The research undertaken by accounting software Akounto.com considered the following factors to determine the best state to start a business: corporate tax rates, business filing fees, private sector establishment closure rate, monthly commercial energy bills, household income, and the number of workers aged 16-64 in each state’s workforce. Each of these six metrics were scored and weighted according to their impact on start-up businesses, with each state scoring a maximum of 75 points.
The study found that Montana is the best state to start a business, scoring 63.47 out of 75 points. Among the analyzed states, Montana boasts the highest start-up savings. The state’s average commercial energy bill of $382.07 per month is the fourth lowest in America, meaning that business owners save over $2,600, compared to the national average, in their first year of trading. The state LLC filing fee, which is required to register a business, is just $35, 93% below the national average, and its yearly LLC fee, which can be as high as $800 in other states, is just $20.
In addition, 75.6% of Montana residents aged 16-64 are employed, closely mirroring the national average of 75.2%. This employment rate is important because it indicates a healthy recruitment pool for new businesses.
Iowa ranked as the second-best state to start a business, scoring 62.01 out of 75 points. The state has a notably low business establishment death rate of 2.13%, 25% below the national average. Additionally, Iowa’s average business energy bill is $417.19, ranking fifth lowest in the nation, which allows companies to save and re-invest almost $200 extra each month compared to the national average. Residents in this state have a median income of $102,220, $2,500 above the national average, and this state has the 6th highest employment rate in America, with 79.5% of citizens aged 16-64 in employment. These combined factors indicate that people in Iowa may generally have more funds to spend or invest in local businesses.
Ranked third, Colorado was awarded 60.63 points out of a possible 75. This state has the sixth highest median household income, which at $119,663.08, is more than 20% higher than the national average, and an employment rate of 78.9% for citizens aged 16-64, which is 6% higher than the national average, both factors contribute to a healthy state economy, and additional customer spending.
Notably, the state has a corporate tax rate of 4.4%, meaning businesses in this state pay 30% less tax when compared to the national average of 6.44%. The state’s average commercial energy bill is $478.70 per month, $125 less than the national average. On top of this, new companies in this state will benefit from a low LLC filing fee of $50 and a yearly LLC fee of $10, equating to an additional saving of more than $150 compared to the national averages.Mississippi ranks fourth in the study, earning 58.55 points out of 75. Mississippi also ranks joint-first for LLC fees, as they currently have no annual LLC fee. This equates to savings of up to $800 compared to other states. Companies in this state will also only need to pay a single LLC filing fee of $155 upfront.
With an average commercial energy bill of $510.18, companies in this state can expect to pay $94 less on energy compared to the national average. Mississippi also beats the national average for corporate tax, coming in at 5%, meaning that companies in this state save 25% more tax than the average. The “Magnolia State” also has 67.6% of all 16-64-year-olds currently employed, the second lowest employment rate in America, meaning there are plenty of recruitment opportunities for a budding business in this state.
Missouri ranks fifth as the best state to start a business, scoring 58.55 out of 75 points. This Show-Me state has a corporate tax rate of 4%, meaning that a company in this state will pay around 38% less tax on average than any other state.
This state has a monthly commercial energy bill of $560.47, which is 7.3% less than the national average of $604.62. Moreover, the state has an employment rate of 75.5% among its 16-64-year-old population, and the median household income is $87,756, more than $11,000 below the national average. The Show-Me State had the highest business establishment death rate, with 3.33% of establishments closing the past year. This is a statistic that Missouri may be eager to change with its low $50 LLC filing fee, which is the fifth lowest in America, and its $0 LLC annual fee, which, when compared to the highest fee in all 50 states of $800 makes Missouri an appealing choice for future business owners.
Kentucky ranks sixth with 57.29 points out of a possible 75 and outshines many other states by ranking third overall for the lowest LLC filing fee at $40-saving businesses $450 on day one. New Mexico ranks seventh, with 57.02 points and is one of the few states to require no annual LLC fee and no yearly information report, making it an excellent choice for business owners wishing to save time on additional paperwork.
Ranking eighth is Arizona, with 56.23 points out of a possible 75. Arizona also ranks fifth overall for the lowest LLC filing fee at $50- a day-one saving of up to $450 compared to the other states, and Idaho emerged as the ninth-best state to start a business with a total score of 55.86 points out of a possible 75. The average company in the “Gem State” can expect to pay $369.97 per month on energy, which is the lowest in America, and a difference of $825 from that of the highest state’s commercial energy bill, meaning business owners in this state will have more money to re-invest in growth.
Pennsylvania ranked tenth in the study, with a total score of 55.78 points out of a possible 75. The Keystone State had the lowest business death rate in America at 2.1%. Pennsylvania also has the second lowest monthly commercial energy bill at $378.38, which is $226 below the national average, and offers a saving of more than $800 per month when compared to the state with the highest rates.
