Texas Ranks First in Small-Business Friendliness

When evaluating their cities, small businesses said the ease of compliance with licensing rules mattered far more than tax rates.

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State and city governments promoting local business training and focusing on ease of regulatory compliance are consistently perceived as being friendliest to small business, according to Thumbtack’s annual Small Business Friendliness Survey.

When evaluating cities, small businesses said the ease of compliance with licensing rules mattered far more than tax rates. Tax equity--the actual rate at which business owners pay taxes--mattered far less than any measure of regulatory compliance.

For example, labor rules were 88 percent more important in driving state friendliness scores when compared to tax rates.

"Our survey results indicate that states would do very well to proactively reach out with effective business training programs, creating a website that simply and in one place lays out the rules a business must follow, and make compliance with those rules as easy as possible, Jon Lieber, chief economist of Thumbtack, told eWEEK.

States also should think deeply about the costs they are imposing for very small businesses, he said, noting that well-intentioned rules may be expensive or impossible to comply with for smaller companies with razor thin margins. The offer of training on developing a business and navigating the local economic and policy environment was the single biggest factor that influenced perceptions of friendliness.

In cities, training was 78 percent more important than the number two factor, and on the state level, small businesses that had a positive training experience were 1.5 times more likely to rate their states as being very supportive.

When it comes to business training support, Lieber said he thinks businesses find it so important because many of their survey respondents are skilled professionals who know more about helping their customers than running their business.

"They generally appreciate it when they have the opportunity to talk shop with other business owners, or where they can learn about the nuts and bolts of being in business for themselves," he explained. "Running a mobile service business can be a lonely task, and they value government or civic organizations that help them do it better."

Texas ranked as the state most friendly to small business, followed by New Hampshire, Utah, Louisiana and Colorado. Rhode Island landed at the bottom--in the company of economic powerhouses California and New York.

"Both of these states are doing great for Fortune 500 companies, but the fact they are so big and so prosperous seems to contribute to an aggressive regulatory bent that is designed to protect consumers from unscrupulous service providers," Lieber said. "A lot of the rules we hear complaints about from our professionals, for example those surrounding the difficulty in hiring new workers, just aren't going to apply to larger businesses who can afford to comply with complex regulatory regimes."

The survey, now in its fourth year, reached nearly 18,000 small business owners in the United States and asked them to rate their state and city governments across a broad range of policy factors.