Which States Are Best for Small Business Success?

While small businesses spring up all across the country with regularity, the fact of the matter is that some states have policies and economies that are more conducive to a company succeeding than others, and knowing which is which can therefore be vital for entrepreneurs to keep in mind.

In 2013, South Dakota had conditions that were most favorable to small business success, when considering a total of 47 factors including tax rates, health insurance requirements and prices, utility costs, crime rate, government conditions at state and local levels, spending, and more, according to the 18th annual Small Business Policy Index from the nonpartisan advocacy group the Small Business and Entrepreneurship Council. South Dakota's rating of 34.627 was well ahead of second-place Nevada (37.537) and third-place Texas (39.52), but only these three states came in at less than 40. Wyoming, Florida, Washington, Alabama, Indiana, Ohio, and Utah rounded out the top 10, with ratings ranging from 44.414 to 62.74.

The reason South Dakota was the top-ranked state for this year is its low tax rate and the relatively few fees that are charged to businesses by the state government, the report said. It has also spent government funds wisely and tried to do more to attract more startups in particular over the course of the year, leading to its also having been rated tops in the nation by a number of other independent studies.

"Policy reforms that bolster small business startup and growth are mostly being implemented at the state level," said Karen Kerrigan, SBE Council president and chief executive officer. "Unfortunately, federal policy and uncertainty remains an overall negative for entrepreneurs and small businesses. But states vary widely in terms of their policy approaches. The top states on the Small Business Policy Index 2013 are streamlining government and lifting burdens like excessive taxation and regulation. They are passing responsible budgets, and living within their means. The worst ranked states keep treating small businesses and entrepreneurs as piggy banks to fund higher spending and bankrupt programs."

Which states had the biggest problems?
Of course, not every state can be near the top of the list, and this year California was ranked last in the nation, with a rating of 113.637, the report said. In all, seven states had ratings of more than 100, including Maine, Minnesota, Hawaii, New York, Vermont, and New Jersey.

The reason California was rated so low is that it carries huge tax rates and regulatory controls that can be restrictive for small businesses in particular, the report said. Further, personal taxation rates are also high, meaning that owners will reap fewer rewards from their companies, even if they succeed. The state has only recently begun to try to streamline the ways in which small businesses run within its borders, but may need to do far more to improve to a more respectable standing.

While owners may not always be able to decide to start a business in one of the states that any independent evaluation indicates will give them the best chance to succeed, that does not mean that they can't put themselves in a more advantageous position in other ways. For instance, many independent companies operate on very thin margins, and even the simplest attempts to reduce costs – such as by shopping around for small business insurance policies – can go a long way to ensuring an enterprise is putting its best foot forward. For instance, finding more affordable liability insurance coverage, among other policies, can help any small business to save thousands of dollars per year.