5 States That Aren’t Too Friendly to Small Biz Owners (And 5 That Are)

If you are pondering how to start a business, where you take your ambitions matters. A variety of studies have recently crunched the numbers to find the best and worst states to start a small business. 

The ranking method used data on a state’s business environment, access to resources, and the cost to run a business.

Here are the five best and five worst states to start your small business.

Alaska took the bottom spot as the worst state to start a business. The Last Frontier ranked particularly poorly in the business costs category, which factored in things like office affordability, labor costs, and the cost of living.

Despite its relatively small population (just over 733,000 by U.S. Census estimates), a large portion of Alaskans (66%) are part of the workforce. Unfortunately, they’re working long hours. Alaska has the longest average work week out of any state.

Connecticut came next on the “worst of” list, scoring particularly poorly in both the business environment and business costs categories. 

The business environment rankings used data such as the share of engaged workers, job growth, and the five-year business survival rate.

Interestingly, the state scored high in the access to resources category (eighth out of all 50 states).

West Virginia came next on the list and managed to score the worst out of all 50 states in two categories: business environment and access to resources. 

Breaking down the data further, the Mountain State also scored last in small-business growth and education level among the population.

It did tie Michigan for first place when it comes to total spending on incentives as a percentage of gross domestic product (GDP), however.

New Jersey also made the worst list, coming in dead last out of all 50 states in the business costs category. 

The state has one of the highest labor costs (second only to Maryland) in the country and the cost to rent office space is amongst the highest as well, which is not surprising given its proximity to New York City.

However, New Jersey does have one of the most educated populations in the country as well, landing at No. 4 out of 50.

Rhode Island rounds out the bottom five and performed the worst in the business environment category (at 47th on the list). However, if you’re dead set on starting a small business in the Ocean State, you will have lots of company.

According to the U.S. Small Business Administration, there were more than 108,000 small businesses in the state in 2022, accounting for 98.9% of RI’s total businesses. 

Idaho comes in at No. 5 on the list of best states overall and placed in the ninth spot in the business environment category and the tenth spot in the business costs category. 

The Gem State also boasts the highest average for growth in the number of small businesses.

So why are so many heading out west to Idaho? The state’s low taxes and limited regulation could make it attractive to entrepreneurs.

Colorado is another prime option for small businesses, landing in the No. 4 spot overall. It also came in fourth in the business environment category and ranked seventh in the access to resources category.

The Centennial State has also been named the second best in the nation for starting a side hustle, citing its strong economy, high-tech ranking, and access to capital.

Texas ranked third on the list overall, and also came in third in the business environment category, and ranked 12th in access to resources.

Those who operate businesses in the Lone Star State get to enjoy tax benefits. Texas landed on WalletHub’s top five list when it comes to spending on incentives as a percentage of the GDP as well. 

Florida regularly makes a variety of lists ranking the best states when starting a business, and it landed in the No. 2 spot this year. The Sunshine State placed first in the business environment category. 

Those who run companies within the state do get to enjoy tax advantages as well as a thriving economy.

Currently, there are about 3 million small businesses operating in Florida and 3.6 million people are employed by a small businesses.

Utah was the best of the best on the list, taking the No. 1 spot. It ranked in first place in the access to resources category and came in seventh in the business environment category.

Breaking down the data further, the Beehive State came in second place for growth in a number of small businesses, tied for first (with North and South Dakota) for accessible financing, and has the shortest average work week.

Pro tip: Utah is a prime location for exploring the best side hustles as well, due to its low business costs and bustling workforce.

Managing costs is often a top priority when starting a new business venture. When considering how to make extra money (or save it), the benefits — taxes, access to resources, and more — offered by the states on the “best of” side of this list may make them an appealing place to start a business.

But don’t get discouraged if the state you live in made the “worst of” list. What matters the most is finding the location that works for your company’s individual needs.