Management & Labor

The Most Small Business-Friendly States, Metro Areas

A new survey shows how small business owners perceive their state and local governments in terms of "business-friendliness."
by | June 10, 2014
Downtown Harrisonburg, Va.
Downtown Harrisonburg in Virginia, one of the states that got an A+ for business-friendliness. FlickrCC/thanh.ha.dang.
 

Governments pursue a range of policies to prop up the small businesses that serve as key components to growing local economies.

Several interest groups issue grades for “business friendliness” -- often tied to metrics associated with one political ideology or another. Thumback.com, a consumer service website, has taken a different approach by asking small business owners themselves how they perceive the business environment in states and metro areas. The website surveyed more than 12,000 small businesses in its network over a two-month period ending in late January.

Small business owners in Utah gave their state the highest rating of the 38 states included in the report, with high marks across all categories.

Idaho, Texas and Virginia also received “A+” grades in comparison to other states. Rounding out the bottom of the list were Rhode Island, Illinois and California -- three states that tend to have higher operating costs.

Thumbtack, which partnered with the Ewing Marion Kauffman Foundation for the report, computed an average score for states based on a series of responses to questions assessing business friendliness. Survey questions included small business owners’ attitudes regarding ease of starting a business or hiring employees, regulations and available training programs.

The following table lists rankings for the 38 states included in the report; others did not receive a sufficient number of survey responses. Overall scores are shown, along with results for five graded survey metrics:

Source: Survey by Thumbtack.com, Kauffman Foundation

Compared to last year’s report, Kentucky saw the most improvement as its grade jumped from a “B-“ to an “A.”  Among demographic groups, results indicated women were more likely to report positive views of a state’s business friendliness.

Thumbtack also ranked metro areas that received at least 30 survey responses. Here are those results:

Source: Survey by Thumbtack.com, Kauffman Foundation

States and regions pursue different strategies to boost small businesses, whether its tax incentives or job training programs. While not a measure of the actual effects of these policies in terms of job creation, Thumbtack attempted to gauge which types of factors most influenced perceptions of business friendliness.

Licensing and permitting requirements were found to be most strongly correlated with a state’s overall small business-friendliness score. While licensing requirements vary greatly by business type, the finding held true across industries. About half of businesses surveyed were bound by professional licensing rules.

Compliance with tax regulations also emerged as a top factor. Whether or not business owners felt their taxes were high wasn’t quite as strongly correlated with overall business friendliness. Of those surveyed, 64 percent said they paid the “right share” of taxes, while 35 percent said taxes were “unfairly high.”

The following table, compiled by Thumbtack, shows correlations between each factor surveyed and a state’s overall business friendliness score:

Factor Correlation
Licensing forms, requirements and fees 0.42
Tax code and tax-related regulations 0.41
Employment, labor and hiring regulations 0.4
Does your state or local government offer helpful training or networking programs for small business owners? 0.4
Zoning or land use regulations 0.39
Health and safety regulations 0.38
Environmental regulations 0.37
How difficult or easy is it to start a business where you live? 0.36
How difficult or easy was it to use the website(s) [provided by local government to comply with business regulation]? 0.31
How difficult or easy is it to understand and file your business's taxes? 0.28
How difficult or easy is it to obtain and keep health insurance at your business? 0.27
How difficult or easy is it to comply with the licensing, certification, or permitting requirements of your profession? 0.26
How difficult or easy is it to hire a new employee at your business? 0.24
Do you think you pay your fair share of taxes? -0.19
How unprepared or prepared do you feel like your business is for the implementation of the Patient Protection and Affordable Care Act? 0.18
How poorly or well enforced are the licensing, certification, or permitting requirements of your profession? 0.17
Does your profession require that you have a license, certification, or permit to do your job? -0.04
Source: Survey by Thumbtack.com, Kauffman Foundation

One caveat to note from the report is that agriculture, retail and manufacturing businesses are underrepresented in the survey as these businesses make up a smaller portion of the site’s client base. View the full report for the methodology and survey questions.

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