The Cheapest States to Start a Business

Entrepreneurs need every edge they can get, and location plays a big role in the success of a business. These are the states with the lowest costs to start an LLC.

Apr 20, 2023 - 18:30

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Entrepreneurs need every edge they can get, and location plays a big role in the success of a business. These are the states with the lowest costs to start an LLC.

Between the beginning of the pandemic and one year later, 1 million brave small businesses opened in the U.S. and 833,458 closed.

While the numbers are grim, 166,542 small businesses survived in what most would agree was a pretty tough year.

There are 33.2 million small businesses in the U.S. and they employ 61.7 million workers, about 46% of the population, according to the U.S. Small Business Administration.

Pandemics aside, usually about one in five small businesses fail within their first year, while half fail after five years and approximately 65% by their 10th year in business, according to the BLS.

Businesses in the health care industry have the highest success rates--60% make it beyond the first year--while construction, transportation, and warehousing have the worst rates of success, the U.S. Chamber of Commerce says.

Geographic location plays a big role in the success of a small business, the Chamber says. As of 2019, Michigan, Washington, and Kansas were the three states with the highest rates of business failure, while Massachusetts, California, and Louisiana had the highest success rates.

But Louisiana is also one of the most expensive states to start a business, according to research by Simplify LLC, a legal information site and guide for entrepreneurs.

Louisiana ranked among the bottom three states, along with New York and Minnesota, for overall costs of starting a business, according to SimplifyLLC’s ranking, which scored all 50 states plus D.C. across nine business-related categories including corporate income-tax rates, business filing fees, labor costs and availability, cost of space and utilities and small business lending.

They compared each state to the national rate or an average of the states to determine which states give entrepreneurs the best chance of success.

Nevada ranked as the least expensive state in which to start a business, while Minnesota is the most expensive, they found. Around the country, it costs an average of about $125 to file papers to open an LLC, ranging from a low of $40 in Kentucky to a high of $500 in Massachusetts.

To determine the cheapest states to start a business, SimplifyLLC assigned point values for nine business-related metrics for each state based on how better or worse their metrics were compared to the national rate. Points in all categories were then totaled to arrive at overall scores for each state, resulting in the ranking.

Here are the cheapest states to start a business.