Starting a business is a risky proposition to say the least. After all, it's estimated that 20% of new businesses fail during their first year. On the other hand, that means that 80% of businesses survive that first year and continue to thrive, and much of that boils down to strategic planning.

Now to have your company succeed, you'll need a solid business model and financial plan, and the location of your business will no doubt factor into both. That's why it's critical to choose the right city to launch your venture, and while you might initially be drawn to a major metropolitan area, in many ways, smaller is better.

Woman hanging an open sign in a window.

Image source: Getty Images.

Depending on the nature of your business, setting up shop in a smaller city might help you develop relationships with customers, suppliers, and potential partners. It might also help you save money across the board. With that in mind, WalletHub developed a list of the best small cities to start a business this year. Here's how it reads:

Rank:

City

1

Holland, MI

2

St. George, UT

3

Aberdeen, SD

4

Wilson, NC

5

Cheyenne, WY

6

Clearfield, UT

7

Ogden, UT

8

Bismarck, ND

9

Bozeman, MT

10

Fort Myers, FL

Data source: WalletHub.

If you're ready to start a business, it pays to see what these cities can offer you. It could end up spelling the difference between a winning venture and a whopping disappointment.

The importance of location

Though location isn't the only factor that can contribute to the success (or failure) of your business, it's a critical one nonetheless. As you explore your options for setting up a business, you'll want to consider the following key points:

  • Office space cost and availability: How much will it cost to rent the space you need in one city versus another? And how accessible is that office space? Is parking abundant, or will it be an ongoing issue for you and the team you eventually build? Furthermore, will local road restrictions make moving product difficult? These are the things you'll need to research before making your move.
  • Workforce: Is there a thriving workforce you'll be able to tap to fill open positions at your company? What percentage of the local population is educated? Remember, though your business might start out small, once it starts growing, you'll need a certain level of manpower, so make sure it's available to you locally.
  • Labor costs: What's the going rate for the positions you know you'll need to fill? Can you get away with lower wages in one part of the country versus another? It's important to pay your workers a fair wage so that they remain loyal and productive. At the same time, be mindful of your budget, because if you can only afford to pay at a certain level, you may be limited to certain areas of the country.
  • The local economy: If you're starting a business that relies on local support, like a retail or dining establishment, you need someplace with a solid local economy. Launching a luxury goods line in a struggling city, for example, is a pretty clear recipe for disaster. At the same time, you don't want to make the mistake of moving into an oversaturated market. If you're opening up an organic clothing shop, for example, you'll do much better in an area where you're the only retailer of that kind, as opposed to someplace where you're just one of many.
  • Taxes: It's not just federal taxes you have to worry about as a business owner; there are also state and local taxes to contend with. Finding a city with a favorable business tax rate can help you save money, which means not just higher profits, but more cash to reinvest in the business. Furthermore, some cities offer tax incentives to businesses to boost their local economies, so this is one area you'll really want to research heavily.

Finding the right city for your new business is an important step on the road to success. Take the time to weigh your options carefully, and with any luck, you'll land in just the right spot.