A new study has revealed the best and worst states in America to start a new business.
Business lawyers at Romano Law PLLC analyzed various factors to determine the ranking.
These included the number of business applications and the year-on-year change between November 2022 and 2023 (the most up-to-date data), the annual change of real gross domestic product (GDP) in quarter three of 2023, regional unfriendly customer ratings, and business failure rates within one year.
Based on these factors, the study awarded each state a final score out of 100. The states with the highest overall scores were then deemed the best locations to start a business.
Domenic Romano, Managing Partner of Romano Law PLLC, has commented on the study:
“In 2025, competition between businesses remains high. This is why you must choose the correct location for your individual business needs. While location may seem like a less important factor when starting up a new business, this can ultimately make or break your business venture.
“Whether it’s due to high levels of competition, high bills, or simply a lack of business opportunities, some states have higher business failure rates than others. It’s important to recognize that business survival rates are not uniform across the US before embarking on a new business venture.
“It’s also essential that you have a thorough understanding of your state’s specific employment laws before starting up a new business. Early business failures are often brought about by inadequate protection when it comes to employment disputes. This is why it’s so crucial that you’re taking the correct measures to protect yourself and your business from any costly disputes.”
The top 10 ranking:
Wyoming is crowned the best state for business owners, with a final score of 76.19 out of 100. The state had 907 business applications between November 2022 and 2023, 39% higher than the previous year. This growth is higher than any other state and 517% higher than the national average. There was also a 6% change in GDP in the third quarter of 2023, which is 26% higher than the national average.
Texas takes third place, with an overall score of 61.18 out of 100. The number of business applications in the state rose by 24% between November 2022 and 2023. Texas has also seen an 8% GDP rise in the third quarter of 2023, 68% higher than the national average.
According to the data, Texas has a business failure rate of 20.70%, which is almost 7% lower than the national average failure rate of 22.17%.
The study found that California is the fourth-best state to start a business in 2025. The state received a final score of 58.65 out of 100. California has the lowest rate of business failures in America, with only 13.20% of businesses failing within the first year. This is an impressive 40% lower than the national average rate, highlighting California’s reputation as a business hotspot.
Pennsylvania is in fifth place, with a final score of 58.49 out of 100. Pennsylvania saw a 33% rise in annual business applications between November 2022 and 2023, 213% higher than the national average and the second highest out of the top 10 ranking. The state also has a business failure rate of 19.50%, which is over 12% lower than the national average failure rate.
The top 10 best states to start a business:
*Table highlights stand-out factors of the study, not the study in its entirety.
The research reveals that Oregon is the sixth-best state to start a business, with an overall score of 56.53 out of 100. The state had 123 business applications per 100,000 people between March 2022 and 2023, a 28% change from the previous year. The data also reveals that Oregon is home to some of the most positive customer reviews in America, demonstrating the state’s reputation for high-quality service.
Next up is Oklahoma, with a score of 56.51 out of 100. In the state, 21% of businesses failed within one year as of March 2022, which is over 5% less than the national average failure rate. Oklahoma has also seen a 6% rise in annual GDP, 26% higher than the national average.
Kansas takes the eighth spot in the ranking, with an overall score of 53.93. Between 2022 and 2023, the state experienced a 19.8% growth in regional businesses, demonstrating how Kansas is rapidly becoming a hotspot for local business owners. The state also experienced a 9.7% rise in GDP, the highest figure in the study, and a whopping 104% above the national average figure of 4.76%.
Kentucky is revealed to be the ninth-best location for new businesses, with a score of 53.82. The state is home to some of the most positive customer reviews in America, following closely behind states like South Dakota and Missouri. Kentucky also experienced an impressive growth in the number of local businesses in the area, rising by 21% between 2022 and 2023.
With a score of 53.73 out of 100, South Dakota rounds out the top 10 ranking. According to the data, South Dakota is home to some of the most positive customer reviews in America, demonstrating how businesses in the local area consistently provide high-quality service. The state also experienced a 5.2% rise in GDP, which is higher than the national average rate of 4.76%.
Meanwhile, the study also highlights the worst states to start up a new business, with Arkansas taking the top spot.
The study reveals that Arkansas achieved a score of only 26.12 out of 100. As of the third quarter of 2023, the state’s annual change of GDP was 0.7%, the lowest in the nation, and 85% lower than the national average. The state's businesses may also experience a higher number of negative customer interactions, with Arkansas being given a regional unfriendly customer rating of 94 out of 100, the highest score in the country.
Businesses in Arkansas are also more likely to fail than elsewhere in America, with the state achieving a business failure rate of 22.50%, which is slightly higher than the national average rate of 22.17%.
Rhode Island, with a final score of 28.58 out of 100, is the second-worst state for business owners. The state’s business failure rates within one year are the highest in America, reaching 27% as of March 2022. Rhode Island’s annual GDP was also 3.9% as of the third quarter of 2023, 18% less than the national average.
In New Hampshire, 25% of businesses are reported to have failed within one year as of March 2022, 12% higher than the national average. The state also has an unfriendly customer rating of 94 out of 100, tying with Arkansas for the top spot, resulting in a final index score of 29.58 out of 100.
According to the study, Alaska is the fourth-worst state to start a business in 2025, with a final index score of 31.40 out of 100. The state had 3% fewer business applications between November 2022 and 2023 compared to the previous year, 128% less than the national average for business applications. Alaska also had a 3.6% change in annual GDP as of quarter three of 2023, 24% less than the average in America.
Vermont businesses have a failure rate of 26%, according to the study, 17% higher than the national average. There was also a 1.7% change in business applications, 83% less than the average for business applications in America, leaving the state with a final index score of 32.42 out of 100.
Other states that received low scores include West Virginia and Mississippi.
The 5 things new business owners MUST do to prevent legal trouble, according to corporate lawyers:
Starting a new business is an exciting step, but many business owners are unaware that simple slip-ups mean that potential legal trouble is looming just around the corner.
Whether you’re starting up a small online shop or embarking on a large in-person business venture, taking a proactive approach from day one not only protects your business from costly disputes but also builds a stronger foundation for long-term growth.
In light of this new study, business lawyers at Romano Law PLLC have shared urgent advice on the things new business owners must do to avoid potential legal trouble.
1. Ensure that you’re registering your business correctly
Selecting the correct entity, such as an LLC, corporation, partnership, or sole proprietorship, determine
Many new owners default to the simplest structure, only to realize later that they’re personally exposed to lawsuits or debts further down the line. Ensure you file the necessary formation documents with your state and consistently meet ongoing requirements like annual reports and fees.
2. Insure your business
Incorporating your business does not guarantee legal protection. This is why you must protect your business with the insurance policy that’s right for your individual business.
3. Comply with copyright regulations
When starting up a new business, it may be easier than initially thought to accidentally step on the toes of another business’s property rights. For example, when creating marketing material, you may accidentally use someone else’s image without paying a licensing fee.
These issues, while easily done, can result in hefty disputes, which many new businesses are understandably unprepared to deal with. This is why it’s essential to ensure that you’re not using anyone else’s content without being correctly licensed to do so. If possible, consult a trademark lawyer to avoid any potential slip-ups.
On the other end of the spectrum, it’s also important to register your own trademarks as early as possible. Your business name, logo, and services are all valuable assets, so it’s crucial to ensure that you’re registering these correctly. Failing to do so can result in infringement issues or disputes that may result in a costly rebrand later.
4. Organize your contracts from day one
Every business relationship, whether with clients, suppliers, contractors, or partners, should be governed by a written contract that clearly outlines expectations, payment terms, deliverables, confidentiality protections, and dispute-resolution mechanisms.
In order to draw up your contracts, it’s essential to consult a lawyer. Avoid using standard online templates that may not be suitable for your individual business needs.
Using well-drafted contracts reduces ambiguity and provides legal protection if something goes wrong further down the line.
5. Understand and comply with your state’s individual employment laws
When starting up a new business, one of the most essential pieces of advice is to keep up to date with your state’s employment laws. As laws can range from state to state, it’s essential to ensure that you have a thorough understanding of your state’s regulations.
Some of the most important topics to understand include proper worker classification, minimum wage compliance, overtime rules, anti-discrimination policies, and maintaining required documentation. Having a thorough understanding of these issues is absolutely crucial when it comes to avoiding future legal issues.
For example, one of the most important elements of employment law is proper worker classification. Based on your individual state’s requirements, it’s crucial to ensure that you’re correctly differentiating between employees and independent contractors. Failing to correctly classify your business’s workers can result in potential legal disputes, so you must have a thorough understanding of your state’s employment laws.
This information was provided by business lawyers at Romano Law PLLC.
Post courtesy https://www.romanolaw.com/
Methodology:
- The study analyzed various factors to determine the best and worst states to start a business in 2025.
- These factors included the number of business applications and the year-on-year change between November 2022 and 2023, the annual change of real gross domestic product (GDP) in quarter three of 2023, regional unfriendly customer ratings, and business failure rates within one year.
- The results were then compared against 100,000 people in each state to accurately compare data between states of differing sizes.
- Based on these factors, each state was awarded a final score out of 100.
- The states with the highest scores were then deemed the best locations to start a business.
Sources:
- The percentage of business change by year: https://www.census.gov/
library/visualizations/ interactive/bfs-by-state.html - The annual percentage change of real gross domestic product: https://www.bea.gov/
news/2023/gross-domestic- product-state-and-personal- income-state-3rd-quarter-2023 - Regional unfriendly customer ratings: https://www.forbes.com/sites/
christopherelliott/2019/05/23/ here-are-the-states-with-the- most-unfriendly-customers/ - Business failure rates within one year: https://www.lendingtree.com/
business/small/failure-rate
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