If you have a new small or midsize business (SMB), several key factors can immediately impact its success. One of the most critical decisions a fledgling SMB owner can make is where to set up shop. Location matters – and studies show that location can determine how easily you can get your business off the ground.
We’ll explore the results of Thumbtack’s annual Small Business Friendliness Survey, as well as a Motley Fool analysis of how critical factors can affect business success in different states.
No matter what state you operate in, make sure you’re familiar with federal and state labor laws and compliance requirements.
In its most recent Small Business Friendliness Survey, Thumbtack polled more than 3,600 SMB owners throughout the country to determine how easy or difficult it was for them to start and run a business in their home states and cities. Participants answered more than 40 questions on topics such as local tax codes, licensing regulations, and the ease of finding workers.
Since Thumbtack took this survey in 2021 amid pandemic challenges, the results differed significantly from its 2019 survey. In 2019, the economy was “in the midst of the longest economic expansionary period in U.S. history,” according to Andrew Heritage, lead economist for Thumbtack. As Heritage pointed out, “Business owners in 2021 were a year removed from one of the briefest yet most steep economic declines in modern history.”
The best states for small business taxes include Wyoming, South Dakota and Alaska. The worst states include New York, New Jersey and California.
Pandemic-related SMB challenges affected nearly every aspect of running a business in 2021. The Thumbtack survey reflects business owners’ frustration and desire for support, but also optimism.
“Our survey found the disruptions caused by COVID-19 posed challenges to small business owners, and small business owners are looking to local, state and the federal government to provide additional support,” Heritage said. “[Of the respondents,] 54% want state government to streamline regulatory and licensing requirements, 45% want the federal government to lower or simplify taxes, and 41% want their local government to make housing more affordable.”
There’s reason to hope that pandemic-induced challenges will dissipate. “Fundamentally, the public health crisis caused by COVID-19 is the cause of current economic disruptions,” Heritage said. “Once resolved, challenges such as the labor shortage, inflation and supply chain disruptions should ease.”
There are signs that the business climate is bouncing back. The Census Bureau’s Business Formation Statistics show that entrepreneurship is at an all-time high.
Though Thumbtack’s survey respondents faced significant disruptions, they are also optimistic: 87% of respondents believe there’s enough economic opportunity in their communities to succeed, up 11% from the previous survey. They are so optimistic, in fact, that 42% are making plans to invest in their business in the first quarter of 2022.
Business incubators are economic programs that support new businesses’ success by providing office space as well as professional services and advice.
The most recent Thumbtack survey’s best- and worst-ranked states differed significantly from the 2019 survey. The results reflect each area’s temporary pandemic regulations more than their support for small businesses in general.
Your industry and product may determine how favorable a particular area is for your business. For example, a fishing charter company could be a successful business in Florida, while a music production company should consider starting out in Nashville.
While the Thumbtack survey asked small business owners their opinions on their states’ and communities’ friendliness, The Motley Fool’s analysis approached the question differently.
Analysts looked at several studies by government entities and nonprofit organizations to give each state a score based on six factors: tax climate, consumer spending, rate of new entrepreneurs, business survival rate, labor costs and the effect of climate change.
The Motley Fool came up with the following ranking of the top 10 states for small businesses.
The states with the fastest-growing small businesses include Mississippi, Nebraska, Maine and Texas.
Both analyses agree that Florida and Texas are favorable environments for business creation. If you are thinking about opening a new business and need a location, take these factors into account and consider which are most important to you. For example, if you are self-employed and opening a sole proprietorship or consultancy, labor costs may not be crucial.
When choosing where to open a business, also consider where you’d like to live and prepare for retirement.
Jennifer Dublino contributed to the writing and reporting in this article.