How business-friendly is your state? A new study offers some answers.

In partnership with the Kauffman Foundation, conducted a survey of over 6,000 owners of small businesses (most with 5 or fewer employees) throughout the U.S..The survey focused on how small business owners viewed the economic climate and overall environment facing them in their specific regions. 

Business owners were asked to rate their cities and states across a number of different categories that affect the success of small businesses. Their responses were then converted into numerical scores and ultimately each region was assigned a grade--A+ through F--for each category in the survey.

Best & Worst States

When the results were in, it turned out that business owners ranked Idaho, Texas, Oklahoma and Utah as the friendliest states for small companies. Rhode Island, Vermont, Hawaii and California had some of the lowest rankings.

“We were surprised at how friendly the smaller states such as Idaho and Oklahoma were, because they typically don’t get much publicity for it,” says Sander Daniels, one of the survey’s lead developers and co-founder of website that helps connect customers with service professionals.

“We found though that because they are small their governments are doing everything they can to attract businesses,” he adds.

Idaho, Texas, Oklahoma and Utah all received a A+ grades for overall friendliness.Idaho scored best overall, and Rhode Island came in at the bottom, in the 45th spot. (Five states were excluded for having fewer than 10 respondents.)

“Texas was an outlier compared to other big, populous states such as Illinois, New York and California, which scored well below average,” says Daniels. “Larger states attract business no matter what, so don’t typically focus on attracting small businesses.”

Pain Points

Though taxes were a dominant topic during the survey, the survey respondents tended to care almost twice as much about local licensing requirements. Special regulatory requirements weighed strongly on states' overall grades.

“When you open a business you expect taxes,” says Daniels. “What really came as a surprise to [the respondents] were the costs and problems associated with getting licensing.”

Other important predictors of perceived "friendliness" included awareness  of state and local government training programs as well as individual forecasts for the respondents' own company financial performance.

“A important takeaway for us was how local the issues faced by small businesses are,” says Daniels. “We found that it wasn’t the state and national policies that determined how friendly regions were, but the local entities that small businesses had to interact with on a daily basis.”