The Most Risky Cities For Small Businesses In 2023 – Forbes Advisor

Entrepreneurship in America has hit record-breaking numbers, with more than 5 million new business applications filed in 2021 and 2022. Small businesses account for over 99% of all businesses across the U.S. and employ nearly half of the workforce nationwide.

But owning a small business is no easy feat. Slightly less than half (49%) of new small businesses survive their first five years, 34% survive the first 10 years and 26% survive the first 15 years, according to the Small Business Administration. Factors such as low gross domestic product (GDP) growth, high costs of living, high corporate taxes and property crime can make some parts of the country more risky for small businesses than others.

So what are the best cities to start a small business in? To find out, we analyzed data for 92 of the most populated U.S. cities across 12 metrics that reflect business risks. We considered each city’s GDP growth rate, the living wage (cost of living), state corporate taxes, minimum wage, property crime per capita, number of natural disasters, median household income and population growth, among other metrics.

Key Takeaways

• California cities are well represented as the worst cities to start a small business in, with eight in the top 15. The majority of these cities are within the Los Angeles metropolitan area and rank high in corporate taxes, living costs and natural disasters that could negatively impact a small business.
• By contrast, Texas has eight of the top 15 best cities to start a small business in. Four are located in the Dallas-Fort Worth metropolitan area and offer low corporate taxes, high economic growth rates and low property crime.
• The top five cities with the highest property crime are all located in the West, with the exception of Denver: Salt Lake City; Tacoma, Washington; Denver; Portland, Oregon; and Oakland, California.
• 22 cities we analyzed do not have any corporate tax, including cities in Texas, Washington, Nevada, Tennessee and Ohio. By contrast, Minneapolis business owners pay the highest corporate tax rate in the country, at 9.8%, followed by Chicago (9.5%) and Newark, New Jersey (9%).

Top 10 Most Risky Cities for Running a Small Business

1. San Bernardino, California

San Bernardino’s score: 100 out of 100

• A natural disaster can ruin any small business owner’s dream, and San Bernardino’s 59 declared natural disasters since 1953 are well above our study’s average (27). This places San Bernardino as the sixth most risky for this metric.
• California has a higher-than-average state corporate tax (8.84%), which places not just San Bernardino, but all 18 California cities as the eighth riskiest, in terms of corporate tax costs.
• San Bernardino ranks in the top 10 most expensive cities in terms of office and industrial real estate rent cost increases, meaning the location costs of your business could likely increase over time.
• San Bernardino’s higher-than-average minimum wage ($15.50 an hour) would be another consideration for small business owners looking to hire employees in California’s 18th largest city.

2. Long Beach, California

Long Beach’s score: 96.11 out of 100

• Long Beach (and other cities in Los Angeles County) ranks as the riskiest city for small businesses in our study in terms of natural disasters, with 80 FEMA-declared disasters since 1953.
• With a higher-than-average minimum wage ($16.90 an hour) and living wage ($21.53 an hour), small businesses in Long Beach will need more revenue in order to post the same profit as businesses in less costly cities.
• Long Beach’s population growth of -3.04 is well below our study-wide average (-0.129%), placing the Aquatic Capitol of America as the seventh riskiest city for this metric.
• Long Beach ranks well on transit, with an 8 out of 10 score for this metric, meaning clients or shoppers will have ease accessing a small business.
• Similar to San Bernardino and all California cities, the high state corporate tax places this city as the eighth most risky in terms of corporate tax costs.

3. Riverside, California

Riverside’s score: 92.37 out of 100

• Small business owners in Riverside will have to be wary of property crime, as Riverside has the highest rate of property crime of the top three most risky cities in our study, averaging 35 crimes per 1,000 residents.
• California cities dominate the list of the most risky cities for small businesses and natural disasters are a big reason why. Riverside ranks as the fifth most risky city for this metric, with 62 natural disasters declared in the county since 1953.
• Costs for both office real estate and industrial real estate in Riverside have trended upward in 2023, placing this city in the top 10 most risky cities for these metrics.
• Similar to other California cities in this report, Riverside ranks as the eighth riskiest in terms of corporate tax, and 14th riskiest in terms of minimum wage, with a minimum wage of $15.50 an hour—almost $4 an hour above the study-wide average of $11.67.

4. Newark, New Jersey

Newark’s score: 91.34 out of 100

• If you want to run a small business in a high-income location, Newark is not a prime spot. The city has the lowest median household income of the top 10 cities in our study. With an average household income of $43,242 a year, Newark ranks as the fifth most risky city in this metric.
• Newark ranks as the fourth riskiest city in terms of corporate costs, with a 9% state corporate tax rate, meaning small business owners will have to plan high corporate costs into their annual budgets.
• Newark is also below the average GDP growth rate study-wide and has a high living wage, placing the city as the sixth most risky in terms of cost of living, and 22nd most risky in terms of economic growth.
• Newark ranks well for public transit and has experienced lower rent cost growth for office and retail spaces in recent years.

5. Washington, D.C.

Washington, D.C.’s score: 90.90 out of 100

• The nation’s capital has the fourth highest minimum wage of the 92 cities analyzed in our report, placing it as the fourth riskiest for running a small business in terms of the cost of payroll.
• Washington, D.C., also has the highest living wage among the top 10 riskiest cities in America for running a small business ($21.67 an hour), placing it as the 11th riskiest in terms of living costs.
• Washington D.C., has the second highest property crime rate of the top 10 cities in our study, with 41 crimes per 1,000 residents.
• In terms of transit, however, Washington, D.C., is the 12th best city for public transportation, which can help lead to higher business revenue, according to the U.S. Chamber of Commerce.

6. Chicago

Chicago’s score: 89.65 out of 100

• The Windy City has the third highest state corporate tax rate in the study, creating a significant financial burden for small businesses.
• Another factor to consider when opening a business in Chicago is the lower-than-average population growth rate. Chicago’s negative growth rate (-2.74%) is more than 2.5% below the study-wide average, placing this city as the 11th most risky in this metric.
• The economic growth in Chicago is below our study’s average (1.83%) at 0.9%, placing Chicago as the 19th riskiest city in this metric.
• However, office and retail real estate rent cost growth rates are lower than our study’s average, so your location costs may be more stable here than in other cities.

7. Los Angeles

Los Angeles’ score: 88.18 out of 100

• Los Angeles (and other cities in Los Angeles County) ranks as the most risky city in terms of natural disasters that could significantly damage small businesses.
• Los Angeles has the third-highest minimum wage ($16.78 an hour) among the top 10 most risky cities for small businesses, meaning that more revenue will need to be dedicated to payroll.
• A higher-than-average industrial real estate rental growth rate (10.6%) places Los Angeles on the risky side when it comes to business location costs.
• In contrast, retail real estate rental cost growth rates in Los Angeles are well below our study’s average of 4.2%, making Los Angeles the 27th least risky for this metric.
• Similar to other California cities in our analysis, Los Angeles ranks as the eighth riskiest in terms of state corporate tax, meaning business owners will have to budget for additional operating expenses.

8. St. Paul, Minnesota

St. Paul’s score: 87.95 out of 100

• St. Paul and its sister city, Minneapolis, hold the riskiest spots in our study in terms of state corporate tax rate, with a tax rate of 9.8%, nearly 4% higher than our study’s average of 5%.
• St. Paul’s lower-than-average economic growth (1.1%) and higher-than-average minimum hourly wage ($15.19) place this city as the 25th most risky for both metrics.
• “The Most Livable City In America” is St. Paul’s motto but its population decreased by 2.56% between 2020 and 2022, which is roughly 2% lower than our study-wide average of -0.1%.
• St. Paul business owners are taking significant risks when opening up shop in this Twin City, as it ranks as the 20th most risky in terms of property crime, with 41 property crimes per 1,000 residents.

9. Anaheim, California

Anaheim’s score: 87.51 out of 100

• Another city within Los Angeles County that claims the top spot for natural disasters, the Anaheim area has endured 80 natural disasters since 1953, which can pose a risk for small businesses based there.
• Compared to other top 10 California cities in our analysis, Anaheim’s 4.9 transit score is much lower and places the city that Disneyland calls home as the 31st most risky city in our transit metric.
• Anaheim ranks as the 13th most risky state in terms of living wage, 14th most risky in terms of minimum wage, and eighth most risky in terms of corporate tax costs.
• One upside to starting a business in Anaheim, however, is the high median household income ($81,747 a year). A wealthier population may have more income to spend at local businesses.

10. Minneapolis

Minneapolis’s score: 83.88 out of 100

• Coming in as our 10th most risky city to run a small business, Minneapolis matches its sister city, St. Paul, as the most risky city in terms of corporate tax costs, with a tax rate of 9.8%.
• Minneapolis has the highest rate of property crime among the top 10 cities in our analysis, with 45 property crimes per 1,000 residents, ranking as the 11th most risky city in this metric.
• St. Paul and Minneapolis share the same lower-than-average economic growth (1.1%) and higher-than-average minimum wage ($15.19 an hour) placing both cities as the 25th most risky in these metrics.
• Minneapolis does rank as less risky when it comes to natural disasters (just 18 since 1953), retail real estate rental cost growth rates and transit accessibility.

The Least Risky Cities for Running A Small Business

1. Plano, Texas

Plano’s score: 0.00 out of 100

• Plano ranks as the best city for small business in our analysis thanks to its particularly low property crime (17 crimes per 1,000 residents), no state-level corporate tax and a higher-than-average median household income ($95,002 a year).

2. Laredo, Texas

Laredo’s score: 2.78 out of 100

• Laredo is the second best city for small business because of its lower-than-average living wage ($15.83 an hour), a higher-than-average economic growth rate (2.4%) and a low minimum hourly wage ($7.25) for small business owners hiring employees to consider.

3. Raleigh, North Carolina

Raleigh’s score: 10.94 out of 100

• Raleigh’s positive economic growth percentage (3.4%) and population growth (2.64%) helped it score in the top three least-risky cities to run a small business in. Its low state corporate tax rate (2.5%) and low property crime rate (22 crimes per 1,000 residents) also helped this city place near the top.

4. Durham, North Carolina

Durham’s score: 11.20 out of 100

• Durham has similar metrics to Raleigh in terms of positive economic and population growth but has slightly more property crime (35 crimes per 1,000 residents) and a slightly lower median household income ($71,343 a year) which make this city the fourth least risky for running a small business.

5. Charlotte, North Carolina

Charlotte’s score: 14.54 out of 100

• Strong population growth (2.58%) and GDP growth (2.5%) help this third North Carolina city rank in the top five least risky for running a small business.

Reducing Your Risk With Small Business Insurance

Starting a small business may ultimately be a rewarding endeavor, but it comes with its fair share of financial risks. The best small business insurance can compensate you for disastrous problems like lawsuits, workplace accidents and damaged business property.

Here are four tips using small business insurance to reduce your financial risks.

1. Assess Your Business Needs

Before you buy a policy, you’ll need to know the small business insurance requirements for your state or client. For example, most states require you to have workers’ compensation insurance, even if you have just one employee. Or your client might require that you have specific insurance types such as general liability insurance or a surety bond.

But look beyond what’s required and think about what specific risks your business faces. For example:

• Do you drive a vehicle for work?
• Does your business own or rent office space, furniture, computers and tools?
• Does your business offer professional advice?

The answers to these types of questions will help you figure out what types of business insurance you’ll need.

2. Choose the Right Types of Business Insurance

The types of risks that your industry faces will help you determine what types of small business insurance you need.

A business owners policy (BOP) is an excellent place to start. It bundles together three important coverage types: general liability insurance, commercial property insurance and business interruption insurance. A BOP can help pay for problems like accidental injuries and property damage to others, stolen or damaged business property, and lost income. A BOP is generally cheaper than buying each policy separately and can reduce your small business insurance cost.

You can add more coverage types to your BOP. Here are some to consider.

• Commercial auto insurance: If you drive a vehicle for work, you need a commercial auto insurance policy. Your personal car insurance policy won’t cover you for business use.
• Cyber liability insurance: If your small business handles sensitive data like Social Security numbers, checking accounts or other types of private information, you’ll likely need cyber liability insurance. This pays for expenses to help you recover from cyber attacks.
• Professional liability insurance: If your small business offers professional advice and services, you’ll want professional liability insurance. It pays for claims of mistakes and errors, such as inaccurate advice that caused financial harm to a client.
• Workers’ compensation insurance: You’re required to have workers’ compensation insurance in most states, even if you have just one employee.

3. Shop Around for Competitive Rates

Once you’ve determined what type of business insurance you need, compare business insurance quotes. Make sure you get quotes from multiple companies so that you get a sense of who has competitive insurance rates.

4. Regularly Review and Update Your Policies

Your business can evolve and grow over time, so your business insurance needs are likely to change along with it. Keeping your coverage up to date will ensure that your business insurance coverage is adequate.

For example, if you were a one-person shop but needed to hire extra help, you’ll likely need to add workers’ compensation insurance to your policy. Or you may want to cover your business assets with an extra layer of liability coverage by buying commercial umbrella insurance.

Methodology

To uncover the riskiest cities to run a small business in, Forbes Advisor analyzed 92 large cities across these 12 metrics. We chose the cities based on the 100 most populated cities that had data available.

• 2022 GDP growth: 14% of the total score. Data comes from the Kenan Institute and the data is measured on the extended metro area level.
• Living wage: 14% of the total score. This metric is a proxy for the cost of living. Data comes from the MIT Living Wage calculator.
• State corporate tax rate: 14% of the total score. Data comes from the Tax Policy Center and is for tax year 2023.
• Minimum wage: 12% of the total score. Data comes from the Economic Policy Institute and values area as of July 1, 2023.
• Property crime per 1,000 residents: 12% of the total score. Data comes from NeighborhoodScout and is for 2021.
• Median household income: 8% of the total score. Data comes from the Census Bureau and is for 2021.
• Population growth: 7% of the total score. Data comes from the Census Bureau and reflects the change in population from 2020 to 2022.
• Declared disasters by FEMA since 1953: 6% of the total score. Data comes from FEMA.gov and is measured on the county level.
• Transit ranking: 4% of the total score. Data comes from AllTransit.org and measures connectivity, access to jobs and frequency of service.
• Commercial real estate rent growth, office sector (2023): 3% of the total score. Data comes from the National Association of Realtors and is measured at the county level.
• Commercial real estate growth, retail sector (2023): 3% of total score. Data comes from the National Association of Realtors and is measured at the county level.
• Commercial real estate growth, industrial sector (2023): 3% of the total score. Data comes from the National Association of Realtors and is measured at the county level.