BOISE, Idaho — According to a recent survey, Idaho was ranked No. 3 on the list of America’s Best and Worst States to Start a Small Business.
Capitol on Tap, a credit card company that focuses on small businesses, conducted a study to determine the best and worst states for small business startups.
Florida takes the lead as the “best” state for a small business, with Vermont trailing every other state, finishing the survey in last place — so, in effect, the “worst” state to start a small business.
Top 10 Best and Worst US States to Start a Small Business:
Why: Florida was ranked as the best state to start a small business due to a 5.5% corporate tax rate that allows more money to flow back into businesses and the third largest amount of small business loans secured for total number of employees at $4,913. Florida provides the most jobs created by startups per 1,000 residents living in the state.
Why: Texas has a small business friendly tax framework. It is one of only five states that does not impose any business tax or personal income tax. In Texas, all businesses with total revenues of less than $1.08 million or total tax liabilities of less than $1,000 owe no franchise tax. Additionally, Texas small businesses secured the fifth highest average loan per employee at $4,811.
Why: Idaho has the eighth lowest cost of labor among all 50 states; a positive for a small business that may not have generated much cash flow to begin with. Idaho also has a 13.84 percent business renewal rate from new employers, meaning that for every 100 business applications, nearly 14 become employers within the first two years. Idaho startups are also responsible for creating 6.1 jobs per 1,000 residents.
Why: The state performs well in areas such as early startup survival rate, with new businesses having an 83.2 percent chance of surviving past their first year. Nevada also has no corporate income tax, only a gross receipts tax, making the area a tax haven and attracting many businesses to use the state for their headquarters.
5. North Carolina
Why: North Carolina has a particularly low corporate tax rate of 2.5%. It also has the eighth highest percentage of firms with a chance of survival beyond the first year at 82.7%.
Why: Colorado performs well on factors such as entrepreneurial population. The state has the sixth highest rate of adults becoming entrepreneurs each month at 0.42%. Colorado also has an especially low corporate tax rate of 4.55%.
Why: Washington has the highest “early survival rate” for startups, with 89.2% of small businesses surviving a year after founding. It also ranks 12th for having the fewest business bankruptcy filings of all fifty states. Washington has the fourth highest rate of business renewals by new employers. 13.83% became employers in the first two years.
Why: Georgia has the third-highest overall rate of new entrepreneurs at 0.47% per month, which puts it in the top 20% of states that start small businesses — meaning the area is full of like-minded people looking to succeed.
9. A tie between California and Montana
Why: California is the ninth best state to start a small business with 50% of their workforce coming from small businesses. Overall, Golden State scored 63.8 out of 100 when combining the factors used to determine the rankings. It has the highest number of new business ventures launched in one year and the ninth highest percentage of businesses surviving their first year at 82.6%. However, California has the tenth highest cost of labor with an average hourly wage of $24.04.
Why: Montana ranks ninth overall and has the 10th lowest number of bankruptcy filings in 2022. Only 37 businesses in this state filed for bankruptcy, while it ranks 11th out of 50 states for percentage of all new businesses. who make their first salary within eight months.
Why: Utah has a solid showing, ranking sixth in the number of jobs created by startups at 6 per 1,000 people. The state also has a very low corporate tax rate of 4.85%, nearly three times less than New Jersey residents.
Capitol on Tap said the study considered eight factors in ranking the states, all of which are listed below. However, according to Capitol, the key factors that carry the most weight in analyzing small business success rates are new business survival rates, corporate tax rates and the number of entrepreneurs per state to determine viability.
Damian Brychcy, COO at Capital on Tap, said: “Entrepreneurship is driven by the desire for independence. This includes the freedom to pursue your passion, choose your workplace and working hours, and foster personal growth.”
“Although starting a business involves significant risks, including financial, reputational and scalability risks, this research provides valuable information when it comes to business climates in different countries to help new entrepreneurs make informed decisions and create an enabling environment for their business.”
8 key factors:
• Percentage of adults who become entrepreneurs per month
• Jobs created by startups per 1,000 people
• Percentage of new firms surviving one year after founding
• Number of new employers per 1000 people
• New employers as a percentage of all employers
• Highest marginal corporate tax rate (%)
• Labor costs/average salary
• Average SBL per employee
Data were found for all eight factors for all 50 US states. Each of the factors was then ranked using a 10-point scale, with 10 being the best. The factors were combined and then weighted according to the importance of the factor for starting a small business.
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