Nearly two-thirds (63%) of US prospective business owners say that funding is the biggest roadblock preventing them from kickstarting a company. However, not all obstacles are equal: in fact, the cost of building a business can differ significantly by tens of thousands of dollars depending on which US state it exists in.
In this new study, Wix.com analysed average annual wage, average hourly wage, corporate income tax, personal income tax, average corporate electricity bill and the cost of LLC registration to determine which state is the best to open a new business.
The most affordable US states to start a business
Mississippi leads as the most affordable state for entrepreneurs to kickstart a new business, with a score of 8.90/10.
The southeastern state may be more expensive for average electricity bills relative to other states in the top 10 – Idaho’s US$393.60 bill is 30% cheaper than Mississippi’s US$562.84 – but employers will likely be paying less in remunerations. The average annual wage is just US$45,180, and the average hourly wage is US$21.72: only Indiana is less, at US$20.24.
With a business score of 8.35/10, Kentucky is the second best state to create a new company for those looking to save cash. While Kentucky may not lead on any one factor, it does have the lowest personal income tax (4%) after South Dakota and Wyoming (0%). Additionally, those creating a business will benefit from a very affordable registration process. Kentucky is one of ten states that charges US$50 or less for LLC registration, and is one of nine to not take additional payments every year.
South Dakota takes the bronze medal with an overall score of 8.31/10. Like Wyoming, it takes no tax from personal income or corporate income, but South Dakotan business owners are likely to spend as much on employees. They pay less in average annual wages (US$49,980 compared to US$54,440) and average hourly pay (US$23.99 compared to US$26.17).
The worst US states to start a business
Massachusetts is the worst state to start a business when considering overheads. Payments are high in almost every element, with an average annual wage of US$76,600 and hourly wage of US$36.83.
The largest barrier to entry for new business owners in Massachusetts is the cost of LLC registration. The US$500 first-time payment is the most expensive in the country – over four times the national average of US$123.96. Then, businesses pay another US$500 every year to stay registered: while Mississippi, South Carolina and Missouri charge their entrepreneurs no additional payment after the initial expense.
California, with a score of 4/10, is the second worst place to start a business. Despite being famous for business hotspots like Silicon Valley, the state has the highest corporate electricity bill at US$1,173.66, whilst New Jersey, ranking in third, has the highest corporate income tax at 11.5%.