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There are many important things to consider when starting your own business or side hustle, not the least of which is location. Local and state laws can vary in taxes, zoning regulations, and licensing requirements, so you’ll need to be strategic when choosing a state, city, or even neighborhood. U.S. Small Business Administration.
Related: 5 things you should never do when running a small business
After all, about 20% of new businesses fail within the first two years of opening. U.S. Bureau of Labor Statistics (BLS) The BLS also found that 45% of businesses fail within the first five years, a figure that jumps to 65% after 10 years.
Capital UtilizationThe company, which provides a credit card and expense management platform for small business owners, analyzed BLS data to calculate the percentage of startups that are still active after three years and to categorize U.S. states with the highest and lowest chances of survival after three and five years.
“The United States is home to more than 30 million small businesses, making up a huge portion of our economy, and as this number continues to grow, so will innovation and commercial momentum,” said Damien Briticy, CEO of Capital on Tap. “This research should be a positive sign for entrepreneurs in the top 10 states who are considering starting a business.”
Image by John Coletti | Getty Images. Boston, Massachusetts.
Business-Friendly State Features
Before diving into the data, it’s important to consider what makes a state attractive to new business owners. And that’s simply because boot Business. The following factors help small businesses survive and lead to continued success:
tax
Perhaps the most important factor is that a business-friendly tax environment can help keep costs down and put more money in your pocket. There are a variety of taxes to worry about, including payroll taxes, employment taxes, income taxes, and corporate taxes, all of which can affect your decisions about hiring and expanding your business. Some states offer tax incentives for small businesses, removing some of the costly hurdles. It may be helpful to review the self-employed tax system in your state.
Labor force
If you want to run a healthy, growing business, you’ll almost certainly want to hire employees. The best states for small business have a talented, college-educated workforce. Starting your business near a college or university can also help you attract new graduates. This is especially true in the tech industry.
Rules
State policies for small businesses include more than taxes and deductions. Government programs can provide grants and loans to business owners or encourage investment from large donors. Compliance is another factor. States can lower the cost of doing business by removing regulatory red tape, such as required government approvals and permits.
Growth potential
You want to start a business in a place where it can thrive in both the short and long term. This involves a variety of factors, including capital, investment in infrastructure, and livability. Proximity to funding sources will help your company grow, as long as the area can support your employees and their families. States and cities with a low cost of living, good schools, and strong infrastructure not only attract but also retain top talent.
US states/regions with the highest small business survival rates, according to Capital on Tap |
|||
state |
1-year average (%) |
3-year average (%) |
Five-year average (%) |
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 |
Pennsylvania |
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
Massachusetts tops the list with its top universities, vibrant tech hubs, strong economy, and highly educated workforce. Approximately 82% of small businesses survive their first year. Boston is also a growth hub for STEM jobs, drawing many investors and potential employees. Massachusetts also boasts a robust Economic Development Incentive Program (EDIP) that offers tax breaks and real estate incentives to job creators.
Wisconsin
Not only does Wisconsin have a relatively low cost of living, it also has one of the best public university systems in the country (meaning a highly educated workforce) and a business-friendly government that offers tax credits, low-interest loans, and grants to small businesses. Wisconsin also has a public-private capital initiative through the Wisconsin Economic Development Corporation (WEDC), which recently announced $100 million Investing in state startups.
South Dakota
Taxes are a big selling point when starting a business in South Dakota. With no corporate income taxes, personal income taxes, property taxes or business inventory taxes, this state makes it affordable for owners to run a small business. The state is affordable and has very little regulation, which keeps the overall cost of doing business low.
Minnesota
In Minnesota, approximately 81% of small businesses make it through their first year, thanks to the state’s strong business climate, well-educated workforce and relatively affordable quality of life. Minnesota has nine Small Business Development Centers across the state that offer consulting, mentoring, networking opportunities and access to capital.
Iowa
Iowa’s high quality of life and low cost of living make it an attractive place to start or expand a small business. One of the biggest factors is our extremely low energy and utility costs, which is especially important for manufacturing businesses. Iowa cities also offer property tax incentives for small businesses and some of the lowest workers’ compensation costs in the nation.
US states/regions with lowest small business survival rates, according to Capital on Tap |
|||
state |
1-year average (%) |
3-year average (%) |
Five-year average (%) |
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
In Washington state, high real estate prices, complex regulations, and the state’s highest minimum wage ($16.28 an hour) mean that fewer than 43 percent of new businesses remain in business after five years. State business and occupation taxes are also calculated based on gross receipts, not gross profits, so businesses with low profit margins will especially struggle.
District of Columbia
Washington DC is one of the most expensive metropolitan areas in the US, both in terms of real estate and cost of living. That means high salaries and high office and retail rents. The city also has relatively high business income taxes and regulatory requirements, both of which can put a strain on profit margins.
New Mexico
High unemployment and limited access to capital make New Mexico a difficult state to start a small business. There is a shortage of skilled labor compared to surrounding states, and complex regulations can be burdensome for business owners. More than 23% of small businesses fail within the first year.
Florida
In Florida Claim To be a vibrant hub for entrepreneurs and small businesses, the data tells us differently: Over 55% of small businesses fail within five years. One of the biggest contributing factors is the increasing frequency and intensity of hurricanes, which leads to rising insurance costs. Insurance premiums are skyrocketing, impacting both available labor and company revenue.
Nevada
In Nevada, about 23% of new businesses fail within the first year, despite the state having no corporate or personal income taxes. One challenge is local government; regulations vary widely depending on the city you choose, with different requirements for specific licenses and fees. A heavy reliance on tourism can also be counterproductive when travel to the state declines, such as during a pandemic.