Gary Mallums believes his small business, Black Hills Molding, Inc., has weathered the economic downturn in large part due to its location, in Rapid City, S.D.

“We have a [state] government that tries to promote business,” 67-year-old Mallums said. “Some states tax businesses heavily, but they don’t see business in the state as a detriment to things. They actively promote it.”

Mallums isn’t the only one who believes South Dakota is a place for small businesses to prosper. According to the Oakton, Va.-based Small Business & Entrepreneurship Council’s “Small Business Survival Index 2010,” the state has the most-friendly policy environment for entrepreneurs to launch their businesses.

The index ranks states by measuring the costs and burdens of government on small businesses, as well as policies that either enable or deter growth. 

The factors included in the index are: taxes, regulatory costs, government spending, property rights, health-care policies and energy costs, among others. The council also throughout the year releases a "Health Care Policy Cost Index," "Business Tax Index" and "Energy Cost Index," all of which spin off of the main Survival Index. 

South Dakota does nearly everything right in terms of small businesses, according to Raymond Keating, the SBE Council’s chief economist and study author. Fewer taxes helped to push the state ahead in the study, as well as strong protections for small business owners, Keating said.

“There is no personal income tax, no death tax, no corporate capital gains tax,” he said. “This is a huge, huge advantage for them. The crime rate is also very low. There are health insurance mandates and state and local government spending is very low.”

Most small businesses can set up shop within a week, Mallums said, citing minimal-state-government-required paperwork. The government is also persistent in actively recruiting new businesses to South Dakota, highlighting the state’s low taxation and insurance costs.

Mallums, who opened his business in 1990, didn’t manage to escape the recession unscathed. He said the company’s workforce was cut in half to 25 workers at the plant; however, in recent months Mallums has begun to once again hire new employees.

“We have managed to survive when people are not in business anymore,” he said. “I see auctions of companies our size going out of business all the time. We watch all the small things, and we saw this recession coming down. We didn’t get into debt going into this downturn, and we just have hands-on management.”

Less is also more for Mallums in terms of government involvement. This, he said, has led his endeavors in South Dakota to flourish over the nearly two decades he has been in business.

“Small governments interfere with business less,” he said. “I think that’s one of the reasons small business in South Dakota has been so successful—we are not overregulated.”

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