Five Best States to Start a Business

When it comes to starting a business, the question of where can be just as important as what and how. Some states offer better business climates for budding entrepreneurs, who need all the help they can get in today's economy. The problem is, there's no single measure for evaluating a state's business environment. Do you look at the education level of the workforce? The amount of regulation? The rate of economic growth? 

The most useful benchmarks include as many factors as possible. U.S. News looked at two comprehensive studies that take different approaches to measuring a state's ability to promote entrepreneurship: the 2008 New State Economy Index from the Kauffman Foundation and the Information Technology and Innovation Foundation, and 2008's Small Business Survival Index from the Small Business and Entrepreneurship Council. We combined the rankings of these studies and came up with a list of the five best states for starting a business: 

Washington. The Evergreen State tops the list--coming in second on the New State Economy Index and fifth on the Small Business Survival Index. A big factor: Washington ranks first in taking steps to advance energy efficiency and use alternative-energy sources. It also has a highly productive manufacturing sector, high wages, and a technology-intensive economy. The state's manufacturing workers lead the nation in the value they add to production measured by each hour of work. What's more, Washingtonians don't pay state taxes on income or capital gains. 

Virginia. This state is not just purple in its voting patterns. Like blue states such as Massachusetts, it mixes a highly educated workforce with technological sophistication. And like red states such as Texas, Virginia is known for its low taxes. This state boasts the highest number of information technology jobs in non-IT industries as a total share of jobs, which indicates that Virginia's businesses are more technologically advanced than businesses in other states. 

Colorado. It's not a coincidence that one of the fastest-growing states is also one of the best places to start a business (Colorado's population grew an estimated 13 percent between 2000 and 2007). It also boasts the third-most-educated workforce in the nation. Another plus: Colorado levies lower-than-average taxes on income, capital gains, consumption, and property. 

Texas. Globalization has made it possible for entrepreneurs to serve markets not just in their immediate communities, regions, or countries but around the world. If your ambition is that encompassing, Texas might be a good place to start. This state has the most globally focused manufacturing sector in the country, with export sales of $69,268 per worker--the highest of any state. Another incentive for business owners is the cost of labor, as workers' compensation benefits relative to wages in Texas are the lowest of any state, indicating lower premiums for employers. 

Nevada. Nevada's "anything goes" reputation is almost true when it comes to the state government's business climate. The state has no income or capital-gains tax for individuals or corporations. It has the 15th-lowest property taxes among states, and the second-lowest number of government employees. Nevada also ranks high for innovation. It has one of the most technologically sophisticated healthcare sectors in the country and ranks third among all states in percentage of prescriptions that can be written electronically.