The best and worst states to start a business

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Many Americans dream of starting a business and — despite recent economic downturns — they continue to pursue this dream more than ever.

In fact, the number of new business establishments in the U.S. has reached levels not seen since before the financial crisis. So, it seems now might be a great time to launch a company.

But, starting a business is a daunting pursuit, and doing it successfully means you need an idea of how well your state caters to new businesses and startups. In other words: You need to understand your state's business ecosystem.

"Ecosystem is a useful metaphor for evaluating areas of business," said Stewart Thornhill, executive director of the Zell Lurie Institute for Entrepreneurial Studies at the University of Michigan. "For instance, it's hard to say any one factor makes a rain forest a rain forest. But if you take away one critical factor, it can undo the whole thing — in much the same way business systems work."

To find out which states are the best and worst to start a business, GOBankingRates.com looked at these critical factors that shape business ecosystems and how they affect aspiring entrepreneurs' chances of success:

• Startup Activity (based on the rate of new entrepreneurs, opportunity share of new entrepreneurs and density of startups)
• Business Survival Rates (based on the ratio of business creations to deaths)
• Productivity (based on per capita GDP)
• Availability of Employees
• Education Level of Potential Employees
• Business Tax Climates
• Cost of Living

The findings might surprise you — and maybe even inspire you. Whether you're a recent college grad wanting to launch a startup or a retiree ready to make a big move and create a family business, click through to see the best and worst states to start a business, starting with the worst.

50. Hawaii

A state's cost of living is a major factor when considering the location for opening a business, said Thornhill. And in Hawaii, the top challenge that entrepreneurs face is high costs, as this state has the highest cost of living in the U.S.

Also, many new businesses will have to work with a potential employee education level — the percentage of the state's population graduating from college — that ranks toward the bottom of the 50 states. These factors put Hawaii in first place for the worst states to start a business.

On the positive side, however, Hawaii ranks high in its opportunity share of new entrepreneurs, which measures the percent of new entrepreneurs who were not unemployed before starting their businesses. This measurement approximates the percentage of new entrepreneurs who started businesses because they saw market opportunities; in this case, nearly 89% of new entrepreneurs did this in Hawaii.

49. Maine

Where opportunity share of new entrepreneurs helped Hawaii, it hurts Maine. Whether there is a cause-effect relationship between that and Maine's low density of startups is debatable, but the state also puts up low productivity numbers: Its $37,958 GDP per capita is the seventh lowest in the country.

48. Vermont

Starting a small business in Vermont comes with high costs but not many employees available to hire. With roughly 11,000 Vermont adults unemployed and about 3,000 jobs open, only 1.29% of the working population is available to work at a new business. In comparison, the best state has more than double — or 2.73% — employees available for an entrepreneurial business.

More bad news: Vermont has the second-lowest density of startup businesses with only a little under 54 new businesses per 1,000 firm population.