With around one in five new businesses failing within the first year and inflation making things even more difficult, the personal-finance website WalletHub this week released its report on the Best and Worst States to Start a Business in 2025, as well as expert commentary, to help people maximize their chances of success by starting in the right location.
California was rated above average for starting a business, ranked 18th overall when considering all the factors.
WalletHub compared the 50 U.S. states across 25 key indicators of startup success. The data set ranges from financing accessibility to labor costs to office-space affordability.
Starting a Business in California (1=Best; 25=Avg.):
Overall Rank for California: 18th
12th – Avg. Growth in Number of Small Businesses
47th – Office-Space Affordability
46th – Labor Costs
3rd – Availability of Human Capital
42nd – Avg. Length of Work Week (in Hours)
49th – Cost of Living
7th – Industry Variety
The top five states for starting a new business were Florida, coming in at number one, followed by Georgia, Utah, Texas and Idaho. In the bottom five were Maryland, at number 46, followed by Alaska, New Jersey, Connecticut and Rhode Island.
“Around half of all new businesses don’t survive five years, so the idea of becoming a business owner can be daunting, especially with the current high cost of living. That’s why it’s crucial to establish your business in a state that will maximize your chances of success. The best states have low corporate tax rates, strong economies, an abundance of reliable workers, easy access to financing and affordable real estate. On top of that, you’ll need to make sure you start in a place with an engaged customer base, if you’re operating locally,” explained Chip Lupo, WalletHub Analyst. “Florida is the best state for starting a business in 2025, boasting the second-most startups per capita and the highest percentage of adults who engage in entrepreneurship. The number of small businesses in the state grew by nearly 16 percent between 2016 and 2022, the fourth-highest percentage in the country. There are plenty of good reasons why so many people start businesses in Florida, including the fact that it has the 11th-highest business revenue growth rate and the tenth-lowest corporate taxes. In addition, Florida’s working-age population (age 16-64) is growing faster than in all but six other states, and the state has the third-highest percentage of workers who say they are enthusiastic about and committed to their work.”
For the full report, visit https://wallethub.com/edu/best-states-to-start-a-business/36934
Expert Commentary
To what extent do state policies, such as corporate tax rates, influence decisions about whether and where to start a new business?
“State policies, particularly corporate tax rates, play a significant role in decisions about where to establish a business. Entrepreneurs often look for tax-friendly environments that reduce their operating costs. States like Florida, which have no personal income tax and competitive corporate tax rates, attract businesses seeking to minimize financial burdens. However, other factors such as access to talent, infrastructure, and market demand are equally influential. A holistic policy approach that combines low taxes with business-friendly infrastructure can be a game-changer for states aiming to attract startups.”
Bert Seither – Manager of Operations, John P. Lowth Entrepreneurship Center, The University of Tampa
“State policies, particularly corporate tax rates, significantly influence where entrepreneurs decide to start businesses. Lower tax rates can reduce operational costs, making states like Texas, Florida, and Nevada attractive for new businesses. However, tax rates aren’t the sole factor; infrastructure, workforce availability, and access to markets are equally crucial. States that combine low taxes with supportive ecosystems (e.g., business grants, and workforce development programs) often attract more startups. For instance, California’s high tax rates are offset by its access to capital and talent, making it a hub for tech startups despite higher costs.”
Stephanie Black, Ph.D. – Associate Professor, Texas A&M University - San Antonio
Which, in your opinion, are the best industries for starting a business in 2025, and what states are most likely to see an increase in start-up activity?
“In 2025, industries poised for growth include renewable energy, health tech, e-commerce, and artificial intelligence. The demand for sustainable solutions and the integration of AI into everyday services will create numerous entrepreneurial opportunities. States like Florida, Texas, and North Carolina are likely to see increased startup activity due to their business-friendly climates, growing populations, and access to skilled workforces. Florida, for instance, is well-positioned with its diverse economy and burgeoning tech scene, particularly in cities like Miami and Tampa.”
Bert Seither – Manager of Operations, John P. Lowth Entrepreneurship Center, The University of Tampa
“Elder care and other health care industries will see growth as the population continues to age. Also, lifestyle brands, such as cosmetics, clothing, healthy foods, and certain recreation businesses, should see growth both online and in person. Technology will see continued growth, including AI related businesses and robotics.”
Daniel E. Goldberg, Ed.D. – Associate Professor; Academic Director of the Business Management BBA Program, Temple University
What measures can state authorities undertake in order to encourage entrepreneurs to start new businesses in their state?
“State authorities can encourage entrepreneurship by implementing measures such as streamlining business licensing processes, offering grants and low-interest loans, and investing in workforce development programs. Additionally, creating hubs of innovation, such as incubators and accelerators, can attract startups. Florida, for example, has benefitted from fostering collaborative ecosystems in cities like Orlando and Miami, where entrepreneurs have access to mentorship, networking, and venture capital. Finally, investing in infrastructure – both physical and digital – ensures that entrepreneurs have the resources needed to thrive in the modern economy.”
Bert Seither – Manager of Operations, John P. Lowth Entrepreneurship Center, The University of Tampa
“States can make sure that regulations and tax structures are beneficial for entrepreneurs to start and maintain their businesses as they grow. It also helps to have entities such as colleges/universities, other complimentary businesses, and/or organizations that can provide mentors and/or advisors close by to help startups grow and prosper.”
Daniel E. Goldberg, Ed.D. – Associate Professor; Academic Director of the Business Management BBA Program, Temple University
