The Best And Worst States To Be An Entrepreneur

Entrepreneurship is the foundation of the American economy. While two in five employees strive to be their own boss, it’s not for the fainthearted — entrepreneurship is serious business. But there are certain factors that may help determine your success. Knowing how well your state nurtures and encourages new business start-ups is one way. Here are some of the best and worst states to start your business.

Best: California

The words, “there’s gold in them thar hills,” rings true for Golden State entrepreneurs. California is one of the most dynamic places in the US to open a small business, suggests CNN Money. California has the highest business survival rate of any state thanks to the strong entrepreneurial spirit of California residents, with 141 per 100,000 residents starting up businesses. The state has 3.4 million small businesses, which account for 99 percent of the state’s employers, and 52 percent of the workforce. 

Additionally, entrepreneurs might have an easier time securing funds in the Golden State compared with other states. But entrepreneurs also face some of the highest business taxes and one of the highest costs of living in the country. Yet, with California’s overall attractiveness, lending opportunities and business survival rate, it ranks high for potential business start-ups.

Best: Washington

Second to California comes Washington with a high per capita gross domestic product (GDP) of $60,476 and the sixth-lowest business tax climate score in the nation, indicating a solid economic and business foundation for new business growth, suggests CBS MoneyWatch.

Once again, similar to California, Washington boasts a large pool of available employees, equal to 5.8 percent of the state’s population, plus a high rate of small business lending. Even with Washington’s higher-than-average cost of living and high rate of crime in certain areas, new businesses can thrive there.

Best: Wyoming

Although Wyoming entrepreneurs may find it difficult to secure qualified candidates due to low employee availability and college graduation rates, the state ranks high among the best states for entrepreneurs and number two on the Kauffman Index State Rankings. Wyoming has the best business tax score of any state, which means entrepreneurs in this state can potentially keep more of their earnings, suggests CBS MoneyWatch.

In addition, the Cowboy State also has the second-highest GDP per capita, $75,648, indicating that this state has a strong economy with fruitful businesses. Wyoming’s high portion of existing small businesses employs 23 percent of the state’s population. 

Best: Montana

Montana is fast becoming one of the top states for entrepreneurs, according to the annual Kauffman Index State Rankings. Kauffman’s data shows strength of new business creation in the northern mountain and Midwestern states because of the oil boom in the Bakken region, where a drilling frenzy brought development and thousands of new workers, spawning entire industries, suggests The New York Times.

While Montana’s housing costs and personal income taxes are relatively high, other living costs there tend to be low, and there’s no sales tax, says CBS MoneyWatch. Montana also has the highest number of start-ups per capita, at 195.7 per 100,000 residents with 0.54 percent of residents entering entrepreneurship each month. 

Best: Missouri

Missouri seems to offer a variety of unique advantages for entrepreneurs, such as a low-cost and pro-business environment. Missouri also has the fourth-highest business survival rate in the nation, according to CBS MoneyWatch. In addition, Missouri offers small businesses a low cost of living and business-friendly taxes.

Data released by the US Census Bureau and analyzed by the Kauffman Foundation, showed that there were 1,293 more businesses created in Missouri in 2013. This is a positive sign for Missouri entrepreneurs, with chances for success in their favor.

“Small businesses are the engine of our economy,” says Governor Jay Nixon, “so I’m very proud that Missouri leads the country in new business creation.” 

While the best states help new businesses thrive, the worst states for entrepreneurs have a number of drawbacks that can make it hard for business owners to achieve success. Now let’s take a look at some of the worst.

Worst: West Virginia

The Business Insider rates West Virginia as one of the worst states for starting up a business, which is reflected in a high rate of failed businesses and low number of existing small businesses. For every 100 new businesses created in West Virginia in 2013, 117 businesses failed, suggests CBS MoneyWatch. In fact, the state has the highest rate of business closures in the US.

In addition, West Virginia has the lowest number of small businesses compared to all other states, with 63 small businesses per 1,000 residents. This may account for its current rate in small business lending, which is the second-worst rate in the nation.

West Virginia does, however, have an available workforce and higher percentage of college graduates, which are slightly better than average. Yet, even with these positives, business owners may face greater obstacles in order to achieve success than entrepreneurs in other states.

Worst: Hawaii

Many new entrepreneurs may dream of one day starting a business in the Aloha State, but in reality, the high cost of living (the highest compared to all states) may be a detriment. Many new businesses will have to figure out how to cover those costs, says CBS MoneyWatch, because Hawaii’s rate of small business lending is in the bottom 12 of all states. 

With a rate of 11 percent, Hawaii has among the highest individual income taxes in the US. In addition, most business activities are subject to a “general excise tax” as high as four percent, which means four cents of every dollar in sales goes directly to the state of Hawaii.

This may explain why Hawaii has a lower business survival rate, with only a few more businesses created in 2013 than failed that year. It may be harder to seek employees as well, since Hawaii has a smaller pool of available employees and low number of new college graduates. While it does come first for quality of life, it’s not so hot for business start-ups.

Worst: South Carolina

Obtaining a loan in South Carolina may be difficult for new business owners — the state’s rate of small business lending is 46.3 per 1,000 small business employees. While South Carolina still offers some low costs, such as average business tax and cost-of-living rates, this won’t equate to much since South Carolina entrepreneurs are already fighting slow business growth in the area, says CBS MoneyWatch.

In addition, South Carolina has a low number of existing small businesses as well as a smaller portion of its population employed by small businesses (15.1 percent), making it the fifth-lowest in the US. The state also has the third-lowest GDP per capita, which contributes to South Carolina’s poor business conditions for small businesses.

Worst: Pennsylvania

Pennsylvania ranks as one of the worst states for entrepreneurs because of its low business survival rate and lack of start-up activity. In fact, this state has the third-highest rate of business failures in the US. Residents of the state become entrepreneurs at a rate that is about 30 percent lower than the national average, according to CBS MoneyWatch. And while there are some positives, such as a higher rate of college graduates entering the workforce and a GDP per capita on par with the national average, it also has a higher cost of living, lower rates of small business lending, and a lack of employee availability. 

Worst: Virginia

In 2011, CNBC ranked Virginia first in the nation for business, but since then it’s gone downhill. Virginia has the second-highest rate of business failures in the US, reports CBS MoneyWatch. For every 100 new businesses opened in 2013, 114 businesses closed. In addition, Virginia has fewer start-ups and fewer small businesses per capita. Plus, the state’s small businesses employ a smaller amount of residents — 17.5 percent.

There also seems to be less financing available for business owners, with just 43.7 loans per 1,000 small business employees. In addition, the state charges higher-than-average business taxes and has a higher cost of living. That means businesses face higher costs in general, eating away profits. Apart from a higher-than-average GDP per capita and a higher rate of college graduates in the state, Virginia’s business culture makes it the fifth-worst state for entrepreneurs.

Regardless of which states are best and worst, small business continues to grow. Twenty-eight million small businesses in America account for 54 percent of all US sales, says the US Small Business Administration (SBA). In addition, small business provides 55 percent of all jobs in the US and all new jobs since the 1970s. While entrepreneurship is growing rapidly, corporate America has been downsizing. Overall, start-up businesses have grown and small business failures have declined — and that’s positive for all entrepreneurs!

—Katherine Marko

Katherine Marko is a freelance writer, author and blog creator. Her areas of expertise include food, health, style, beauty, business and nutrition. Marko holds a Bachelor of Arts in English, a diploma in photography, graphic design and marketing, and certification in esthetics.


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