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The best and worst US states to start a business

Adriana Belmonte
Associate Editor

Texas is the best state to start your own business and Hawaii is the worst, according to a study from WalletHub.

The personal finance site analyzed data from a variety of sources — including the U.S. Department of Labor and Statistics, the U.S. Census Bureau — and found that the top five states to start a business were Texas, Utah, Georgia, Montana, and Oklahoma. The bottom five were Pennsylvania, Vermont, Rhode Island, New Hampshire, and Hawaii.

(Graphic: David Foster/Yahoo Finance)

The study factored in the business environment, access to resources, and business costs as part of their findings. It also considered aspects including educated populations, total spending incentives as a percentage of GDP, and the availability of human capital.

North Dakota (#7) and Utah (#2) are the top states for highest average growth in the number of small businesses and most accessible financing. Alaska (#36) is the top state for the highest availability of human capital and longest average work week (in hours). Iowa (#39) has the cheapest office spaces while West Virginia (#45) and Michigan (#15) are tied for highest total spending on incentives as a percentage of GDP.

‘We don’t know what causes any particular business success’

It remains unclear what exactly makes some states thrive better than others. As the map indicates, many states on the West Coast fare better than those on the East Coast when it comes to starting a business. (Overall, U.S. small business optimism surged to an all-time high this month.)

“The reality is we don’t know what causes any particular business success, and many different businesses succeed in a variety of locations for many different reasons,” Drew Hession-Kunz, Professor of the Practice at Boston College, told Yahoo Finance.

However, Hession-Kunz noted that “we have to be careful” at looking at only the ranking part of the study.

“Every business will have specific advantages, and may thrive in different locations than the usual,” he said. “There are clusters of measures. Not every criterion applies to every business, so we need to drill into the details to see what applies to any particular company.”

‘Finding talented experienced employees is really the bigger challenge’

State taxes and regulatory environment play a major role in whether or not a business succeeds, Hession-Kunz said, as many states at the bottom of the WalletHub rankings have high taxes without the “counterbalancing benefits” that some high-tax states offer.

Four of the five bottom-ranked states overall for starting businesses all have high corporate income tax rates compared to the national average. Texas (#1) doesn’t even have a corporate income tax, while the other top four are all on the lower side.

(Photo: Tax Foundation)

For the states at the top of WalletHub’s survey, “there are clusters of industries that are in a growth phase and therefore are attracting investment from multiple sources,” Hession-Kunz said.

“There is more capital available in more forms in more locations than ever before,” he said. “Finding talented experienced employees is really the bigger challenge right now.”

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