Although small businesses are vital to the economy – and create the most jobs – stringent regulations and extensive red tape often hamper business operations.

To bring awareness to this concern and influence creation of business-friendly policies, the Ewing Marion Kauffman Foundation conducts an annual business survey in partnership with Thumbtack, an online marketing firm.

More than 12,000 entrepreneurs participated in the 2014 survey. These enterprises were slightly younger when compared to the general business population, but a higher percentage had employees.

Red tape and regulations

Since regulations are such a hot button for small business, the survey asks respondents to rank “how friendly” their state government is in regards to various regulations. These included licensing, zoning, hiring, paying taxes, and health, safety, and environmental requirements.

  • Friendliest state governments – Idaho, Texas, Utah and Virginia received top marks, ranking A+. Close behind were Louisiana, Tennessee, Oklahoma and Colorado with A’s.
  • Least friendly state governments – California, Rhode Island and Illinois failed, receiving an F. D-rated states include Connecticut, New Jersey and Pennsylvania.

Not surprisingly, state results were very similar in response to a specific question about ease of meeting tax codes.

Ease of hiring an employee

With job creation on everyone’s minds, it’s surprising that some states make hiring and compliance a difficult process. Fortunately, some simplify requirements in the interests of spurring business growth.

  • Easy to hire – Kentucky, Louisiana, Nevada and Utah all make it simple to bring someone on board, according to their A+ ranking. Colorado, Nebraska, Tennessee and Texas received A’s.
  • Difficult to hire – Oklahoma and Pennsylvania both flunked, and Alabama, Indiana and Kansas got “D’s.

Overall business friendliness

The study combines three questions to calculate scores for the overall business environment:

  1. “In general, how would you rate your state government’s support of small business owners?”
  2. “Would you discourage or encourage someone from starting a new business where you live?”
  3. “How difficult or easy is it to start a business where you live?”
  • Most business friendly in general – Idaho, Texas, Oklahoma and Utah received grades of “A+,” making them the best states for small business. Close on their heels with an “A” were Iowa, Minnesota, New Hampshire and Tennessee.
  • Least business friendly in general – California, Illinois and Rhode Island flunked this test, with all receiving an “F.” Connecticut, New York and Massachusetts received a “D.”