Best States to Start a Small Business in 2026

Wyoming, South Dakota and North Dakota rank as the best states to start a small business in 2026. California ranks dead last at #51 despite its tech reputation.

Wyoming leads with a composite score of 68.98 and the nation's best tax climate. California scores 29.73, dragged down by America's worst cost structure, a 39-point gap separating best from worst.

A small business earning $500,000 annually with 10% margins faces $12,000 to $15,000 in annual cost differences between these states. That money could fund hiring, marketing or emergency reserves.

Location choices create lasting financial impacts for every entrepreneur.

See how small-business conditions vary across the country:

State-level cost differences compound with small business insurance costs that vary by location and industry. For a detailed breakdown of small business taxes by state, see our comprehensive tax analysis. The business environment score captures formation rates, job creation and infrastructure. Growth rate differences help entrepreneurs choose locations strategically.

Great Plains states claim four of the top seven spots (Wyoming, South Dakota, North Dakota and Iowa). These states excel in costs and stability. The top 10 average 72.48 on the Costs and Taxes pillar compared to a national average of 54. Wyoming offers the easiest path to business formation from regulatory and tax perspectives.

Delaware (#5, 49.53) benefits from business-friendly incorporation laws and strong infrastructure. The state 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 stability.

Businesses need 30% to 40% higher revenue in California to match Wyoming profitability. Wyoming has no state income tax and low operating costs. Montana ranks #4 with strong survival rates (68.44) and moderate costs (76.18).

Florida ranks #9 with balanced performance across all pillars and no state income tax despite high cost of living. Texas ranks #8 with the second-highest survival pillar score among the top 10 (74.14). Utah rounds out the top 10 at #10 with low business costs, favorable tax climate, and one of the fastest-growing populations in the nation

The 10 states with the worst cost structures average 26.8 on the costs pillar (California, Hawaii, New York, New Jersey, Washington, D.C., Connecticut, Massachusetts, Washington, Maryland and Rhode Island). These states struggle with operating costs, not business formation or infrastructure.

Washington, D.C., (#47, 32.50) has the bottom 10's highest business environment score (47.97) but the nation's worst survival rate (15). West Virginia (#46, 32.66) has the nation's lowest business environment score (7.65) but strong survival rates (78.14). Washington (#44, 34.44) ranks low despite no state income tax. The 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 California ranks #51 for small business — the worst state for bootstrapped entrepreneurs.

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

Where California Struggles
The pillar breakdown:

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

California's cost structure scores 13.42 out of 100, 7.1 times worse than South Dakota (95.76). This gap makes bootstrapped success nearly impossible for Main Street businesses. The 82.34-point difference reflects 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 cushions and cost-sensitive entrepreneurs.

When California Makes Sense Despite the Ranking
California's #51 ranking reflects genuine cost and regulatory challenges affecting most small businesses. But the state offers advantages our methodology doesn't capture. California's 39 million residents and $3.9 trillion economy (the largest state GDP) create unmatched market access for businesses that can absorb higher costs. Tech startups with VC backing, entertainment businesses and companies needing specialized talent pools find California's ecosystem worth the premium. E-commerce businesses can offset California's operating costs by serving the massive in-state market while incorporating in lower-tax states. Our ranking measures ease of starting and operating, not revenue potential. For high-margin businesses targeting California customers, the state can make financial sense.

The Silver Lining
California's risk pillar score (65.83) shows businesses surviving the high costs often thrive. The survival rate sits 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 the District of Columbia across 14 metrics organized into four weighted pillars. Each metric was normalized to a 0-100 scale, where higher scores indicate better conditions for small businesses. Our Four-Pillar Scoring Framework follows:

• Business Environment & Opportunity (40% weight)
  The entrepreneurial ecosystem is foundational. Without strong business formation and infrastructure, other advantages matter less. Includes business formation rate, small business job creation share, small business employment share and broadband availability. All metrics equally weighted at 10% of total score.
• Access to Resources & Capital (20% weight)
  Includes loans per small business (8%), high-propensity business applications (6%), college-educated population (3%) and working-age population growth (3%). Traditional bank financing received highest weight because 70% of small businesses use bank loans.
• Business Costs & Taxes (25% weight)
  Includes Tax Foundation tax competitiveness score (12.5%), commercial electricity price (6.25%) and regional price parity (6.25%). Taxes received 50% of this pillar because they're permanent costs that scale with success.
• Failure Risk & Stability (15% weight)
  Includes five-year establishment survival rate (9%), one-year survival rate (3.75%) and natural disaster risk (2.25%). Lower weight because survival rates reflect historical conditions.

Pillar scores were combined to produce final Overall Scores (0-100). 

This ranking focuses on state-level business climate factors affecting "Main Street" small businesses. It doesn't include city-specific programs, federal taxes, individual circumstances or qualitative factors. State-level data masks variation between metro and rural areas.

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