Quitting your job to finally give your business idea a chance is an exciting and risky proposition. Living in the right state might give you just enough of a head start to succeed.
After all, the location of your business can play a huge role in determining the type of employees and customers you can attract, as well as costs such as taxes and payroll. To help narrow your search, Looka.com — a website that offers branding and design tools for startups — has released a new ranking of the best US states for entrepreneurs.
According to Looka, California is the best place to stay if you’re finally ready to quit your day job and start your own business. And this despite a notoriously high cost of living, including one of the highest corporate tax rates in the country.
Here are the first five states on the list:
- New Jersey
California has long been a hub for new business, especially for the tech industry – but the Golden State has recently seen an exodus of top companies leaving the state in search of lower costs and, in many cases, tax cuts. Tesla, Oracle and Hewlett Packard are among the biggest names that have moved their headquarters out of California since 2020.
But Looka points to the consistently high concentration of small businesses and startups with fewer than five employees in California, and one of the best survival rates for new businesses in the country. California also ranks first in annual payroll for companies with fewer than five employees. “These contractors are, on average, able to better pay themselves and their team,” a Looka spokesperson told CNBC Make It.
The ranking cites research from the nonprofit Kauffman Foundation showing that in 2021, 82.56% of new businesses in California were still operating after their first year. The national average is 81.7%, and with all the challenges that brand new businesses face, they often need all the help they can get to survive.
Just behind California is Texas, which has the fourth highest concentration of companies with fewer than five employees. The Lone Star State also offers the second-highest annual payroll for businesses with fewer than five employees and a lower-than-average cost of living, helped by the state’s lack of personal income tax. .
Rhode Island is at the very bottom of the rankings, with the lowest number of new businesses in the country and one of the worst survival rates for new businesses: just over 77% in 2021. West Virginia ranks 49th place, finishing second to last in median household income and number of new businesses created between 2020 and 2021.
To establish its ranking, Looka indicates that the States were judged on six criteria:
- Number of companies with less than five employees
- Median household income
- Survival rate of new businesses
- Cost of life
- Annual payroll for companies with less than five employees
- Percentage of new cases in each state from 2020 to 2021
The company relied on data from the US Census Bureau, the World Population Review 2022 and the Kauffman Foundation’s Entrepreneurship Indicators.
Register now: Be smarter about your money and your career with our weekly newsletter
These are the best and worst states to live in for millennials in 2022
These are the 5 best and worst states for women-owned businesses in America