Best and Worst States for Entrepreneurs

With a large, dynamic, and varied economy, the United States is one of the best countries in the world for entrepreneurs. The country’s large population, highly developed economy, and high incomes provide great opportunities for would-be small business owners and startup founders. As a federal nation, states within the United States have wide latitude to set many of their own policies that relate to businesses, from taxation to financial regulation to licensing and employment policies. In effect, the nation has a living laboratory of 50 state-level entities and the District of Columbia in which more or less business-friendly policies can be tested and enacted.

In this analysis, AdvisorSmith examined over 20 indicators of the health of the business environment in states across the nation using data from numerous sources, including the U.S. Bureau of Labor Statistics and the Small Business Administration. Some of the factors we considered included personal and corporate tax policies, rates of business formation and hiring for new businesses, funding availability, and business survival rates. We ranked all 50 states and the District of Columbia based upon an aggregated score considering all these factors.

Top 10 States for Entrepreneurs

The top states for entrepreneurs are listed in the table below, along with select metrics around each state’s attractiveness for entrepreneurs. Several Midwestern states led the list, including Idaho (#1), Montana (#2), North Dakota (#4), and South Dakota (#7). Several states with very unfavorable tax environments made the top 10 as well, including California (#3), and New Jersey (#6), owing to their high rates of entrepreneurship and business survival.

Rank	State	New Businesses per 100K Population	New Entrepreneurs Per 100K Population	Value of New Business Loans per Business	Business Survival Rate
1	Idaho	172	371	$9,091	58%
2	Montana	172	370	$8,730	60%
3	California	136	436	$7,857	58%
4	North Dakota	136	362	$12,267	56%
5	Maine	130	351	$8,667	57%
6	New Jersey	118	320	$8,965	57%
7	South Dakota	134	293	$11,111	58%
8	Colorado	163	334	$7,864	54%
9	Massachusetts	111	251	$7,133	60%
10	Texas	118	410	$7,633	55%

Worst 10 States for Entrepreneurs

The worst states for entrepreneurs are listed in the following table. New Mexico (#1) topped the list, followed by a grouping of Northeast, Southern, and Rust Belt states, including Connecticut (#2), New Hampshire (#3), Maryland (#5); Mississippi (#4), Georgia (#10); and Ohio (#6) and Michigan (#9). States in the bottom 10 all suffered from low rates of business survival, low rates of business lending, low numbers of entrepreneurs, and low amounts of business formation. Tax policy was also a factor for the majority of the worst 10 states.

Rank	State	New Businesses per 100K Population	New Entrepreneurs Per 100K Population	Value of New Business Loans per Business	Business Survival Rate
1	New Mexico	85	429	$6,164	52%
2	Connecticut	83	225	$7,584	46%
3	New Hampshire	106	263	$6,812	51%
4	Mississippi	77	331	$7,170	55%
5	Maryland	94	286	$6,796	53%
6	Ohio	71	216	$7,841	54%
7	Hawaii	83	329	$8,029	52%
8	Kansas	98	285	$7,752	45%
9	Michigan	82	253	$7,982	53%
10	Georgia	119	394	$6,909	49%

Best and Worst States for Entrepreneurs

The table below shows the ranking of each state, along with each state’s ranking on selected subfactors, including Tax Environment Rank, Business Formation Rank, Entrepreneurship Rate Rank, Business Lending Rank, and Business Survival Rank

Rank	State	Tax Environment Rank	Business Formation Rank	Entrepreneurship Rate Rank	Business Lending Rank	Business Survival Rank
1	Idaho	20	1	5	6	4
2	Montana	5	4	18	10	1
3	California	49	5	3	24	6
4	North Dakota	17	8	23	1	16
5	Maine	29	6	29	12	8
6	New Jersey	50	31	7	7	10
7	South Dakota	2	9	40	2	5
8	Colorado	21	13	2	23	25
9	Massachusetts	34	15	11	40	2
10	Texas	11	18	12	28	17
11	Illinois	36	24	26	5	27
12	Nebraska	28	11	20	17	36
13	North Carolina	10	21	28	21	15
14	Oregon	15	3	21	32	29
15	Utah	8	14	13	35	24
16	Missouri	12	17	15	9	46
17	Alabama	41	45	30	3	13
18	Washington	16	2	22	18	50
19	Delaware	13	28	10	13	44
20	Minnesota	46	22	38	33	3
21	Louisiana	42	49	25	14	12
22	Indiana	9	41	50	4	7
23	Tennessee	18	36	27	25	14
24	New York	48	12	8	42	42
25	Oklahoma	30	29	14	44	19
26	South Carolina	33	32	16	22	37
27	Florida	4	25	4	50	32
28	Arkansas	45	30	35	8	40
29	Alaska	3	7	46	31	31
30	Wisconsin	25	39	42	11	23
31	District of Columbia	46	38	1	29	47
32	Pennsylvania	27	35	45	16	20
33	Wyoming	1	20	17	47	33
34	Nevada	7	26	6	49	38
35	Rhode Island	37	10	39	34	39
36	Iowa	40	27	49	36	11
37	Virginia	26	37	19	37	30
38	Arizona	24	34	24	41	26
39	Kentucky	19	42	36	38	9
40	Vermont	43	16	41	51	21
41	West Virginia	22	48	51	15	18
42	Georgia	31	33	9	43	48
43	Michigan	14	47	31	20	35
44	Kansas	35	23	34	27	51
45	Hawaii	38	46	32	19	43
46	Ohio	39	50	47	26	28
47	Maryland	44	43	33	46	34
48	Mississippi	32	51	44	39	22
49	New Hampshire	6	19	48	45	45
50	Connecticut	47	44	43	30	49
51	New Mexico	23	40	37	48	41

The following table shows selected statistics for each state, including new businesses per 100K population, new entrepreneurs per 100K population, value of new business loans per business, and business survival rate. On average, among the states, there were 116 new businesses per 100K population, 305 new entrepreneurs per 100K population, an average value of $7,910 per business for business loans, and a business survival rate over 4 years of 54%.

Rank	State	New Businesses per 100K Population	New Entrepreneurs Per 100K Population	Value of New Business Loans per Business	Business Survival Rate
1	Idaho	172	371	$9,091	58%
2	Montana	172	370	$8,730	60%
3	California	136	436	$7,857	58%
4	North Dakota	136	362	$12,267	56%
5	Maine	130	351	$8,667	57%
6	New Jersey	118	320	$8,965	57%
7	South Dakota	134	293	$11,111	58%
8	Colorado	163	334	$7,864	54%
9	Massachusetts	111	251	$7,133	60%
10	Texas	118	410	$7,633	55%
11	Illinois	105	256	$9,167	54%
12	Nebraska	116	273	$8,287	53%
13	North Carolina	111	279	$7,884	56%
14	Oregon	144	285	$7,557	54%
15	Utah	167	266	$7,348	55%
16	Missouri	114	348	$8,856	50%
17	Alabama	80	231	$9,804	56%
18	Washington	147	301	$8,037	45%
19	Delaware	173	228	$8,636	51%
20	Minnesota	100	217	$7,505	59%
21	Louisiana	86	344	$8,621	56%
22	Indiana	80	227	$9,263	57%
23	Tennessee	89	290	$7,849	56%
24	New York	137	336	$7,000	52%
25	Oklahoma	107	407	$6,906	55%
26	South Carolina	103	258	$7,865	53%
27	Florida	157	470	$5,964	53%
28	Arkansas	96	309	$8,880	52%
29	Alaska	143	434	$7,568	53%
30	Wisconsin	82	236	$8,677	55%
31	District of Columbia	118	251	$7,625	49%
32	Pennsylvania	86	189	$8,455	55%
33	Wyoming	267	429	$6,429	53%
34	Nevada	139	343	$6,061	52%
35	Rhode Island	122	157	$7,453	52%
36	Iowa	90	280	$7,299	56%
37	Virginia	99	208	$7,280	54%
38	Arizona	105	363	$7,038	54%
39	Kentucky	77	253	$7,222	57%
40	Vermont	114	372	$5,949	55%
41	West Virginia	60	201	$8,584	55%
42	Georgia	119	394	$6,909	49%
43	Michigan	82	253	$7,982	53%
44	Kansas	98	285	$7,752	45%
45	Hawaii	83	329	$8,029	52%
46	Ohio	71	216	$7,841	54%
47	Maryland	94	286	$6,796	53%
48	Mississippi	77	331	$7,170	55%
49	New Hampshire	106	263	$6,812	51%
50	Connecticut	83	225	$7,584	46%
51	New Mexico	85	429	$6,164	52%

Methodology

Our study considered over 20 factors in determining the best and worst states for entrepreneurs in the United States. We ranked all 50 states and the District of Columbia based upon each of the factors and assigned a weighting for each factor. We then aggregated the score given to each state for all of the factors to assign a composite score to each state. We then ranked the states based on their aggregate scores.

Tax factors considered in ranking the states included the rates of corporate taxation, individual income taxation, sales tax, unemployment insurance costs, and property taxes. All of these factors affect small business owners, as businesses can be structured either in corporate form or as pass-through businesses in which case individual income tax rates apply. Additionally, even if businesses rent the spaces which they occupy, property taxes are incorporated into the rents that they pay.

Our study examined four key variables around the formation of new businesses, as compiled by the Kauffman Indicators of Entrepreneurship for years between 2017-2019. These four factors were the average rate of business formation per capita, the percentage of businesses making a payroll within eight quarters of legal formation, the percentage of the population starting a new business, and the average number of jobs created by startup businesses during their first year in business. These factors provide a good measure of the impact of new businesses on their states.

Additionally, we used data from the U.S. Small Business Administration to compile counts of the number of small businesses in each state. We also found the total new lending to businesses for loans of up to $1 million. We divided the total lending, in dollars, by the total number of small businesses to find the new lending per business in each state.

We examined data published by the Bureau of Labor Statistics on the survival rates of small businesses in each state between 2016 through 2019. This data measures the survival rate of small businesses based upon the employment reports that they file with state governments. We calculated the survival rate of small businesses in each state over the study period, as this provides a measure of the success of small businesses.

Sources

Tax Foundation, Facts and Figures
Kauffman Indicators of Entrepreneurship, New Employer Business Series
Kauffman Indicators of Entrepreneurship, Early-Stage Entrepreneurship Series
U.S. Bureau of Labor Statistics, Establishment Age and Survival Data, Establishment age and survival data by state
U.S. Small Business Administration, Office of Advocacy, 2021 Small Business Profiles For The States, The District Of Columbia, And The U.S.