Where are the best places to start a business in the U.S.?

We took a closer look at the top 100 most populous metro areas in the United States to find the cities with the most business-friendly statistics: cities where businesses have a high likelihood of success, low costs to deal with, an available workforce, and lenient taxes. With 10 different data factors, our small-business index highlights the best cities for business for 2020.

The Best Cities to Start a Small Business - ZenBusiness.com - Infographic
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Methodology

We examined the top 100 metropolitan statistical areas (MSAs) by population according to the 2015 U.S. Census data by four overall factors and 10 different data points to find the best and worst cities for business:

  1. Likelihood of Success
    1-Year Startup Survival Rate [State Data] — Source: Kauffman Indicators of Entrepreneurship
    Long-Term, 20-Year Survival Rates Since Birth (1998-2018) [State Data] — Source: Bureau of Labor Statistics
    Establishment Births (1989-2015) (Controlled for Population — Source: US Census) [MSA Data] – Source: US Small Business Administration
    Establishment Deaths (1989-2015) (Controlled for Population — Source: US Census) [MSA Data] – Source: US Small Business Administration
  2. Work Force
    Unemployed Labor Percentage (2019) [MSA Data] — Source: Bureau of Labor Statistics
  3. Taxes
    State Corporate Taxes (2019) [State Data] — Source: Tax Foundation
    State Employer Unemployment Tax Rate (Highest Possible) [State Data] — Source: ADP
    State Unemployment Insurance New Employer Rate (Highest Possible [State Data] — Source: ADP
  4. Startup Costs
    Median Rental Costs (Studios) (2019) [MSA Data] — Source: Department of Housing and Development
    Minimum Wage (2019) [State Data] — Source: ADP

Equal weight was given to all 10 data points in the creation of our small-business index. For the subsets of indexes/grades, we looked at the following data:

  • Our business survival index was based on four factors: establishment births (adjusted against population), establishment deaths (adjusted against population), the percentage of businesses that survive after one year, and the percentage of businesses that survive after 20 years.
  • The tax index factored in state unemployment tax for employers, state unemployment insurance new employer rates, and state corporate taxes.
  • Lastly, our startup cost index was calculated using the state minimum wage and the median rent in each city.
  • Labor force was its own data point, which did not have its own index but was factored into the overall small-business index.


The Top 10 Best Cities to Start a Business

Greensboro-High Point, North Carolina — INDEX: 287.23
Durham-Chapel Hill, North Carolina — INDEX: 277.36
Charlotte-Gastonia-Concord, North Carolina — INDEX: 276.17
Winston-Salem, North Carolina — INDEX: 265.28
Greenville-Anderson-Mauldin, South Carolina — INDEX: 255.34
Columbia, South Carolina — INDEX: 255.34
Charleston-North Charleston, South Carolina — INDEX: 253.27
Boise City, Idaho — INDEX: 247.23
Raleigh, North Carolina — INDEX: 243.47
McAllen-Edinburg-Mission, Texas — INDEX: 236.70

Overall: Many of the best cities to start a business are in low-tax states like North Carolina, which has a state corporate tax of only 2.5% and an unemployment tax rate of only 1%. Add in a low minimum wage and Greensboro’s relatively high unemployment rate of 4.8% and one can see how it would be a perfect place to open a mom-and-pop shop.

Best Likelihood for Business Survival: Greensboro doesn’t have the best business survival grades. If you don’t mind taxes or costs but are risk-averse, you might consider Madison, Wisconsin, the best location for business. Madison has only experienced 1,096 establishment deaths between 1989 and 2015, which is especially excellent when compared to the local population. Missouri, Minnesota, and Massachusetts all have great short-term business survival rates over a one-year span, and Pennsylvania and Wisconsin have excellent long-term business survival rates over a 20-year span.

Cheapest Startup Locations: If you’re looking for the best places to start over with no money, perhaps Augusta, Georgia, would be the best place to start. The state minimum wage there is $5.15/hour, and studio rentals are at about $742 per month.


The Top 10 Worst Cities to Start a Business

Washington-Arlington-Alexandria, DC-Virginia — INDEX: 31.22
San Jose-Sunnyvale-Santa Clara, California — INDEX: 33.72
San Francisco-Oakland-Fremont, California — INDEX: 35.22
San Diego-Carlsbad-San Marcos, California — INDEX: 57.12
Springfield, Massachusetts — INDEX: 59.71
Stockton-Lodi, California — INDEX: 75.36
Sacramento-Roseville-Arden-Arcade, California — INDEX: 81.57
Riverside-San Bernardino-Ontario, California — INDEX: 87.28
Oxnard-Thousand Oaks-Ventura, California — INDEX: 88.51
Bridgeport-Stamford-Norwalk, Connecticut — INDEX: 90.38

Overall: With extremely high rent, high taxes, and a poor 20-year survival rate, Washington, DC, is the worst city for small businesses on our list. It has a high 8.25% corporate tax and a high minimum wage of $14/hour. There’s also low employment, so it’s a worker-favoring city at the moment.

Worst Likelihood for Business Survival: Washington, DC, is also the worst-scoring for business survival, with low scores for both one-year survival and 20-year survival as well as a high rate of business deaths per capita. Shortly behind Washington are San Jose and San Francisco. The places with the worst long-term survival rates are Washington state, California, and the District of Columbia. Georgia, Kansas, and Ohio, however, have the worst rates for small businesses in their first year.

Most Expensive Places to Get Your Start: San Francisco, San Jose, Washington, DC, Boston, and New York City all have some of the most expensive rents and minimum wages, and hence, they’re some of the costliest places for a startup. However, despite it being financially one of the worst cities for business, San Francisco is considered to be one of the best cities for entrepreneurs because of its potential for networking in specific industries. Just know that its costs, risks, and overall investment required mean that most business owners will lose a great deal of money on their first project.


Of course, there are so many other different factors when figuring out where to open a new business: your industry, your clientele, the “trendiness” of your idea, the appeal you have to the local population, the quality of your workforce, and more. We hope our list of the worst and best cities to start a business in 2020 can open your eyes to common first-year issues like taxes, startup costs, and success metrics as you’re pulling together your stellar business plan. No matter where you land, whether it be difficult Washington, DC, or easy, laid-back Greensboro, NC, there are many different opportunities for success open to you — see how easy it can be to get started!