Ranking the Best and Worst States to Start a Business In

The success of your small business can be impacted by a number of factors — some of which you can control and others that you can’t. Towing the line between those two categories is what state you choose to open your business in. While you may just assume setting up shop in your current city makes sense, your location may bring with it more challenges than other locales would. To that point, a new study from WalletHub has ranked the current best and worst states to start a business in.

To arrive at their findings, WalletHub graded each state based on a number of points broken down into three main categories: Business Environment, Access to Resources, and Business Costs. In terms of Business Environment, consideration was paid to things like the number of startups per capita, five-year business survival rate, and job growth. Meanwhile the Access to Resources category looked at the availability of financing, higher education options, venture investment per capita, and more. Finally the Business Costs section assessed corporate tax rates, cost of living, office space affordability, etc.

Earning the overall top spot with a score of 64.4 was Texas, which also ranked #1 in the Business Environment category. While Utah was about a point behind the Lonestar State for a second place finish, the Beehive State did take top prize in terms of Access to Resources. Rounding out the top five were Georgia (60.21), Montana (58.9), and Oklahoma (58.67). Incidentally it was the Sooner State that ranked atop the Business Costs section of the study.

Coming in dead last overall was Hawaii with a score of 37.16. The 50th state in the union also came in 50th in terms of Access to Resources. Others in the bottom five included a slew of northeastern states, with New Hampshire (38.11), Rhode Island (41.88), Vermont (42.53), and Pennsylvania (42.81) all placing near the end of the list. However it was 45th overall finisher West Virginia that came in last for Business Environment while 44th-ranked New Jersey was found to have the worst Business Costs.

Source: WalletHub

Looking at some specific factors, the survey found that the state with the highest average growth in the number of small businesses is North Dakota, while West Virginia has seen the least amount of growth. Speaking of North Dakota, it also tied Utah, Iowa, and neighboring South Dakota in terms of access to financing. On the other end of the spectrum, Arizona was discovered to offer the least accessible financing. Finally, when it comes to labor costs, Mississipi was found to be the cheapest, while Maryland was the most expensive.

While these types of studies are always interesting, it’s important to note that those in the “worst” ranked states shouldn’t be completely discouraged. For one, trends within an individual city can vary greatly from the state as a whole. Additionally there’s nothing to suggest that the experience of your peers will mirror or foreshadow your own fate. Ultimately there are simply too many factors to your success that can’t be accounted for in any survey. Therefore the best thing you can do for your small business is plan wisely, work hard, and hope for the best.

I once read that location should be the first consideration when putting up a businees but for me, its the right product in the right place for the business to succeed.

Sometimes it could also be a good opportunity to invest in a “not doing so well” state. Surveys can be used as guide but success still depends on your strategy and well laid plans.

These studies could be a helpful guide when deciding to start a business but those low ranking cities could also have a potential, depending on th e nature of your business.

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Jonathan Dyer

I'm a small town guy living in Los Angeles looking to make solid financial decisions. I write for a number of finance websites, including HuffingtonPost and Business2Community. I founded DyerNews.com in 2015 to focus on personal finance and the emerging FinTech markets.

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