It’s becoming increasingly popular to start a small business. After all, when the economy when down the tubes, many people realized that they didn’t need to work for someone else; they could work for themselves. The fact that technology makes it so easy to start a business is also a major factor.

Whether you want to beat inflation with a solid investment, or whether you are replacing a lost traditional job, or whether you just want to make a little more money, it’s possible to start a small business. But you need to pay attention to where you are. Some states are more friendly toward starting a small business. Other states, however, are more difficult to deal with.

Grading States on Small Business Friendliness

Along with the Kauffman Foundation, conducted a survey about how friendly each of the states are to starting a small business. I wasn’t surprised to see that my home state of Idaho was ranked as one of the states most friendly to small businesses. My current state of Utah gets an A+ as well. It’s fairly easy to get started in Utah and, the fees I paid for forming my LLC were comparatively low, and it took maybe an hour of sitting with my accountant. Plus, renewing my business license each year is, right now, only $15.

Compare that experience with other states. According the survey, Rhode Island and Vermont are the least friendly. But New York and California didn’t get passing grades, either. Indeed, after learning from the owner of how expensive and difficult the process is in California, I’m glad I live in a state friendly to small business formation.

What Do Small Business Owners Care About?

As part of the survey, small business owners were asked questions that indicate what, for them, indicates friendliness in a state. Interestingly, the survey finds that small businesses are more interested in licensing regulations than they are about tax rates. A higher tax rate isn’t considered as much of a drawback as difficult licensing regulations.

On top of that, the survey found that perceptions of how friendly a state is to small business depends on how aware the businesses taking the survey were of training programs and other support systems. When small business owners are aware of different programs offered by state and local governments to help them, they are more likely to perceive the state as being friendly toward small business.

Before you start a small business, it’s a good idea to understand the reality of the situation. What are the laws in your state and city? Realize that there are different licensing requirements, and different laws governing small business formation and activities. Before you put together a small business, do your best to learn about the laws that apply, and find out about the costs. While some of the costs can be tax deductible, it’s important to understand how much you will spend. In some states, you will need hundreds of dollars to get things rolling with your small business. You need to be prepared by saving up.



Miranda is freelance journalist. She specializes in topics related to money, especially personal finance, small business, and investing. You can read more of my writing at Planting Money Seeds.