These are the best, worst states to start a business in 2021: report

Only about one in every five startups survives beyond its first year in business

The best and worst states to start a business in 2021 might surprise you.

Only about one in every five startups survives beyond its first year in business, according to the U.S. Bureau of Labor Statistics, and the COVID-19 pandemic has likely made success even more difficult to achieve. 

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These 10 states, however, have proven to be the best for starting a business after more than a year of COVID-19 based on 28 relevant metrics reviewed by WalletHub in three broader categories, including business environment, access to resources and business costs:

  1. Texas
  2. Georgia
  3. California
  4. Florida
  5. Idaho
  6. Utah
  7. Colorado
  8. North Dakota
  9. North Carolina
  10. Massachusetts
Source: WalletHub

The worst cities to start a small business based on those same three factors, starting from the bottom, are:

  1. New Jersey
  2. Connecticut
  3. Rhode Island
  4. West Virginia
  5. Wyoming
  6. Alaska
  7. Missouri
  8. Pennsylvania
  9. Delaware
  10. Virginia

Interestingly, Virginia ranked No. 1 on CNBC's list of best states to start a business, followed by North Carolina, based on 85 metrics in 10 broader categories based on competitiveness, including the cost of doing business; infrastructure; life, health and inclusion; workforce; economy; business friendliness; access to capital; technology and innovation; education; and cost of living.

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Russ McBride, assistant professor at the University of California Merced's department of the management of complex systems, noted in an interview with WalletHub that corporate tax rates are a "significant factor especially for less mature businesses that have the opportunity to move to lower corporate tax areas like Puerto Rico, Florida, or Texas."

He added that states "will see a shift to increased manufacturing for the first time in a long while" while "startup ‘drain’ from Silicon Valley, Boston, and [New York City] will continue to Utah, Florida, Colorado, Texas, and [Nevada]."

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Martha (Marty) Mattare, associate professor at Frostburg State University's department of management, said states can encourage entrepreneurs to start a business in their states by cutting "red tape."

"Provide ‘instant’ approvals; assist with location, space development, assist with employee recruitment; tax and other incentives help; easy loans; essentially financial and people resources," she said in a statement to WalletHub.