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Updated Jan 03, 2024

The Best States for Small Businesses

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Sammi Caramela, Business Operations Insider and Senior Writer

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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 and look at how CNBC’s rankings compare.

TipTip

No matter what state you operate in, ensure you’re familiar with federal and state labor laws and compliance requirements.

Thumbtack’s annual Small Business Friendliness Survey

In its most recent Small Business Friendliness Survey, Thumbtack polled more than 2,800 SMB owners nationwide to determine how easy or challenging it was to start a business and handle operations in their home states and cities. Participants answered questions on topics such as local tax codes, licensing regulations and the ease of finding workers.

Since the last Small Business Friendliness Survey in 2021, many states’ and cities’ ratings have gone from A+ or A- to as low as F. Many small business owners are now worried about the economy, inflation and the future of their businesses. 

“Current economic conditions and waning government support from the pandemic are leaving small businesses feeling worried about what the future holds,” explained Marco Zappacosta, co-founder and CEO of Thumbtack. “As inflation continues to impact a majority of industries, it’s crucial that government organizations, at all levels, band together to support small businesses.”

Thankfully, 80 percent of consumers at least consider using small, local businesses in their day-to-day, while 50 percent of that 80 percent say it’s a primary or strong consideration. Unfortunately, however, consumer support can only go so far. In fact, 21 states received an F for small business friendliness, regulations, taxes, training opportunities and more.

Did You Know?Did you know

Business incubators are economic programs that support new businesses’ success by providing office space, professional services and advice.

Thumbtack’s best and worst states

The most recent Thumbtack survey’s best- and worst-ranked states differed significantly from the previous year, with many states receiving less support from the government.

According to the Thumbtack survey, here’s what you need to know about the best and worst states for small businesses: 

Top three friendliest states for small businesses:

  • Delaware (A+)
  • Idaho (B+)
  • Arkansas (B-)

Top three SMB-friendly cities:

  • Boise, Idaho (A-)
  • Orlando, Florida (B+)
  • Providence, Rhode Island (B-)

Worst states for SMB friendliness:

  • Pennsylvania (F)
  • Oregon (F)
  • Minnesota (F)
  • Michigan (F)
  • New Jersey (F)
  • Massachusetts (F)
  • Connecticut (F)
  • New York (F)
  • Maryland (F)
  • North Carolina (F)
  • Tennessee (F)
  • Kentucky (F)
  • Indiana (F)
  • Illinois (F)
  • Missouri (F)
  • Texas (F)
  • Wisconsin (F)
  • Nebraska (F)
  • Louisiana (F)
  • Arizona (F)
  • California (F)
  • Washington (F)

Bottom cities for small businesses:

  • New York, New York (F)
  • New Orleans, Louisiana (F)
  • Chicago, Illinois (F)
  • Washington, D.C. (F)
  • Phoenix, Arizona (F)
  • San Francisco, California (F)
  • Portland, Oregon (F)
Did You Know?Did you know

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.

CNBC’s state rankings

The Thumbtack survey asked small business owners their opinions about their states’ and communities’ friendliness. In contrast, CNBC’s poll ranked business-friendliness based on 86 metrics across the following 10 categories:

  • Workforce
  • Infrastructure
  • Economy
  • Life, health and inclusion
  • Cost of doing business
  • Tech and innovation
  • Business friendliness
  • Education
  • Access to capital
  • Cost of living

CNBC’s top 10 states to start a business:

  1. North Carolina
  2. Virginia
  3. Tennessee
  4. Georgia
  5. Minnesota
  6. Washington
  7. Florida
  8. Utah
  9. Michigan
  10. Colorado

Finding a home for your small business

Both analyses agree that Florida and Texas are favorable environments for business creation. If you’re considering opening a new business and are researching locations, consider the factors most critical to your business and industry before deciding on a home state. 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, it’s also essential to consider where you’d like to live and prepare for retirement. After all, a positive work-life balance is key to business success.

Andrew Martins contributed to this article. 

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Sammi Caramela, Business Operations Insider and Senior Writer
Sammi Caramela is a trusted business advisor whose work for the U.S. Chamber of Commerce and others centers around creating digestible but informative guidance on all things small business. Whether she's discussing cash flow management or intellectual property, work trends or employer branding, Caramela provides actionable tips designed for small business owners to take their entrepreneurship to the next level. Caramela, who also lends her expertise to the financial outlet 24/7 Wall St., has business management experience that allows her to provide personal insights on day-to-day operations and the working relationship between managers and independent contractors. Amidst all this, Caramela has found time to publish a young adult novel, develop a poetry collection and contribute short stories to various anthologies.
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