Once a frontier state built on mining and agriculture, Arizona’s economy has grown to include health care, financial services, transportation and manufacturing, among other industries.
The state hasn’t forgotten its roots, though. A mix of history and nostalgia draw tourists to cities such as Wickenburg, Prescott and Bisbee for a glimpse of life in what used to be the Wild West.
That steady stream of sightseers has helped make those cities, along with Sedona, Scottsdale and more, some of the best places to start a business in Arizona.
NerdWallet analyzed 65 places in Arizona, each with at least 500 businesses and a population of at least 5,000. We determined the overall score by looking at data from the U.S. Census Bureau to assess each city’s business climate and economic health. See below for more details on our methodology.
A taste of the Old West. Dude ranches and saloons dot the landscape in towns such as Wickenburg, and Prescott and Payson claim to be home to the oldest rodeos in the world. These attractions, along with beautiful natural surroundings, bring tourists and contribute to the strong business climate in local communities.
Big cities are most profitable. Of the 65 places we looked at, Tempe, Phoenix, Scottsdale and Chandler had some of the highest average revenue per business. Each of these cities has over 160,000 residents.
Big revenue in small places. Tolleson and Flowing Wells, which both have under 16,000 residents, cleared the $1 million mark in average revenue per business. Tolleson rang in at over $18.5 million per business — considerably higher than any city in this study — thanks in part to corporations such as JBS Packerland, a meat processing company with revenues that top $100 million annually, and SVC Manufacturing Inc., a subsidiary of PepsiCo Inc. Tolleson and Flowing Wells are also within a few miles of major metropolitan areas.
Best places to start a business in Arizona
Tolleson’s location is a major attraction for businesses. The city of 6,629 is along Interstate 10, a key transportation route, and intersected by Union Pacific’s Sunset Route, which runs between Los Angeles, California, and El Paso, Texas. Tolleson is about 10 miles from downtown Phoenix and near airports. A median annual income of $30,625 — roughly $10,000 less than the median for cities in this study — makes it easier for businesses to add employees. And almost 35% of businesses in Tolleson have employees on the payroll, among the highest of cities in this study.
In Arizona’s high desert, flanked by the famed red rocks, Sedona is a destination for artists, spiritualists and nature enthusiasts. The area draws over 4 million tourists a year, and many drop their dollars at local establishments. Sedona’s thriving tourism industry has helped attract about 2,350 businesses, including tour companies, cafes, artisan shops and more. Here, there are about 23 businesses per 100 residents, the highest concentration among the communities we analyzed.
The economy in Wickenburg, a traditional Western town with ranching roots, is a mix of tourism, health care and manufacturing. The community has been dubbed the “Dude Ranch Capital of the World,” with guest ranches such as Rancho de los Caballeros and Flying E Ranch that allow visitors to be cowboys for the day or week. Visitors also patronize the town’s historic downtown region, which counts saloons and saddleries, as well as souvenir shops, among its merchants. Wickenburg is home to world-class treatment centers for addiction, depression and eating disorders. These centers are the town’s largest private employers.
Prescott has more than 6,100 businesses serving the city’s roughly 40,000 residents. Almost 33% of those enterprises have paid employees, thanks in part to the city’s relatively affordable wages and cost of living. Prescott is home to five colleges, including Prescott College and a branch of Embry-Riddle Aeronautical University — a possible source of skilled labor for businesses eyeing the city.
This affluent city on the outskirts of Phoenix is one of the largest in this study by both population (over 200,000) and number of businesses. Over 37,000 companies call Scottsdale home, including General Dynamics and GoDaddy.com, which are among the largest employers in the area. And the average annual revenue per business exceeds $1.4 million. Tourism plays a major role in the economy here and Scottsdale’s nearly 9 million visitors contributed almost $3.4 billion to city’s economy in 2012, according to the Scottsdale Convention and Visitors Bureau.
Globe was established as a mining town in 1876, and this role continues over a century later. More than 20% of the area’s jobs are centered on the copper industry, primarily in mining or production. Globe is among the most affordable cities on the list, with median monthly housing costs of $690, well below the median of $895 for the communities in this study.
Ranching, agriculture and manufacturing are all key players in the economy of Snowflake, a town of about 5,500 in Northern Arizona’s White Mountains. The city is also home to a Church of Jesus Christ of Latter-day Saints temple, one of a handful in the state. Snowflake ranks third among the communities in this study for the percentage of businesses with paid employees: over 35% of the town’s 530-plus businesses employ at least one person in addition to the owner.
A tourist town in Tonto National Forest, Payson is home to over 2,500 businesses and has an average annual revenue per business of about $335,000. Retail and office space in Payson is filling up with a mix of chain stores, restaurants and homegrown businesses such as Artists of the Rim Fine Art Gallery. Payson is working to develop a 6,000-student university campus and is in talks with Arizona State University to establish a branch campus there when the site is completed.
9. Flowing Wells
Flowing Wells is situated along the northern edge of Tucson between Interstate 10 and the Rillito River. The community is home to about 580 businesses, nearly 45% of which have employees on their payroll. That’s thanks in part to a relatively low cost of living. The median annual income in Flowing Wells is $31,800, which is below the median of communities we analyzed for this study. Median monthly housing costs are also well below average at just $615.
Recently named the 2015 Sustainable Economic Growth City of the Decade by the Arizona Commerce Authority, the city of Cottonwood has enjoyed growth in residents, housing and businesses over the past decade. Cottonwood’s population grew from about 9,000 in 2000 to over 11,000. As the city has grown, so too has the Verde Valley Medical Center, which completed a sizable expansion in the city. Those hoping to start a business in Cottonwood are buoyed by the city’s affordable cost of living. Median monthly housing costs are below $750, compared with a median of $895 among the places we analyzed. Nearly 1,900 businesses already call Cottonwood home, and the total annual revenue for those businesses averaged over $1.1 billion.
Best places to start a business in Arizona
|Rank||City||Population||Number of businesses||Average revenue per business||Businesses with paid employees||Businesses per 100 people||Unemployment rate||Score|
|26||Lake Havasu City||52,733||5,348||$450,196||27.56%||10.14||5.1%||39.24|
|27||Sun City West||24,774||1,322||$503,369||20.42%||5.34||0.9%||37.91|
|34||Sierra Vista Southeast||13,578||1,081||$247,191||21.55%||7.96||4.3%||35.01|
NerdWallet analyzed 65 places in Arizona with a population of at least 5,000. Cities with fewer than 500 businesses were excluded, regardless of population. We calculated the overall score for each location using the following criteria:
Business climate, 65% of the overall score, is based on three metrics from the U.S. Census Bureau’s Survey of Business Owners.
Average revenue of businesses is 20% of the score. A higher average contributed to a higher score.
Percentage of businesses with paid employees is 25% of the score. A higher percentage contributed to a higher score.
Businesses per 100 people is 20% of the score. A higher number contributed to a higher score.
Local economic health, 35% of the overall score, is based on three metrics from the U.S. Census Bureau’s American Community Survey.
Median annual income is 10% of the score. A higher median income contributed to a higher score.
Median annual housing costs are 10% of the score. Lower median costs contributed to a higher score.
Unemployment rate for residents over 16 years old is 15% of the score. A lower rate contributed to a higher score.
NerdWallet staff writer Kelsey Sheehy contributed to this article.
Update: A link in earlier versions of the methodology has been changed.
Sedona, Arizona, image via iStock.