The dream of building a successful business is one shared by many Americans; the nation has always prided itself on its entrepreneurial spirit and opportunity for upward mobility. With the current economy posting healthy numbers (high stock market, low inflation and unemployment rate), now is as good a time as ever to start a business.
Yet starting one comes with a host of risks, and the failure rate is considerable no matter which field you enter. Tax rates, availability of employees, cost of office space and a number of other variables all have a strong impact on whether a business will be successful. The factors that can help or hurt a young business vary wildly from state to state and city to city, so it’s important to know the location that offers the most advantages for you in order to minimize the many risks associated with building something new from the ground up.
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For those looking to build a tech startup, California remains the best state in which to do so. The concentration of tech workers and available talent emerging from the state’s universities dwarfs those of other states. With $31.4 billion of venture capital investment money in 2016 (over half of the total amount of VC investment in the United States), other states cannot come close to matching the amount of money flowing into California-based businesses. However, high costs and heavy competition make starting a business in the state a tricky proposition.
Home to some of the nation’s best universities such as Harvard and MIT, Massachusetts is something of a microcosm of the California startup scene. The state provides an excellent talent pool of highly educated tech professionals and ranks third in the United States in venture capital investment, but with lower business taxes than California.
If you're put off by the costs associated with running a business in California, Arizona has emerged as an excellent alternative, and more and more Silicon Valley transplants are setting up shop in Maricopa County, the location of the Mesa-Glendale-Phoenix metropolitan area. The cities of Maricopa County offer a number of benefits to entrepreneurs, principally through the money one can save through the low costs associated with doing business in the area. Overall, taxes, wages and energy are 25% cheaper in Maricopa compared to San Francisco. Next to California, the state income tax rate (topping out at 4.54%) is very modest. Arizona ranks high in employee availability, as well, so staffing a business is not major concern.
Perhaps the overall best state to start a business in is Texas. In terms of costs, the state has one of the lowest tax burdens in the nation, as local and state taxes sum up to a mere 8.7% of a resident’s yearly income, on average, and no income tax is collected on the state level. The business tax climate also ranks in the top ten in the nation. Unlike other states, Texas has a number of thriving urban areas to choose from, and each caters to specific industries. Austin is home to many semiconductor companies, like AMD and Cirrus Logic, earning it the nickname “Semiconductor Hills”. The Dallas area is referred to as the “Telecom Corridor” for housing some of the world’s top information and telecommunication technology companies such as AT&T and Texas Instruments. Houston and San Antonio are both national energy capitals and many of the world’s largest oil companies are headquartered in these cities, including BP (Houston), Marathon Oil (Houston) and Valero (San Antonio). Another area where Texas thrives is in the sheer ease of starting a business: the state does not impose heavy regulations on new businesses and many resources exist to educate budding entrepreneurs and help them get a smooth start on their operation. The state also boasts one of the highest GDP’s--$53,795--while maintaining a low cost of living, so it’s no wonder the state has one of the highest business success rates in the nation.
Like Texas, Florida is enticing to entrepreneurs due because of its favorable tax climate. The state is one of only seven states that do not impose a state income tax.
While Colorado does levy an income tax, it’s at a flat 4.63% rate, which won’t bleed a small business owner dry. Colorado’s diverse economy, boasting significant high-tech, food production, telecommunication and government sectors, presents myriad possibilities for the entrepreneur. The urban areas centered on Boulder and Denver are great locations to open up shop, with great restaurant/nightlife scenes and ample opportunity for outdoor activity, while maintaining an affordable cost of living. The fact that more businesses open in the state each year than close down is a good sign for people hoping to start a business in Colorado.
The cities of Cincinnati and Hamilton in Ohio are also worthy places to start a business, owing to a state economy growing faster than the national average and a low cost of living.
We concentrated on the following metrics to obtain our ranking. Note that all metrics were normalized to a value between 0-1. Only cities with over 50,000 inhabitants are reported in the results.
I'm an entrepreneur myself. When talking to others who want to start their own business, they often get wrapped up in the nitty gritty of paperwork and forming the company. They forget that what really matters is customers, sales, and profit. That's why I created How to Start an LLC.org: a simple resource and guide so you can spend less time on forming your company, and more time on building it.
My lawyers want me to remind you that I'm not a lawyer and that I'm completely unqualified to offer legal advice. This site is meant to serve as a reference for you on your journey. If you have questions or concerns, please contact a qualified lawyer (or accountant) to help you. Also, as a general rule, never take random legal advice on the internet.