Is Your State Small-Business Friendly?

A recent survey rates the top five friendliest states for small business as Utah, Alabama, New Hampshire, Idaho and Texas. This is just one of the findings in the second annual Small Business Friendliness Survey conducted by in partnership with the Ewing Marion Kauffman Foundation.

At the other end of the spectrum are states at the bottom of the rankings: Those rated “F” in small business friendliness — Hawaii, Maine and Rhode Island—and “D” — California and Illinois.

When comparing the 2012 and 2013 findings, we were surprised to discover that some states have put in some significant effort in improving their ranking, while others seem to be falling off the way-side. We created the following graphic to better show the trend from 2012 to 2013 across the country:

 Small Business Friendliness - 2012 to 2013 change in letter grades

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In addition to some surprises in state and city rankings, what really stands out about this survey is that it is the only one that obtains data from an extensive, nationwide universe of job creators and entrepreneurs themselves. While other groups rank and rate various locations that are “good” or “bad” for small business, this survey’s sponsors claim that none of the others go directly to small business owners themselves. This year the study surveyed 7,766 small business owners nationwide.

Here are some other key findings:

    • The top performing cities overall were Austin, Virginia Beach and Houston.


    • Texas has three of the top five cities: Austin, Houston and San Antonio.


    • Conversely, California has three of the bottom five cities: Los Angeles, San Diego and Sacramento.


    • The city at the very bottom: Newark, NJ.


    • North Carolina was the most-improved state overall (from a C+ last year to a B+ this year) and improved in multiple categories.


    • African American and Hispanic small business owners are significantly more likely to encourage others to start a business than their Caucasian colleagues.

Surveying the 7,000+ small business owners involved a variety of questions about the friendliness of states and cities toward small business. For example:

    • In general, how would you rate your state’s support of small business owners?


    • Would you discourage or encourage someone from starting a new business where you live?


    • Do you think you pay your fair share of taxes?

Cities and states were evaluated against one another along more than a dozen different metrics.

Lawmakers and those setting policy often think they know what’s most important to small business owners. In providing concrete evidence of business owners’ concerns and priorities, the survey shows that popular assumptions are often incorrect. According to the survey:

    • Professional licensing requirements were 30 percent more important than taxes in determining a state's overall business-friendliness (also true last year). Forty percent of U.S. small businesses, by the way, are subject to licensing regulations by multiple jurisdictions or levels of government.


    • The ease of obtaining health insurance was an important factor for many businesses. One-third of small business owners rated obtaining and keeping health insurance as "very difficult," as compared with only 6 percent who rated it "very easy."


    • Small businesses were relatively unconcerned with tax rates—more than half of small business owners felt they pay about the right share of taxes.

Business owner-respondents answered questions in a number of areas:

    • Overall friendliness of their state’s support of small business


    • Ease of starting a business


    • Ease of hiring


    • Regulations


    • Health and safety


    • Employment, labor and hiring


    • Tax code


    • Licensing


    • Environmental


    • Zoning


    • Training and networking programs

Check out all the results here, including an interactive map, full rankings, easily searchable quotes from small business owners nationwide, regional comparisons and even Census data comparing states’ and cities’ key demographics with that of the others.


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