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The 10 Best (and Worst) States for Starting a Business

The 10 Best (and Worst) States for Starting a Business
Credit: Xtock/Shutterstock

When you're building a business, a lot of factors contribute to whether it succeeds or fails. How the company is run, who is in charge and how it is marketed all play a role in whether a new business survives.

Another critical element is where the business is launched. A new study from WalletHub revealed that some states give new businesses a better chance at success than others.

"A state that provides the ideal conditions for business creation – access to cash, human capital and affordable office space, for instance – can help new ventures not only take off but also thrive," the study's authors wrote.

The researchers found that North Dakota is the best state to start a business, in part because it has the highest average growth in the number of small businesses, the most accessible financing and the longest average workweek. [Starting a business? Here's a step-by-step guide on how to it]

To determine the best and worst states to start a business, WalletHub's analysts compared the 50 states across three key dimensions: business environment, access to resources and business costs.

Business environment incorporates average length of the workweek, average growth in number of small businesses, startup per capita, average of growth of business revenues, five-year business survival rate, industry variety, entrepreneurship index and how digital a state is.

Access to resources includes financing accessibility, venture investment amount per capita, human-capital availability, higher education assets, share of college-educated population and working-age population.

For business costs, they took into account office space affordability, labor costs, corporate taxes, total effective state and local tax rates on mature corporate headquarters, total spending in incentives as a share of the GDP, and cost of living.

"We determined each state's weighted average across all metrics to calculate its total score, which we then used to rank-order our sample," the study's authors wrote.

These are this year's 10 best states to start a business and their rankings in each category:

1. North Dakota

  • Business environment: 1
  • Access to resources: 5
  • Business costs: 30

2. Texas

  • Business environment: 3
  • Access to resources: 10
  • Business costs: 25

3. Utah

  • Business environment: 11
  • Access to resources: 1
  • Business costs: 29

4. Oklahoma

  • Business environment: 6
  • Access to resources: 28
  • Business costs: 1

5. Nebraska

  • Business environment: 5
  • Access to resources: 23
  • Business costs: 8

6. Florida

  • Business environment: 9
  • Access to resources: 22
  • Business costs: 15

7. Colorado

  • Business environment: 7
  • Access to resources: 9
  • Business costs: 32

8. Georgia

  • Business environment: 13
  • Access to resources: 14
  • Business costs: 10

9. Missouri

  • Business environment: 10
  • Access to resources: 33
  • Business costs: 16

10. South Dakota

  • Business environment: 15
  • Access to resources: 17
  • Business costs: 7

Melissa Bradley, a professor at the McDonough School of Business at Georgetown University, said there are steps states can take to encourage entrepreneurs to start businesses there.

"States can look at tax incentives tied to job creation, and look at tax breaks for companies that employ the hard to hire, or provide skills training," Bradley said in a statement. "States can streamline the incorporation and certification processes to reduce the burden of time and money."

Re-examining zoning laws and having a dedicated staff person who helps coordinate and support new businesses are other steps states can take to promote business growth in their communities.

The research found that these are the 10 worst states to start a business in this year:

1. New Jersey

  • Business environment: 39
  • Access to resources: 20
  • Business costs: 50

2. New Hampshire

  • Business environment: 49
  • Access to resources: 27
  • Business costs: 42

3. Maryland

  • Business environment: 40
  • Access to resources: 11
  • Business costs: 46

4. Rhode Island

  • Business environment: 47
  • Access to resources: 29
  • Business costs: 35

5. Hawaii

  • Business environment: 32
  • Access to resources: 34
  • Business costs: 43

6. Pennsylvania

  • Business environment: 43
  • Access to resources: 19
  • Business costs: 38

7. Connecticut

  • Business environment: 34
  • Access to resources: 8
  • Business costs: 49

8. Delaware

  • Business environment: 41
  • Access to resources: 7
  • Business costs: 40

9. Alabama

  • Business environment: 50
  • Access to resources: 31
  • Business costs: 9

10. Arkansas

  • Business environment: 45
  • Access to resources: 43
  • Business costs: 18

Michael Johnson, a professor at Colgate University, said states should consider investing in human capital, an educated workforce, and amenities that help make states and communities a good place to live to encourage entrepreneurs to start businesses there.

"Don't deny your citizens essential facilities and services just to keep taxes low, and don't enact hostile labor laws that back your state into a low-wage trap, even if they seem to pay off in the short term."

To view where every state ranks on this year's list, visit the WalletHub website.

Chad Brooks

Chad Brooks is a Chicago-based writer with more than 20 years of media experience. A graduate of Indiana University, Chad began his career with Business News Daily in 2011 as a freelance writer. In 2014, he joined the staff as a senior writer. Currently, Chad covers a wide range of B2B products and services, including business phone systems, time and attendance systems, payroll services, and conference call services. Before joining Business News Daily and business.com, Chad spent nearly a decade as a staff reporter for the Daily Herald in suburban Chicago. Chad's first book, "How to Start a Home-Based App Development Business," was published in 2014. He lives with his wife and daughter in the Chicago suburbs.

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