Which states have a thriving small-business landscape, according to data?

Small businesses are the backbone of the American economy. Defined by the Small Business Administration as firms with fewer than 500 employees, small businesses make up 99.9% of all companies. They also fuel employment, with nearly half (46%) of private sector workers employed at small businesses, accounting for 43.5% of the country’s overall economic output.

U.S. NAICS Codes analyzed data from the Bureau of Labor Statistics to see which states have the healthiest environments for small businesses.

In the United States, around 4 in 5 small businesses are solo ventures without employees, which can include real estate brokerages, construction contractors, freelance artists, and small online retailers. Small businesses with employees tend to be more dynamic than their larger counterparts, accounting for at least 3 in 5 (63%) new jobs in America between 1995 and 2021.

The demographics of who owns small businesses reveal disparities along gender and racial lines, according to SBA data. Women tend to be underrepresented, making up less than half (42%) of solo business owners and merely 22% of businesses that employ workers. Black Americans, comprising 14% of the population, own 12% of solo ventures but just 2.4% of those with employees.

An important distinction for BLS data is that it covers establishments rather than firms. This means the numbers correspond to individual physical locations and include big corporations with many small locations—think Starbucks or McDonald’s—each accounting for a single establishment. Even so, the numbers still indicate how small businesses are faring.

States were ranked by the percentage change in the number of small establishments between 2022 and 2023. Montana did the best in 2023 by this measure, with small establishments in the Treasure State growing by 12.1%. Small businesses also boomed in Virginia and Oregon. In contrast, Washington state saw a 15% decline in small establishments in 2023, indicating a less hospitable environment for small enterprises.

Read on to see how small businesses fared nationwide in 2023.