrocket.

Nevada

Almost 23% of new businesses fail within their first year in Nevada, and that's despite no corporate or individual income tax. Part of the challenge is local governments: regulations vary greatly depending on your chosen city, with different license requirements and specific fees. Heavy reliance on tourism can backfire when travel to the state drops, such as during a pandemic.

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