An unprecedented number of Americans have started their own businesses so far this decade. The number of new business applications filed with the U.S. Census Bureau's Business Formation Statistics (BFS) has increased by 59.7% over the last five years (2020 to 2024) compared to the five years prior (2015 to 2019).
New Business Applications Up 59.7% Over Last 5 Years
Of course, starting a business is one thing, but succeeding is another matter altogether and can be extremely difficult. According to the Bureau of Labor Statistics, in the period from 2014 to 2024, 20.3% of startups were out of business within one year, and after 10 years only 34.9% remained in business.
How Many Businesses Survived the Past 10 Years?
Source: Bureau of Labor Statistics
How successful will entrepreneurs be in the next decade?
There are myriad factors at play, but given the current economic landscape, it might be even more challenging to succeed as operating costs have increased significantly following the global pandemic and the subsequent inflation.
Compensation costs for workers increased 3.8 percent for the 12-month period ending in December 2024 according to the Bureau of Labor Statistics (BLS); commercial rent grew 3.2% for the 12-month period ending March 2024 according to the National Association of Realtors (NAR); the average price of electricity for commercial customers increased by 22% from 2020 to 2024 according to the U.S. Energy Information Administration (EIA)
How the Most & Least Expensive States to Start a Business Was Determined
As more Americans follow their dreams in a decade marred by economic turbulence, the costs and business environment in a location are likely to impact whether the company succeeds.
To help business owners make informed decisions, Simplify LLC analyzed nine business cost-related factors across four main categories in all 50 states and D.C.
- Basic Business Costs: corporate income tax rates and business filing fees.
- Labor Costs and Availability: Average annual income, labor force participation rate and percentage of adults with at least a bachelor’s degree.
- Cost of Space and Utilities: average commercial electric bill and average commercial rent per square feet.
- Healthy Business Environment: Small business lending and the number of state regulations.
- Taxes and Basic Business Costs: Corporate income tax rates and business filing fees.
The complete methodology with links to all sources is at the bottom of the study.
Key Findings:
- Utah is the No. 1 least expensive state to start a business. Has strong SBA lending of $15.4 million per 100,000 residents (No. 2) and a high labor force participation rate of 68.3% (No. 4). Its LLC filing fee also ranks favorably at No. 11, while corporate income tax (4.65%, No. 14), wages ($63,854, No. 25), and electricity costs ($663.34, No. 26) remain moderate.
- California is the No. 1 most expensive state to start a business. Largely due to its 420,434 regulations—the highest in the nation. Sky-high electricity costs ($1,273.73, No. 49) and steep average wages ($87,490, No. 47) further drive up expenses, while rent per square foot ($31.78, No. 39) and corporate income tax (8.84%, No. 33) remain burdensome.
- The 10 cheapest states are in the West or Midwest. Many states in the region do not levy a corporate income tax and aside from Colorado they have a relatively low number of regulations which helps level the playing field for small businesses. They also have lower fees for starting an LLC than other parts of the country.
- Surprisingly, Alabama is the No. 6 most expensive state. Not generally thought of as an expensive location, the state has high LLC filing fees ($200, No. 45) and low labor force participation (57.6%) which could limit workforce availability. Alabama has relatively high corporate income tax rates (6.5%, No. 31) and number of regulations (No. 25). Additionally, the state struggles with low SBA lending ($5.7M per 100,000 residents, No. 43).
Least Expensive States
Our analysis found that Utah is the least expensive state to start a business, followed by South Dakota and Colorado. The top of the list is heavy with Western states. In fact, the 10 least expensive states are in the West or Midwest, which likely speaks to the fact that many states in the region do not levy a corporate income tax and have relatively low fees for starting an LLC.
Utah claims the top spot as the least expensive state to start a business thanks to consistently favorable costs across multiple categories. It has the No. 2 best SBA lending in the nation with $15.4 million per 100,000 residents, a high labor force participation rate of 68.3% (#4), a low LLC filing fee $59 (#11) and a moderate corporate income tax rate of 4.65% (#14). Wages average $63,854 (#25) and electricity costs of $663.34 (#26) are not the cheapest in the nation, but none of Utah’s metrics rank poorly, giving it an edge over other states.
No. 2 South Dakota offers one of the friendliest tax climates and cheapest labor costs for new businesses. The state has no corporate income tax and a low average wage of $56,067 (#4). The state has minimal regulations (45,309, #2), ensuring startups face fewer hurdles overall.
No. 3 Colorado has the No.1 best SBA lending in the nation with $15.7 million per 100,000 residents, and low LLC filing fee of $50 (tied for #4). A relatively affordable $505.28 monthly commercial electricity bill (#8) and a high labor force participation of 67.9% (#5) maintain a balanced cost environment.
Most Expensive States
California ranked as the No. 1 most expensive state to start a business followed by New York and Hawaii.
For California, operating costs are the main factor — average wages are $87,490 (#47), electricity bills are $1,273.73 (#49) and regulations measure 420,434 (#51). California also has a relatively high 8.84% corporate income tax (#49) and a $31.78 (#50) rent per square foot. SBA lending hits $10.2 million per 100,000 (#11), and the LLC filing fee is $70 (#12), but high operating costs still place California last overall.
New York faces the same issues — wages are high at $91,428 (#49), and electricity costs $907.99 on average each month (#44). The state’s 300,095 regulations (#50) also add complexity.
Hawaii has the highest average commercial rent at $36 per square foot (#51) and the second-highest monthly electricity cost at $1,514.20 (#50). Wages sit at $64,207 (#26) with the lowest SBA lending per 100,000 residents at $3.8 million (#51).
Two southern states, not often thought of for being expensive locations, ranked in the top five most expensive states. Tennessee came in at No. 4 and Alabama at No. 6 most expensive.
Tennessee’s 6.5% corporate income tax (tied for #31) pairs with a $300 LLC filing fee (tied for #49). Labor force participation in the state is low, at 59.4% (#41). SBA lending is only $5.8 million per 100,000 (#42). Wages average $64,718 (#27), and the average commercial electricity bill is $648.87 (#25).
Alabama’s corporate income tax is 6.5 percent (tied for #31) with a $200 LLC filing fee (tied for #45). Like Tennessee, the state has a low labor force participation of 57.6% (tied for #47). SBA Loans are $5.7 million per 100,000 people (#43).
Click on each state in the interactive map below to see their local statistics.
Basic Business Costs
It costs an average of about $123 to file papers opening an LLC, with costs ranging from a low of $35 in Montana to a high of $500 in Massachusetts.
And, of course, once a business is up and running, depending on its structure and purpose, it may have to pay income taxes to local, state and federal governments. Some states don’t have a corporate income tax at all, and for certain types of businesses (LLCs, sole proprietorships and S-corps), taxes are paid on the owner’s income rather than the business itself.
For companies that do expect to pay corporate income taxes, these costs also vary quite a bit depending on the state. If you are in a position where you can choose where to open your business, picking the right state could save you thousands of dollars every year. Currently, the highest average corporate income tax rate in the U.S. is Minnesota (9.8 percent), followed by Illinois (9.5 percent), and California (8.8 percent). On the flip side, South Dakota and Wyoming have no corporate income tax and no gross receipts tax, while Nevada, Ohio, Texas and Washington have only a gross receipts tax and no additional corporate income tax.
Sources: Simplify LLC, Tax Foundation
Labor Costs & Worker Availability
The ability to hire great talent has changed dramatically in recent years. The COVID-19 pandemic led to "The Great Resignation" which saw 50 million workers quit in 2022. While that trend has begun to slow down, business owners today are facing “The Great Reshuffle” which has seen employees switch locations and jobs in search of remote work, higher wages and a better work-life balance.
Across the three metrics we measured here — income, labor force participation and education — rates vary dramatically from the best states to the worst states. For example, D.C.’s average annual wage is $117,888, making it the highest in the country, while the lowest is Mississippi’s $49,128. Similarly, the district’s educational attainment rate (65.9 percent), a measure of post-college-aged adults with at least a bachelor’s degree, is almost 20 points higher than the next-highest (Massachusetts, where about 47.8 percent of people in this age group have a college degree or better).
Sources: Bureau of Labor Statistics, Federal Reserve Bank of St. Louis
Cost of Space & Utilities
While many entrepreneurs start their businesses out of their homes (and Apple’s founders famously started their company in the garage of Steve Jobs’ parents’ house), if your business begins to flourish, chances are you’ll look to expand beyond the bounds of your own home.
But with expansion comes more headaches and additional costs, including finding space and paying utilities. While those aren’t the extent of the costs, of course, we used the average costs of commercial rent per square foot and average commercial electric bills to determine the most and least expensive states when it comes to business space.
Kansas and West Virginia are tied for first place when it comes to rent, with an average of $12.33 per square foot of commercial space. Hawaii and California are the most expensive, with an average rent of $36 and $31.78, respectively.
Six of the 10 states with the cheapest commercial rent per square foot are in the Midwest, four are in the South, and one, Montana, is in the West. Overall the Midwest has the cheapest average rent, while the Northeast is the most expensive.
You can expect to get the biggest bang for your utility buck in Idaho, where the average monthly commercial electric bill is just under $411.38 compared to a high of nearly $3,624 in D.C.
The average bill in D.C. is more than double that of the runner-up, Hawaii, which has an average bill of $1,514.20. This is likely due to the district’s population density.
And before you go assuming this means that cold-weather states are better since you won’t have to run the AC as much, consider that Virginia, Connecticut, Maryland and New York all have some of the nation’s highest commercial electricity costs.
Sources: National Association of Realtors, Energy Information Association
Healthy Business Environment
Finally, we looked at the business environment in each state from two perspectives — small-business lending and the number of business regulations in a state.
The 7(a) Loan Program is the U.S. Small Business Administration’s primary business loan program. It provides loan guarantees to lenders that allow them to provide financial help for small businesses with special requirements. If a loan defaults, the SBA will pay off the federally guaranteed portion of the remaining loan.
In the 2024 fiscal year (between 1 July 2023 and 30 June 2024) U.S. banks issued more than $31 billion in 7(a) loans to small businesses. That’s almost $4 billion more than in the previous fiscal year.
To compare the states fairly in this category, we adjusted each state’s total lending against population. That means that while California had the highest overall total, after adjusting for its large population, it fell to 12th place.
Too many complex business regulations can have a negative effect on the business environment in a state. If significant legal help is necessary to comply with all regulations, this can naturally make it harder for small businesses to compete with larger companies that have dedicated legal departments. It also raises costs for small businesses, since legal assistance can get very expensive, very quickly.
This doesn’t mean that all regulation is necessarily bad for business — however streamlining regulatory hurdles for smaller businesses can make it easier for residents of a state to start a business, create jobs and boost their local economy.
The most regulated states in the U.S. are California, New York and New Jersey. The states with the least regulation are Idaho, South Dakota and North Dakota.
Sources: Small Business Administration, Mercatus Center at George Mason University
Conclusion
For entrepreneurs who have the ability to pick and choose where they want to start their business, it’s clear that certain states will allow you to save money in various business-related areas, which could help propel your business to the next level.
Methodology
To create our state ranking we compared the most recent available data for 9 key cost-related business statistics. State population data from the U.S. Census Bureau was used to find rates per 100,000 residents, where applicable. The datasets were then standardized through Z-score distributions and all outliers were capped at 2. The data for each state was averaged to produce a final score. Here are the data categories and sources:
Basic business costs:
- Corporate income tax rates: This 2024 information came from the Tax Foundation. Many states have bracketed corporate income tax rates, and for those states, we calculated a rate average.
- Business filing fees: This SimplifyLLC data was most recently updated in 2024 and does include some variables that were not factored into our ranking. For example, Nebraska’s $100 LLC filing fee also includes a publication fee, which varies by community.
Labor costs & availability:
- Average annual income: This U.S. Bureau of Labor Statistics data is from 2023.
- Labor force participation rate: This Federal Reserve of St. Louis data is from November 2024.
- Percentage of adults with at least a bachelor’s degree: This Federal Reserve of St. Louis data is from 2023.
Cost of space & utilities:
- Average monthly commercial electric bill: This Energy Information Administration data is from 2023.
- Average commercial rent per square foot: This National Association of Realtors data is from Q2 of 2024, except for Alaska, Montana and Wyoming, where the most recent available data is from Q1 of 2022.
Healthy business environment:
- Small business lending: This Small Business Administration data covers 7(a) loans for businesses in the 2024 fiscal year, To account for size differences, we calculated a rate of total lending amount per 100,000 residents.
Number of state regulations: This Mercatus Center data is from 2023, except for D.C., where the most recent data is from 2022, and West Virginia, where the most recent data is from 2021. No data is currently available for Arkansas, so this metric was excluded from the state’s final ranking.
