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December 16, 2009

Top 10 States for Small Biz - How Does Your State Rank?

Would you be surprised to learn that South Dakota is considered the most friendly state for small businesses and entrepreneurs?  And that it

Anita Campbell

CEO, Small Business Trends LLC

Would you be surprised to learn that South Dakota is considered the most friendly state for small businesses and entrepreneurs?  And that it is followed by Nevada (2), Texas (3), Wyoming (4) and Washington state (5)?

Or that at the bottom of the list, the most unfriendly locales for small businesses are: District of Columbia (51), New Jersey (50), California (49), New York (48) and Vermont (47)?

I know what you’re wondering:

“Who comes up with these rankings, anyway?”

“And what are the rankings based on?”

These particular rankings come from the Small Business and Entrepreneurship Council, a non-profit small business advocacy group.  Every year for 14 years they’ve ranked the states in something they call the “Small Business Survival Index.” 

Measuring Public Policy and Cost of Doing Business

The Index measures whether state and local government policies are friendly toward entrepreneurship. Much of the focus is on whether the state policies make it more expensive for small businesses to do business.

The Index is not without its critics.  However, whether you agree with the Index rankings or the methodology – or not -- it’s highly instructive. Let’s take a look at what the Index measures – because the issues are ones that can result in less money dropping to your bottom line:

  • Taxes:  Includes rates of personal income taxes, capital gains taxes, corporate income taxes, C-corp taxes; sales and excise taxes; and tax deductions for health savings accounts – among others.

  • Healthcare: Includes whether states require “guaranteed issue” for the self-employed (means insurance companies cannot turn them down for coverage); and the number of mandated coverages (the more, the worse the score). 

  • Minimum wage rates
  • Legal liability costs

  • Internet taxes

  • Government spending levels, including the number of state government employees 

  • Private property protection (refers to the Kelo vs. New London decision -- whether eminent domain can be used to take property just because local governments think another use would bring in more tax revenue)
What Does it Mean if You are in a Low Ranking State?

Does it mean that you have to pick up and move somewhere else to be successful? Or that you’re destined to be unsuccessful?  Of course not!  Determined business owners will find a path to success no matter where they are.

No, the real value of an Index like this is using it as a platform for change.  Just because things are the way they are, doesn’t mean they have to stay that way.  If you wanted a list of things to talk with your lawmakers about – especially those lawmakers who tout their support of small businesses -- the factors on this list would be a good starting place. The goal would be: get them to make your state less expensive to do business in... and more friendly toward entrepreneurs.

The Full Rankings

Here are the overall rankings for the 50 states and the District of Columbia:

1. South Dakota
2. Nevada 
3. Texas
4. Wyoming
5. Washington
6. Florida
7. South Carolina
8. Colorado
9. Alabama
10. Virginia
11. Ohio
12. Alaska
13. Tennessee
14. Utah
15. Indiana
16. Arizona
17. North Dakota
18. Missouri
19. Mississippi
20. Georgia
21. Oklahoma
22. Kentucky
23. Michigan
24. Illinois
25. Arkansas
26. Kansas
27. Pennsylvania
28. New Mexico
29. Louisiana
30. Wisconsin
31. Montana
32. Idaho
33. New Hampshire
34. Nebraska
35. Delaware
36. West Virginia
37. Maryland
38. Oregon
39. North Carolina
40. Connecticut
41. Iowa
42. Hawaii
43. Minnesota
44. Massachusetts
45. Rhode Island
46. Maine
47. Vermont
48. New York
49. California
50. New Jersey
51. Dist. of Columbia


This PDF report of the Small Business Survival Index explains the methodology and the factors used in the rankings.  It also ranks the states for each of the 36 government-related costs factors, in case you want it broken down.

Now tell me, what do YOU think?  Where does your state rank?  Are you surprised by any of the rankings?

Anita Campbell is the Founder of Small Business Trends, an online community for small businesses.   


About the Author

Anita Campbell

CEO, Small Business Trends LLC