Survey Ranks Best and Worst States/Cities for Small Businesses

By Frank Byrt

If you're a footloose CPA or thinking about starting your own firm, then check out Utah, Alabama, New Hampshire, Idaho, and Texas. According to's second annual Small Business Friendliness Survey released April 2, they rank as the top five friendliest states for small businesses.
In turn, the five most welcoming cities are:
  • Austin, Texas
  • Virginia Beach, Virginia
  • Houston, Texas
  • Colorado Springs, Colorado
  • San Antonio, Texas
The most difficult states for small businesses to do business in this year are Hawaii, Maine, Rhode Island, California, and Illinois.
Survey results indicate the most challenging cities are:
  • Newark, New Jersey
  • Cincinnati, Ohio
  • Los Angeles, California
  • San Diego, California
  • Sacramento, California
Key Issues for Small Business Owners
"Small businesses are top of mind for lawmakers nationwide, but too often their needs are more a matter of conjecture rather than actual evidence," says Sander Daniels, cofounder of To help address that problem, the results of the survey will be used to provide policymakers and researchers information on how small businesses owners view their state and local governments. 
Dane Stangler, director of research and policy at the Kauffman Foundation, said, "It is critical to the economic health of every city and state to create an entrepreneur-friendly environment. Policymakers put themselves in the best position to encourage sustainable growth and long-term prosperity by listening to the voices of small business owners themselves." 

Ranked Categories in the Survey

  1. Overall small business friendliness 
  2. Ease of starting a small business
  3. Cost of hiring a new employee
  4. Overall regulatory friendliness 
  5. Friendliness of health and safety regulations
  6. Friendliness of employment, labor, and hiring regulations
  7. Friendliness of tax code
  8. Friendliness of licensing regulations
  9. Friendliness of environmental regulations
  10. Friendliness of zoning regulations
  11. Publicity of training programs 
  12. Publicity of networking programs
Many cities and states pay close attention to's annual survey. In fact, Nathan Allan, head researcher on the project, told AccountingWEB that state and local governments, economic development agencies, and politicians contacted about last year's report; some to criticize it, and others – notably low-ranked Michigan and the City of Detroit – to ask what they can do to improve their status. 
One quirky finding, Allan said, is that small business owners are more put off by state and local licensing and regulatory issues than they are about taxes. "The hassle of getting licensed and certifications can be a deterrent to opening a business or expanding one. That's a consistent concern. Licensing [challenges are] a better predictor of how people viewed their states instead of taxes, since they're usually not making that much money." said the views of small business owners are worth noting, since over 99 percent of US employers qualify as small businesses, and they employ half of all private sector employees. And, over the past two decades, almost two-thirds of net new private sector jobs have come from small businesses, a number that has accelerated in recent years. 
Significant Survey Findings 
  • Texas had three of the top five cities – Austin, Houston, and San Antonio – while California was home to three of the bottom five – Los Angeles, San Diego, and Sacramento.
  • Professional licensing requirements were 30 percent more important than taxes in determining a state's overall business friendliness.
  • This year's research revealed that 40 percent of US small businesses are subject to licensing regulations by multiple jurisdictions or levels of government.
  • Small businesses were relatively unconcerned with tax rates, and more than half of small business owners felt they pay about the right share of taxes.
  • African American and Hispanic small business owners were significantly more likely than their Caucasian counterparts to encourage others to start a new business.
  • North Carolina was the "most improved" state, making strides across multiple categories and rising from a C+ to a B+ grade overall.
  • The ease of obtaining health insurance was an important factor for many businesses. One-third of small business owners rated obtaining and keeping health insurance as "very difficult," versus only 6 percent who rated it "very easy."
The survey of 7,766 small business owners was done jointly by, an Internet-based marketplace for local services, and the Kauffman Foundation, a nonprofit private foundation that funds economic research. Data was collected online over a period of two months.
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