Here are the 5 best states to start a business. 3 of them will surprise you

What are the best states to start a business? Logo design company Looka decided to find out. Looka compared the 50 states on a set of six criteria: number of companies with fewer than five employees (likely startups); survival rate of new businesses; percentage of new businesses; affordable cost of living; payroll for small businesses; and median household income overall.

Here are the top five. While the winning state may be obvious, some others may surprise you.

1. California

Needless to say, California has got an affordable low cost of living. But its powerful perks outweigh its exorbitant rents. “It has the highest number of businesses with fewer than five employees, the highest annual payroll for employees, and the best survival rate for entrepreneurs,” Looka explains in its report. Thank you Silicon Valley and Sand Hill Road.

2.Texas

With a decidedly business-friendly climate and Austin attracting legions of entrepreneurs and tech professionals, it’s no surprise that Texas came in second. It ranked second in payroll for small businesses and fourth in number of small businesses, and boasts a lower cost of living than other startup hubs such as New York or Massachusetts. Hosting SXSW every year doesn’t hurt either.

3. New Jersey

Did you expect to see this state in the top five? I certainly wasn’t. “New Jersey has a high annual revenue, ranking second behind California and eighth overall for companies with fewer than 5 employees,” the report explains. It also ranks seventh in small business payroll. You may not consider this state a hub for entrepreneurship, but maybe you should.

4.Illinois

This state was another surprise on the top five list, at least for me. It ranked fifth in number of small businesses and small business payroll, perhaps thanks to Chicago’s vibrant startup ecosystem. It also ranks relatively high on the affordability scale, at 21, compared to 48 and 49 for California and New York, respectively. Illinois is the only Midwestern state to make the top ten.

5. Georgia

I don’t think I would have ever guessed that this state would rank in the top five for starting a business. It ranked in the top five in part because of its low cost of living – it’s ranked ninth for affordability. At the same time, it ranked seventh in number of small businesses and eighth in small business payroll, thanks to Atlanta’s very powerful startup scene.

The worst state to start a business

Which state came last? That would be Rhode Island, which ranks 41st in affordability and 44th in number of small businesses and small business payroll. And lest you think the low number of startups is solely due to the state’s small size, it also ranks last for the proportion of startups to all businesses. It seems the state has work to do if it wants to support and encourage new startups.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

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