Best States to Start a Small Business in 2026

The best states to start a small business in 2026 are Wyoming, South Dakota and North Dakota, but the worst state may surprise you. California ranks dead last despite its tech reputation, while Great Plains states lead our rankings.

Your location choice could determine whether your business survives or fails. Wyoming leads with a composite score of 68.98 and the nation's best tax climate. California ranks #51 with a score of 29.73, dragged down by the worst cost structure in America, a 39-point gap separating best from worst.

For a small business earning $500,000 annually with 10% margins, that gap translates to $12,000-$15,000 in annual cost differences. That's money that could fund hiring, marketing or emergency reserves.

Whether you're launching a small business in a business-friendly climate or navigating a high-cost environment, location choices have lasting financial impacts.

See how small-business conditions vary across the country:

These state-level cost differences compound with small business insurance costs that vary by location and industry. The business environment score captures formation rates, job creation and infrastructure, with metrics showing wide per capita variation. Understanding these growth rate differences helps entrepreneurs choose locations strategically.

Four of the top seven are Great Plains states (WY, SD, ND, IA). These most business-friendly states excel in costs and stability. The top 10 average 73.47 on the Costs & Taxes pillar compared to a national average of 54.0. Wyoming is arguably the easiest state to start a business from a regulatory and tax perspective.

Delaware (#5, 49.53) uses business-friendly incorporation laws and strong infrastructure. Delaware offers streamlined incorporation processes and favorable business law. Mississippi (#6, 46.63) defies stereotypes with strong survival rates (68.58 risk pillar). Low costs and stability compensate for limited resources. Iowa (#7, 45.32) excels in business survival with a risk pillar score of 79.99, ranking fourth nationally for long-term business stability.

A business needs 30% to 40% higher revenue in California just to match Wyoming profitability, where no state income tax and low operating costs create ideal conditions. Montana ranks #4 with strong survival rates (68.44) and moderate costs (76.18).

Despite relatively high cost of living, Florida ranks #9 with balanced performance across all pillars and no state income tax. Texas ranks #8 with the highest survival pillar score (74.14) in the top 10. Utah rounds out the top 10 at #10 with strong resource access and a growing population.

The 10 states with the worst cost structures average just 26.8 on the costs pillar (CA, HI, NY, NJ, DC, CT, MA, WA, MD, RI). The worst states for business struggle primarily with operating costs, not business formation or infrastructure.

DC (#47, 32.50) has the highest business environment score (47.97) in the bottom 10 but the worst survival rate (15.00) in the entire nation. West Virginia (#46, 32.66) has the lowest business environment score (7.65) nationally but strong survival rates (78.14). Washington (#44, 34.44) ranks low despite no state income tax; high cost of living (36.75) undermines tax advantages.

New York ranks #50 (30.17) with a low costs score (20.45) despite world-class infrastructure.

California houses Silicon Valley, leads tech innovation and created legendary companies (Apple, Google, Facebook). Yet it ranks #51 for small business, making it effectively the worst state to start a business for bootstrapped entrepreneurs.

California ranks #51 (29.73) with the nation's worst cost structure (13.42 costs pillar score). This is 7.1 times worse than South Dakota's 95.76.

Where California Struggles

The pillar breakdown:

• Costs & Taxes: 13.42 (lowest in nation, 82.34 points below South Dakota)
• Resources & Capital: 18.24 (below average despite tech talent)
• Business Environment: 32.14 (middle of the pack)
• Risk & Stability: 65.83 (above average; businesses that survive do well)

California's cost structure is prohibitive: 13.42 out of 100. That's 7.1 times worse than South Dakota (95.76), a gap that makes bootstrapped success nearly impossible for Main Street businesses. The 80.78-point difference represents substantial gaps in taxes, electricity and cost of living.

Who Succeeds vs. Who Struggles

California works for well-funded tech startups with VC backing, high-margin businesses (software, consulting), established corporations with revenue scale and businesses where talent access outweighs cost concerns.

California challenges bootstrapped Main Street businesses, low-margin operations (restaurants, retail), service businesses without capital cushion and cost-sensitive entrepreneurs.

The Silver Lining

California's risk pillar score (65.83) shows that businesses surviving the high costs often thrive. The survival rate is above average. California filters for quality, not quantity. But the barrier to entry remains prohibitively high for most entrepreneurs.

MoneyGeek analyzed all 50 states plus DC across 14 metrics grouped into four weighted pillars: Business Environment & Opportunity (40%), Resources & Capital (20%), Costs & Taxes (25%) and Risk & Stability (15%). This measures conditions for starting Main Street small businesses (restaurants, retail, services) using state-level averages.

What We Didn't Measure: City-level variation, personal networks, quality of life, industry-specific dynamics or regulatory burden beyond taxes.

Calculations: Each metric was normalized to a 0-100 scale. Pillar scores are weighted averages of their component metrics. The final composite score combines all four pillars using the weights above.

Context: California's #51 reflects real challenges for bootstrapped ventures but doesn't diminish advantages for well-funded tech startups. Wyoming's #1 comes with small markets and limited talent. Mississippi's #6 surprises many but data doesn't lie; low costs and high survival rates matter.

Explore the complete rankings with detailed breakdowns of all four pillar scores for every state.