Oct. 12, 2004--If you're looking to start a small business, your best bet is to set up shop in the Mount Rushmore State, according to a new study.

A ranking released last week by the Small Business & Entrepreneurship Council (SBEC), a small business advocacy group, rated South Dakota as the state with the most friendly policies toward small businesses, followed in order by Nevada, Wyoming, Washington State and Florida.

The 2004 Small Business Survival Index ranked each state based on over twenty key costs that affect small businesses and entrepreneurship. In addition to statistics like crime rates and relative size of state and local governments, the index measured such costs as health care expenses, workers' compensation premiums and numerous types of tax rates. The index did not, however, attempt to measure any services paid for by state and local taxes.

"We recognize that a whole host of other issues come into the process when you're trying to decide where to locate your business," said Raymond J. Keating, chief economist at the SBEC. "What were trying to get into is whether the government of a particular state is a plus or a minus overall when it comes to small business issues, and what obstacles the government places in the way of entrepreneurship."

The District of Columbia came in dead last in the index, placing 51st on the list. The next five states found to be least friendly to small business were California, Hawaii, Rhode Island, Minnesota, and Maine. Other rankings of the most populous U.S. states included Texas (11), New York (45), Illinois (19), Pennsylvania (12), Ohio (40) and Michigan (6).

In its report, the SBEC claimed that the best environment for entrepreneurship and small business generally involves low taxes, limited government and restrained regulation. It said its rankings are borne out by national economic trends such as population growth, which it said has been much faster in states that rank in the top half of the index compared to the bottom half. It also stated that out of the top ten states with the fastest-growing personal income from 1993 to 2003, eight fell in the top half of the index, while seven of the ten slowest-growing states landed in the bottom half.