Which State Is Best for Starting a Business?

As an ambitious entrepreneur prioritizing the profitability and long-term potential of your business, one of the most important decisions you’ll face is where to start your company. If you live in the United States or plan to move there, you’ll have 50 states (and even more territories) to choose from, each with their own advantages and disadvantages. So is one state better than all the others? And if not, how should you choose your state?

Categories to Consider

There are several factors you’ll need to consider, including:

1. Corporate tax rates. If you’re starting a corporation, or in some cases, an LLC, you’ll need to think about the corporate tax rates in each state. The Federal government levies an income tax on all corporations, and most states also add a state-level corporate income tax on top of this. The few states that don’t have a state-level corporate tax rate obviously have an advantage here, though there are states with a corporate tax rate so low it barely matters.
2. Ease of registration and upkeep. You’ll also need to think about the ease of registration and the demands of ongoing paperwork, maintenance, and upkeep. Some states have much stricter rules and regulations for entrepreneurs than others, requiring much more time-intensive paperwork or imposing harsher requirements on business owners. There are many variables to consider within this category, including industry-specific regulations, so it’s difficult to be comprehensive in any high-level evaluation.
3. Access to resources/popularity. Most businesses benefit from having access to more resources. If you’re launching a startup and you’ll need lots of capital, you’ll want to start a business near other startups, as well as near angel investors, VC firms, and other sources of capital. Some states are extremely popular for business owners, while others are sparser. You’ll need to keep this in consideration.
4. Economic incentive programs. Some states are underpopulated, or highly prioritize business activity in the state. Either way, they have special incentive programs to encourage new entrepreneurship, such as grants for business owners who move to the state to start a business in the tech sector. Many of these exist at the local level, so you’ll need to research individual cities and towns to find them.
5. First-year survival rates. You know that most businesses fail within the first five years of operation, but did you know that different states have different failure rates? First-year survival rates are a good indication of the conditions of a given environment; if the survival rate is high in a given state, chances are good there’s an underlying reason, like an economically active population or ample resources for entrepreneurs.
6. Cost of living. Though often neglected, you’ll also need to consider the cost of living in various areas. Let’s say you’re making $100,000 a year in your business; in a rural area of a Midwestern state, that’s a lot of money. In downtown San Francisco, you’re not even average. Lower cost-of-living areas can make each of your dollars go further.
7. Labor costs and availability. Similarly, you’ll need to think about the labor costs in different areas—especially if you’re hoping to expand your business rapidly. Lower cost of living is usually (but not always) associated with cheaper labor costs, which can be highly advantageous. You may also consider labor talent and availability; areas close to universities tend to be ripe with high-quality candidates, which are important for startups in certain industries.
8. Moving and setup costs. Don’t forget that it will cost you money to move and set up your business somewhere new. Accordingly, your home state (and in some cases, the surrounding states) may have a natural advantage. It’s usually less expensive to start a new business where you already live than to pack up and move somewhere different.

Is There a Best State to Start Your Business?

With these categories in mind, is there a “best” all-around state in which to start your business? The simple answer is no. Most states have some advantage that makes them appealing, as well as some weakness that hold them back. For example, California is a hotbed of startups and entrepreneurship, so access to capital isn’t typically a problem—but it also suffers from an absurdly high cost of living (in urban areas), and a punishing tax rate. Mississippi has relatively low labor costs and a below-average cost of living, but it’s not in the top states for average business growth.

Ultimately, there isn’t a singular state that presents a better proving ground for entrepreneurs than the others. If you’re planning on moving to start your business, you’ll need to think about your own personal goals, your biggest entrepreneurial priorities, and the multitude of regulations inherent in each state.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.