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10 Best & Worst States for Small Businesses

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Is the burden of compliance high on the list of your complaints?

If so, then financial advisors — most typically small-business owners — will find they have much in common with small-business owners as varied as painters, math tutors and DJs, who ranked the ease of regulatory compliance as the No. 1 issue across some dozen metrics in rating their state and city’s business friendliness.

The third annual Small Business Friendliness Survey, which purports to be the largest small-business survey of its kind, asked 12,632 small-business owners to rate their state and metropolitan area’s responsiveness on the issues of greatest importance to them.

Regulatory issues such as the ease of meeting professional licensing requirements consistently ranked highest, notably above tax rates, which most survey respondents did not overly lament, saying rather that they were paying their “fair share.”

The survey, conducted in partnership with the Ewing Marion Kauffman Foundation, drew its audience from businesses providing services on the Thumbtack site, which seeks to match consumers with professionals that can perform their desired projects.

(Related: 10 Best & Worst Tax States for Retirees)

Survey respondents were asked questions such as “Would you discourage or encourage someone from starting a new business where you live?”

The five best are first, followed by the five worst states:


Mardi Gras in New Orleans. (Photo: AP)

5. Louisiana

Grade: A-

Business is booming down by the bayou—or at least the ease of doing business is on the rise. The state’s biggest city rose from C- last year to B+ this year, scoring grades of A+ in the ease of hiring new workers and in the category of environmental regulations.

Said Thumback’s chief economist, John Lieber: “Small business owners appreciate how friendly the regulations in New Orleans are towards them.”

Richmond skyline at night.

4. Virginia

Grade: A

The South is rising again. Richmond, the cradle of the Confederacy, is now displaying Yankee-style industriousness, ranking 6th best city nationwide for starting a business.

Small businesses gave Virginia’s capital an A+ for the ease of starting a business, and Richmond excelled particularly in the category of licensing and in environmental regulations.

Alamo in San Antonio, Texas. (Photo: AP)

3. Texas

Grade: A+

The LoneStar State is 3 for 3 in making the Top 5 business friendly states, and the honor roll of best cities sounds like a roll call in the Texas state legislature.

Houston (No. 3), Austin (No. 4), Dallas (No. 6), Fort Worth (No. 7) and San Antonio (No. 8) took up half the spots among the Top 10 cities.

Said one business owner from a Houston suburb: “It is very easy to get information on starting and building your business.”

Great Big Idaho Potato Truck in Boise, Idaho.

2. Idaho

Grade: A+

They grow more than spuds up in Idaho, a three-for-three hall of famer.

The survey found that start-ups were twice as common in Boise as they were nationwide, with 23 percent of businesses reported that they had been operating for less than one year.

Indeed, the state capital and its largest metropolitan area ranked first among among all 82 cities surveyed in terms of the ease of starting a business.

Mormon Temple in Salt Lake City. (Photo: AP)

1. Utah

Grade: A+

The Beehive State remains true to its reputation, a beehive of industry, according to survey respondents, where residents of the state’s largest metro area, Salt Lake City, were particularly bullish on the outlook for the local economy.

The city notably has the second highest concentration of business owners with PhDs out of any city in the study.

Said one respondent, a personal trainer, about Utah

“I have not had any issues in getting a business license in my state. I believe the state has been very supportive of businesses in Utah.”


Skyline of Newark.

5. New Jersey

Grade: C-

The Garden State is sandwiched between two poor performing metropolitan areas, New York City (which rates a C+) and Philadelphia (with a grade of D). Meanwhile, it’s own largest city, Newark, gets a D, ranking near the bottom nationally for small business growth—with few Newark businesses seeing increased revenue over the past 12 months. Expectations for expansion in the coming year were duly pessimistic. 

Hartford, Connecticut.

4. Connecticut

Grade: F

Small businesses in cities such as Bridgeport and New Haven are not feeling the love from the government in Hartford—or at least note the industrious Yankee values on which the New England state’s prosperity was founded.

The state’s largest city, Bridgeport, received an F grade—with the regulatory burden the chief concern of small businesses.

Golden Gate Bridge in San Francisco, CA. (Photo: AP)

3. California

Grade: F

The golden state’s tarnish may be rubbing off, having achieved the dubious distinction of making the Thumbtack’s hall of shame (i.e., Bottom 5 states) for each of the three survey years.

Fittingly, perhaps, the worst-ranking of 82 cities was the state’s capital, Sacramento, the bane of small businesses across the state’s poor-performing cities such as San Diego (No. 78), Oxnard (No. 76 ) and Los Angeles (No. 74 ).

As a math tutor in a suburb of Sacramento put the problem:

“The government often makes changes in regulations that, although may have the best of intentions to ‘help or protect’ the average citizen, hurts honest, hardworking small-business owners.”

Buckingham Fountain, Chicago, Illinois.

2. Illinois

Grade: F

The Land of Lincoln is also the home state of the incumbent president, whose Obamacare mandates are not as burdensom with businesses in the state’s largest city, Chicago, as elsewhere.

The city ranked sixth in readiness for implementation of the Affordable Care Act.

However, the city came in dead last—82 out of 82—when it came to optimism about the local economy.

Castle Hill Lighthouse in Newport, RI.

1. Rhode Island

Grade: F 

The New England state is famously the least in size, but according to small business owners it is also the least in business friendliness.

Starting a business and hiring new workers were the issues that most rankled survey respondents. Indeed, Rhode Island’s capital city, Providence, ranked 80th out of 82 cities for business owners who would encourage others to start their own business there.

Like California, Rhode Island made the hall of shame of Bottom 5 states for each of the three years Thumbtack has conducted the survey.

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