There are many factors to consider when deciding on where to open a small business, and there is no one secret that makes one place better than another. Owners should research the tax structure, customer demographics and competition in any given area while keeping in mind the type of business and what it may bring to local consumers. The top five places to start a business by the numbers are Wyoming, Washington, Texas, South Dakota and Nevada, and the worst are California, Vermont, New York, New Jersey and Washington, D.C. For more on this continue reading the following article from TheStreet.
Everyone loves a good Top 10 list. It’s reassuring to have a complicated subject condensed into organized, easy-to-understand chunks.
Certainly, business associations and media outlets know lists grab attention, so headlines such as "The Best Places to Start a New Business" or "The Best States for Entrepreneurs" crop up regularly. Even if we know it’s impossible to narrow down one "best" place, we’re drawn by the lure of discovering the secret to successful start-ups.
But when it comes to summing up the state of small business, what makes something the best? At a time American politicians talk obsessively about "job creators," is it possible to narrow down which conditions a small business needs to grow and thrive?
The answer is that there is no one be-all, end-all list. Look through recent rankings of the best places for small businesses, and you’ll find that the entrepreneurial hotspots vary, according to the factors being considered. Should a place rank highest if it has the lowest taxes? Or if it offers extensive support to start-ups — despite the relatively high taxes used to fund those services? Do small companies do well if they’re surrounded by other, similar businesses, or by striking out on their own, away from potential competition?
Consider a recent list complied by The Small Business & Entrepreneurship Council, a nonprofit group that lobbies for lower regulatory and tax burdens on businesses. Not surprisingly, the council ranks states as business-friendly depending on their government policies. Its Small Business Survival Index last year analyzed 38 costs associated with running a business, including taxes, minimum wage regulations, workers compensation costs and energy prices. (You’ll find the full report here.)
The Top Five states to start a business? South Dakota, Nevada, Texas, Wyoming and Washington, all of which don’t tax personal or corporate income. Ranked the worst are Washington, D.C., New Jersey, New York, California, and Vermont.
Two of those dead-last states — California and New Jersey — show up near the top of a different "best for business" list, though: the 2010 State New Economy Index, produced by the Information Technology and Innovation Foundation and the Kauffman Foundation. This ranking lists states according to how well they’re faring in the "New Economy," nurturing businesses that are knowledge-based, entrepreneurial, technologically innovative and globally oriented. According to this index, the top 10 New Economy states are Massachusetts, Washington, Maryland, New Jersey, Connecticut, Delaware, California, Virginia, Colorado and New York. (Click here to see the full report.)
True, a high score in the rankings doesn’t necessarily mean the state is creating more jobs or starting more businesses. In fact, there is no correlation between job creation and a state’s position in the list. The higher-ranked a state is, though, the more likely it is to have higher-paying jobs overall, which means, in turn, that the small businesses there tend to pay their workers better.
The study also breaks out states into different lists according to specific economic data. One section highlights the states that rank highly on "Economic Dynamism," factoring in each state’s business-creation rate, the number of Deloitte Technology Fast 500 and Inc. 500 firms located there; the value of companies’ IPOs, the number of new businesses, and the number of individual patents issued.
When it comes to being economically dynamic, the top 10 states were Utah, Colorado, Georgia, Massachusetts, Florida, Montana, Arizona, Nevada, California and Idaho. But only four of those states made the overall "best" list.
Now add in another list, compiled by The Business Journals, a division of Advance Publications that runs a number of business publications across the country. Its 2011 Small Business Vitality Rankings uses statistics such as population, employment and small-business growth to determine which metropolitan areas create and nurture small businesses the best. Austin ranked highest, with a small-business growth rate double that of anywhere else in the country.
The rest of the top 10? Oklahoma City, Charleston, Charlotte, Seattle, Tulsa, Raleigh, Denver, Washington, D.C., and New York City. (You can see the full list here.) Note that a number of those cities are in states (North Carolina, Oklahoma) that didn’t show up on any other "best" lists.
So where does that leave us? With the obvious: There is no perfect place to launch a business. States such as Massachusetts and California may have heavy regulatory burdens and high taxes, but big advantages when it comes to recruiting knowledge-economy workers. If you start out in South Dakota or Wyoming you’ll be able to keep more of your profits, but you’ll still have to create a compelling product and build a customer base to earn those profits.
For better or for worse, most entrepreneurs don’t study statistics in search of the ideal, nurturing environment. They want to start out in the area where they live, where their family is based, where they understand the local business climate and climate.
Yes, states can institute policies that are more or less business-friendly (and these days, everyone’s putting out the welcome wagon for anyone who creates jobs). But small businesses don’t spring up because of rankings. If your state shows up low on a best-for-business ranking, it doesn’t mean your particular business is a loser, too.
This article was republished with permission from TheStreet.