When starting your individual business or running a side business, there are many necessary things to consider, and location is top of the list. Local and state regulations can mean different taxes, zoning regulations, and licensing requirements, so it pays to be strategic in selecting your state, city, or even neighborhood, according to the regulations United States Small Business Administration.
After all, it’s estimated that around 20% of recent businesses fail inside the first two years of opening US Bureau of Labor Statistics (BLS). The BLS also found that 45% of companies fail inside the first five years. After 10 years, this number increases to 65%.
Capital on tapcompany, which offers small business owners a bank card and expense management platform, analyzed BLS data to determine the percentage of startups that are still lively after three years, and divided the U.S. states with the highest and lowest probability of survival in the three- and five-year time frames.
“There are over 30 million small businesses in the U.S., representing a huge percentage of the economy, and as that number grows, so will innovation and commercial motivation,” says Damian Brychcy, CEO of Capital on Tap. “This study should be a positive sign for entrepreneurs in the top 10 states who are thinking about starting a business.”
Image source: John Coletti | Getty Images. Boston, Massachusetts.
Features of business-friendly countries
Before digging into the data, consider what aspects make a given state attractive to recent business owners. And it’s about greater than that starting business. The following aspects may also help small businesses stay in business and lead to lasting success:
Taxes
Perhaps the most significant factor is a business-friendly tax environment, which might lower costs and put more cash in your pocket. There are payroll, employment, income and corporate taxes to worry about, all of which might impact hiring and development decisions. Some states also offer tax incentives for small businesses that may remove costly hurdles. It could also be helpful to familiarize yourself with the self-employed tax schedule in your area.
Workforce
If you would like to run a healthy, growing business, you’ll almost actually hire employees. The best states for small businesses will have plenty of obtainable talent and a workforce with high levels of faculty education. Starting a business near a university can also pique the interest of recent graduates. This is especially visible in the technology industry.
Regulations
State small business policy covers greater than just taxes and deductions. Government programs can offer grants and loans to business owners and encourage investment from larger sponsors. Compatibility is one other factor. States can reduce the cost of doing business by removing regulatory red tape, equivalent to required government approvals or permits.
Growth potential
You want to start your business in a place where it could possibly thrive in each the short and long run. This may be driven by many aspects – for example, financing, infrastructure investment and quality of life. Proximity to funding sources may also help your business grow, provided the area can support your employees and their families. States and cities with a low price of living, good schools, and solid infrastructure is not going to only attract talent, but also retain it.
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US states/territories with the highest small business survival rates per Capital on Tap |
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|
Country |
Annual average (%) |
3-year average (%) |
5-year average (%) |
|
Massachusetts |
81.91 |
64.96 |
54.38 |
|
Wisconsin |
81.13 |
64.93 |
54.97 |
|
South Dakota |
80.44 |
64/03 |
54.88 |
|
Minnesota |
80.96 |
63.97 |
53.51 |
|
Iowa |
80.85 |
63.71 |
53.65 |
|
North Dakota |
79.55 |
63.63 |
53.98 |
|
Pennsylvania |
80.69 |
63.51 |
53.18 |
|
Montana |
79.60 |
62.79 |
53/03 |
|
Hawaii |
79.37 |
62.22 |
52.21 |
|
North Carolina |
79.85 |
61.91 |
51.25 |
Massachusetts
With elite universities, a thriving technology center, a strong economy and a highly educated workforce, Massachusetts is at the top of the list. Nearly 82% of small businesses survive the first 12 months. Boston is also a growing center for STEM jobs and is home to many investors and potential employees. The state also boasts a strong Economic Development Incentive Program (EDIP), which provides tax and property incentives for job creators.
Wisconsin
Not only does Wisconsin have a relatively low price of living, but the state has one of the nation’s best public university systems (read: a well-skilled workforce) and a business-friendly government that provides tax breaks, low-interest loans and grants for small businesses. Wisconsin also has a public-private equity initiative through the Wisconsin Economic Development Corporation (WEDC), which recently announced 100 million dollars investments in state-owned start-ups.
South Dakota
Taxes are the principal advantage of starting a business in South Dakota. With no taxes on corporate income, personal income, business property and inventory, the state makes running a small business inexpensive for owners. This state is very inexpensive and has very few regulations that lower the overall cost of doing business.
Minnesota
Nearly 81% of small businesses survive their first 12 months in Minnesota, which may be attributed to the state’s supportive business environment, educated workforce and relative affordability that ensures a prime quality of life. Minnesota also has nine small business development centers across the state that supply guidance, mentoring, networking opportunities and access to capital.
Iowa
With a prime quality of life and low price of living, Iowa is an attractive place to start and grow a small business. One of the most significant aspects is extremely low energy and utility costs, which is especially necessary in the case of production. Iowa cities also offer property tax breaks for small businesses and some of the lowest worker compensation costs in the country.
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US states/territories with the lowest small business survival rates per Capital on Tap |
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|
Country |
Annual average (%) |
3-year average (%) |
5-year average (%) |
|
Washington |
75/12 |
54.60 |
42.75 |
|
District of Columbia |
76/04 |
54.73 |
43.73 |
|
New Mexico |
76.64 |
56.58 |
45.58 |
|
Florida |
77.00 |
56.82 |
44.95 |
|
Nevada |
77.18 |
57.38 |
46.79 |
|
New Hampshire |
76.65 |
57.52 |
46.63 |
|
Arizona |
77.34 |
58.00 |
46.74 |
|
Tennessee |
78.46 |
58.21 |
46.81 |
|
Arkansas |
77.64 |
58.24 |
47.25 |
|
Rhode Island |
76.76 |
58.30 |
47.75 |
Washington
Fewer than 43% of recent Washington businesses are still in business after five years, thanks to expensive real estate, complicated regulations and the nation’s highest minimum wage ($16.28 an hour). The state’s business and occupation tax is also calculated based on gross receipts quite than total profits, so businesses with thin margins will especially struggle.
District of Columbia
Washington, D.C. is one of the most costly metropolitan areas in the country, each in terms of real estate and overall cost of living. This means high salaries and high rents for offices and storefronts. The city’s business income tax and regulatory requirements are also relatively high, which might reduce profit margins.
New Mexico
High unemployment rates and limited access to capital make New Mexico a difficult state to open a small business in. Compared to neighboring states, there is a shortage of expert employees, and complex regulations may be a burden for business owners. Over 23% of small businesses fail inside the first 12 months.
Florida
Although Florida claims the data tells a different story: over 55% of small businesses fail inside five years to develop into a thriving hub for entrepreneurs and small businesses. One of the most significant aspects is the increasing frequency and severity of hurricanes, which has led to higher insurance costs. This impacts each the available workforce and the company’s bottom line as premiums skyrocket.
Nevada
Nearly 23% of recent businesses fail inside their first 12 months of operation in Nevada, and this is despite no corporate or personal income tax. Part of the challenge is local governments: regulations vary greatly depending on the city you select, with different requirements for specific licenses and fees. A heavy reliance on tourism can even backfire when travel to a given state is restricted, equivalent to during a pandemic.
