The Best States to Start a Business in 2021

Are you officially done with the rat race and feel ready to start a new business? Well, you’re not alone. According to recent statistics from the US census bureau, an estimated 3.2 million applications for new businesses were filed in the first three quarters of 2020 alone.

Only a fraction of these businesses will end up succeeding, however, and where you incorporate can make a big difference to your chances of success. It will also affect things like tax rates and rules on how you will need to run your business. Let’s take a look at some of the best states in the country to start a business and some of the reasons why they’re so great for entrepreneurs.

What Factors Should You Look at?

Before we start our countdown, let’s take a look at some of the factors you should be considering when looking at the best states to form a business. The first one is the tax climate.

Going for a state with a favorable tax climate will benefit you in many ways. Not only will you be able to save money, but there will be fewer chances that you will get into tax trouble. You need to look at things such as corporate tax, individual income tax, unemployment insurance tax, sales tax, and property tax.

Another factor you need to consider is consumer spending. This will give you a general idea of the market’s potential in that state. This can vary based on population density and individual income.

Other things to look at include the rate of new entrepreneurs starting a business in the state, labor costs, and most importantly, how many businesses survive after five years. All of these should give you a rough idea of how favorable the state is for businesses. Even the local climate should be taken into consideration as it can affect how disaster-prone certain areas are.

Now that you know what you should be looking at, here are the top states in the country to start a business in 2021.

Montana

Montana has been a popular state to start a business since forever, and the State Department of Commerce does everything in its power to attract new businesses in the area. Montana ticks all the right boxes. It has a great tax climate, tons of resources for new businesses, and a high business survival rate. It’s estimated that over 53% of businesses in the area are still operating after five years, which is well above the national average.

The state has a median income just north of $57,000, which means that you shouldn’t have to pay too much for labor. The state also sees very few natural disasters, though it does suffer some forest fires from time to time.

While the corporate tax climate is not the best, the state does not have a sales tax. Consumer spending in the state is also on the rise with a 9.2% increase from 2017 to 2019.

South Dakota

South Dakota is number two on our list, and the state also does a great job of supporting businesses, starting with the free business startup package the Office of Economic Development offers to small business owners.

The state lags behind others on this list when it comes to the rate of new entrepreneurs, but it does have a very favorable tax climate. The state has no individual income or corporate tax. This makes it one of the most tax-friendly states in the country.

South Dakota doesn’t have to deal with natural disasters either and has a very high business survival rate. It’s estimated that 52.2% of businesses in the state are still in operation after five years. The median income is about $59,000, which is great if you want to keep your labor costs low.

Florida

Florida is becoming increasingly popular among entrepreneurs and a lot of it has to do with the great tax climate. According to data from the Tax Institute, Florida ranks at number one for individual tax and number four for corporate tax. The state collects no taxes on individual income with a corporate tax rate of only 4.5%.

One thing that could be worrisome for some entrepreneurs, however, is the relatively lower business survival rate. Only 49.5% of new businesses in the area survive five years. But a lot of this has to do with the fierce competition in the state.

So, if you want to survive in Florida, you will need to consider getting a formal education so you can deal with the challenges of doing business in the state. We would suggest that you at least look into obtaining an MBA if you haven’t already. This will give you a well-rounded set of expertise that will give you a competitive edge.

On the flip side, the state has a very solid economy and has a high consumer spending index. The median income rate is also very favorable for those looking for affordable labor at around $59,227.

One thing you have to keep in mind about Florida, however, is the very high chances of natural disasters. The state has to deal with hurricanes every year, which means more risk for disruption and more money spent on insurance.

Texas

Texas is one of the best states for new business for several reasons. The first one is the demographics. The state is attracting a lot of people and entrepreneurs from around the country and has a decent consumer spending rate. It’s estimated that around 401 Texans start new businesses in the state every day with over 50% surviving after five years, which shows great potential.

Texas has no personal or corporate income tax but still has a relatively high tax burden with sales taxes at a combined 8.19%. Another issue with doing business in Texas is the high median income. It’s at about $64,000 at the time of writing, which could make it difficult for business owners who want to keep their labor costs low.

Idaho

While Idaho is a great state for entrepreneurs, many factors don’t make it as good of a choice as other states on our list. For one, the consumer spending index is not very high at $37,183 in 2019, even though the median income is just over $60,000. The majority of businesses are still in operation after five years and the state deals with virtually no natural disasters.

Another thing that makes Idaho not so great is the tax climate. The personal and corporate tax rate is at about 6.925%, which is one of the highest on our list. The state and local tax burden put it at the middle of the pack for all states at around 9.3%.

Utah

Utah is another good state for entrepreneurs but has many issues that prevent it from being a top pick. One of the major problems you’ll encounter there is the high cost of labor. The median income for households in the state is over $75,000, which is one of the highest in the country. Under 50% of businesses in the state are still in operation after five years too, which is not a good sign.

One good thing about the state, however, is the high consumer spending rate. The state saw an increase in consumer spending of 5.7% from 2018 to 2019, which is promising. It also has tons of resources for entrepreneurs and the local government seems to be determined to improve the business climate to make it more attractive.

Arizona

Arizona is another state that should be on your list, but it’s not perfect. Arizona is a very hot and dry state which makes it prone to wildfires, which can cause disruption. But that’s the only type of natural disaster you’ll need to worry about in the state. Besides that, the state has a fairly high median income of around $62,000, which could make finding affordable labor more difficult.

On top of all of this, the tax climate is a bit harsh and under 49% of all businesses are still in operation after five years. One of the things in favor of Arizona, however, is the high consumer spending rate which increased by 4.7% from 2018 to 2019.

Oregon

If you want to start a new business in a state with a great survival rate and not too much competition, Oregon is a great choice. The rate of new entrepreneurs is pretty modest at around 260 per 100,000 residents and over 51.4% of businesses are still in operation after 5 years.

You have to be prepared for a few drawbacks, however. The median income rate is high at around $67,000 and the state has a very high tax burden. Still, consumer spending has been increasing at a steady rate, making it one of the states with the brightest prospects for the future for entrepreneurs.

Conclusion

If you are looking for the perfect place to incorporate or form an LLC, all of these options are great picks. Look at all the factors in detail and check what other entrepreneurs had to say about doing business in these states before you make your decision.

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