Best U.S. states for quitting your job and launching your own business

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Quitting your job to finally give that business idea of yours a shot is a thrilling, and risky, proposition. Living in the right state could give you just enough of a leg up to succeed.

After all, your business’ location can play a huge role in determining what sort of employees and customers you can attract, as well as costs like taxes and payroll. To offer some help in narrowing down your search, Looka.com — a website that offers branding and design tools for startups — has released a new ranking of the best U.S. states for entrepreneurs.

According to Looka, California is the best place to be if you’re finally ready to quit your day-job and start your own business. That’s in spite of a notoriously high cost of living, including one of the highest corporate tax rates in the country.

Here are the top five states on the list:

  1. California
  2. Texas
  3. New Jersey
  4. Illinois
  5. Georgia

California has long been a hub for new businesses, especially for the tech industry — but the Golden State has recently seen an exodus of high-profile businesses leaving the state in search of lower costs and, in many cases, lower taxes. Tesla, Oracle and Hewlett Packard are among the biggest names that have moved their headquarters out of California since 2020.

But Looka points to California’s still-high concentration of small businesses and startups with fewer than five employees, and one of the best survival rates for new businesses in the country. California also ranks first in terms of annual payroll for businesses with fewer than give employees. “Those entrepreneurs are, on average, able to pay themselves and their team better,” a Looka spokesperson tells CNBC Make It.

The ranking cites research from the nonprofit Kauffman Foundation showing that in 2021, 82.56% of new businesses in California were still operating after their first year. The national average is 81.7%, and with all the challenges brand-new businesses face, they often need all of the help they can get to survive.

Right behind California is Texas, which boasts the fourth-highest concentration of businesses with fewer than five employees. The Lone Star State also offers the second-highest annual payroll for businesses with fewer than five employees, and a lower-than-average cost of living — helped by state’s lack of personal income tax.

Rhode Island sits at the very bottom of the ranking, with the country’s lowest number of new businesses and one of the worst survival rates for new businesses: just over 77% in 2021. West Virginia sits in 49th place, finishing second-to-last in median household income and number of new businesses started between 2020 to 2021.

To put together its rankings, Looka says states were judged on six criteria:

  • Number of businesses with less than five employees
  • Median household income
  • Survival rate for new businesses
  • Cost of living
  • Annual payroll for businesses with fewer than five employees
  • Percentage of new business in each state from 2020 to 2021

The company relied on data from the U.S. Census Bureau, World Population Review 2022 and the Kauffman Foundation’s Indicators of Entrepreneurship.

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