It is estimated that 5.5 million businesses were started in the U.S. in 2023, despite rising inflation and the first quarter of 2023 marking the highest rate of business closures since records began. Some areas seem more successful than others and one reason for this could be start-up costs.
Nearly two thirds (63 percent) of US prospective business owners say that funding is the biggest roadblock preventing them from kickstarting a company. However, not all obstacles are equal: 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, the firm Wix.com has 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.
This showed thatMississippi is the most affordable US state to start an enterprise, according to the study. Following this, South Dakota and Wyoming are the only two states where businesses and employees pay no tax. Another potential area is Idaho, where businesses pay the lowest electricity bill on average.
In contrast, Massachusetts is the worst state to open a business.
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 |
In terms of Mississippi’s standing, the stateleads as the most affordable area 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 $393.60 bill is 30 percent cheaper than Mississippi’s $562.84 – but employers will likely be paying less in remunerations. The average annual wage is just $45,180, and the average hourly wage is $21.72: only Indiana is less, at $20.24.
With a business score of 8.35/10, Kentuckyis 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 (4.00 percent) 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 $50 or less for LLC registration, and is one of nine to not take additional payments every year.
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 |
As indicated earlier, 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 $76,600 and hourly wage of $36.83.
The largest barrier to entry for new business owners in Massachusetts is the cost of LLC registration. The $500 first-time payment is the most expensive in the country – over four times the national average of $123.96. Then, businesses pay another $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 $1,173.66, whilst New Jersey, ranking in third, has the highest corporate income tax at 11.5 percent.
