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Nearly two-thirds of aspiring entrepreneurs cite funding as their biggest hurdle. But fear not, because the cost of launching your dream business can vary significantly by state. A new Wix.com study analyzed factors like employee wages, taxes, and electricity bills to identify the most budget-friendly states for new businesses.
So, where can you unlock your entrepreneurial spirit without breaking the bank?
Top States for Budget-Conscious Business Owners
Mississippi takes the crown as the champion of affordability, boasting a score of 8.9 out of 10. While electricity bills might be a tad higher here compared to some other top contenders, employers benefit from lower employee wages – the annual average sits at just $45,180.
Kentucky nabs the silver medal with a score of 8.35. It boasts the second-lowest personal income tax rate (right behind South Dakota and Wyoming, which have none!), making it an attractive option for cost-conscious business owners. Plus, Kentucky keeps LLC registration fees refreshingly low.
South Dakota and Wyoming tie for third place, both with a score of 8.31. These states are tax havens for both businesses and their employees, with no income taxes levied on either side.
The most affordable US states to start a business
Rank | State | Average Employee Expenses (USD, annual) | Average Employee Expenses
(USD, hourly) |
Corporate Income Tax | Personal Income Tax* | Annual Corporate Electricity Bill (USD) | Startup Business Score (/10) |
1 | Mississippi | $45,180 | $21.72 | 5.00% | 4.70% | $562.84 | 8.90 |
2 | Kentucky | $51,490 | $24.76 | 5.00% | 4.00% | $606.42 | 8.35 |
3 | South Dakota | $49,980 | $23.99 | 0.00% | 0.00% | $551.31 | 8.31 |
4 | South Carolina | $50,650 | $24.35 | 5.00% | 4.50% | $540.38 | 8.29 |
5 | Missouri | $54,520 | $26.21 | 4.00% | 4.80% | $594.65 | 8.25 |
6 | Wyoming | $54,440 | $26.17 | 0.00% | 0.00% | $491.91 | 8.22 |
=8 | Idaho | $51,530 | $24.69 | 6.50% | 5.80% | $393.60 | 8.12 |
=8 | West Virginia | $49,170 | $23.64 | 6.50% | 5.12% | $422.02 | 8.12 |
9 | Indiana | $53,500 | $20.24 | 4.90% | 3.05% | $679.48 | 8.10 |
10 | Arkansas | $48,570 | $23.35 | 5.90% | 4.80% | $495.24 | 8.04 |
See the full data, including stats on LLC registration costs, here.
Beyond the Basics: Industry Fit and Business Models
While low taxes and wages are certainly enticing for entrepreneurs, the specific business landscape of each state can significantly influence a startup’s success.
Mississippi, with its lower cost of living and abundant natural resources, could be a prime location for agriculture-related businesses, such as farm equipment manufacturing, food processing, or sustainable farming initiatives. Additionally, its proximity to coastal areas might offer opportunities in fishing, seafood processing, or marine tourism.
Kentucky is known for its bourbon industry, which could provide a foundation for related businesses like barrel manufacturing, tourism, or hospitality. The state’s central location also makes it a potential hub for logistics and transportation companies.
South Dakota, with its vast open spaces and natural beauty, could be an ideal spot for outdoor recreation-focused businesses, such as camping gear manufacturing, adventure tourism, or eco-tourism. The state’s emphasis on agriculture could also support businesses in areas like agricultural technology or rural development.
It’s essential for entrepreneurs to thoroughly research the specific needs and opportunities within each state to determine the best fit for their business idea.
Challenges in Affordable Business Hubs
While Mississippi, Kentucky, and South Dakota offer attractive financial incentives for startups, it’s essential to acknowledge potential challenges.
- Talent Pool: These states might have smaller talent pools compared to larger metropolitan areas, making it more difficult to recruit skilled workers in specific industries.
- Infrastructure: Some regions within these states might have limitations in terms of transportation, technology infrastructure, or access to essential resources, which could impact business operations.
- Market Size: Smaller populations can limit the potential customer base for certain products or services, requiring businesses to explore broader markets or niche opportunities.
- Government Support: The level of government support, such as incentives, grants, or mentorship programs, might vary between states, impacting the overall business environment.
It’s crucial for entrepreneurs to weigh these factors against the financial benefits when considering these states for their ventures.
Places to Steer Clear Of When Your Budget’s Tight
If you’re strapped for cash, Massachusetts might not be your best bet. It holds the dubious honor of being the most expensive state to launch a business, scoring a mere 3.47. From hefty employee wages to the nation’s priciest LLC registration fees, Massachusetts throws up significant financial hurdles for aspiring entrepreneurs.
California, with a score of 4.0, comes in a close second for least budget-friendly. Despite its allure for tech startups, California boasts the highest corporate electricity bills in the nation. New Jersey follows closely behind, with the highest corporate income tax rate.
The worst US states to start a business
Rank | State | Average Employee Expenses (USD, annual) | Average Employee Expenses
(USD, hourly) |
Corporate Income Tax | Personal Income Tax* | Annual Corporate Electricity Bill (USD) | Startup Business Score (/10) |
1 | Massachusetts | $76,600 | $36.83 | 8.00% | 9.00% | $872.99 | 3.47 |
2 | California | $73,220 | $35.20 | 8.44% | 13.30% | $1,173.66 | 4.00 |
3 | New Jersey | $70,890 | $34.08 | 11.50% | 10.75% | $803.60 | 4.14 |
4 | New York | $74,870 | $36.00 | 7.25% | 10.90% | $937.82 | 4.22 |
5 | Rhode Island | $64,530 | $31.03 | 7.00% | 5.99% | $842.46 | 4.51 |
6 | Maryland | $69,750 | $33.53 | 8.25% | 5.75% | $1,116.72 | 4.65 |
7 | Connecticut | $69,310 | $33.32 | 7.40% | 6.99% | $811.44 | 4.71 |
8 | Illinois | $69,390 | $30.73 | 9.50% | 4.95% | $698.64 | 4.88 |
9 | Delaware | $62,260 | $29.93 | 8.70% | 6.60% | $665.02 | 5.02 |
10 | Minnesota | $63,640 | $30.60 | 9.80% | 9.85% | $749.70 | 5.25 |
The Bottom Line
Launching a business doesn’t have to be a financial nightmare. By choosing the right state and considering factors like employee expenses, taxes, and registration fees, you can significantly reduce your startup costs and pave the way for entrepreneurial success.
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