Geography probably isn't the only reason a startup succeeds or fails — but it often plays a role, especially when it comes to the costs of starting a business.
Your location can affect how much you'll pay on office space and taxes, or your ability to find and hire talented workers. If you're thinking of starting something new and you want to stretch your money as far as possible, you might consider setting up shop in Nevada, according to a new ranking from online small business advisory company SimplifyLLC.
Nevada tops this ranking as the least expensive U.S. state to start a small business, due to factors like an abundance of available commercial space and the state's lack of corporate income tax.
Those types of costs can matter: Roughly 44% of startup failures last year stemmed from businesses running out of cash, according to an analysis of CB Insights data published by Skynova, which makes invoicing software for small businesses.
Here are the nine least expensive U.S. states for starting a small business, according to SimplifyLLC's list:
- Nevada
- Colorado
- Arkansas
- Montana
- North Carolina
- South Dakota
- Wyoming
- Idaho
- Arizona
Nevada is one of only six states without any corporate income tax, though it does collect a gross receipts tax of up to 0.3% from businesses with at least $4 million in annual revenue. The state also ranks just outside the top 10 in labor force participation rate and average worker salaries.
It also boasted the country's fourth-best business survival rate in 2021, with nearly twice as many new startups formed than failed, according to the most recent data available from the U.S. Bureau of Labor Statistics.
Colorado and Arkansas came in just behind Nevada. Both states have some of the lowest corporate tax rates levied on businesses, with Arkansas imposing a rate of 3.3% and Colorado at 4.4%, the ranking notes.
Small business loans were also widely available in those two states in 2020, the most recent year with complete Small Business Administration data. Arkansas small businesses received nearly $43 million in loans per 100,000 residents that year, the sixth-highest of any state. Colorado was eighth at $41.2 million per 100,000 residents.
To calculate its rankings, SimplifyLLC used data from the U.S. Census Bureau, the Bureau of Labor Statistics and the Tax Foundation to rate each of the country's 50 states in nine categories:
- Corporate income tax rates
- Business filing fees
- Average annual income
- Labor force participation rate
- Percentage of adults over the age of 25 with at least a bachelor's degree
- Average monthly commercial electric bills
- Available commercial real estate
- Amount of small-business lending per capita
- Business survival rates
Some of the categories, like corporate tax rates or small-business lending availability, are fairly straightforward in how they'd affect your business' expenses. Others have more tacit implications: A high average annual income in your state, for example, could mean paying employees inflated salaries to stay competitive.
The ranking's categories aren't comprehensive. Small-business insurance costs can vary by state, as can inventory and equipment expenses. Some states offer tax credits for businesses in specific industries, which could help some startups and not others.
"For entrepreneurs who have the ability to pick and choose where they want to start their business, it's clear that certain states will allow you to save money," the ranking noted.
DON'T MISS: Want to be smarter and more successful with your money, work & life? Sign up for our new newsletter!
Check out:
