How to start a business in Alaska in 8 steps
Is it snowmobiling or snowmachining? Every Alaskan worth their weight in king crabs knows the correct answer. And just like your snowmachine, your business can become the vehicle to get you where you want to be, even with a few obstacles along the way.
In 2019, there were fewer obstacles because the petroleum-dependent economy was chugging along at a healthy $54.4 billion with a modest 0.4% growth rate. And of course, the State of Alaska has no sales or state income tax, was ranked number 1 for fiscal stability, and even pays people every year just for sticking around.
But then, this Covid crisis crept up and put many businesses and workers in survival mode. And that's where you come in because it's entrepreneurs who will move Alaska from surviving to thriving. So read on to avoid the pitfalls common to novice business owners and find a step-by-step guide for a successful launch in the Last Frontier.
1) Think about the type of business you want to start
Entrepreneurs looking to build a brand in business must first choose the kind of enterprise they want to operate. While certain elements might be self-evident, such as running an online or physical site, others may present added challenges. As a result, savvy founders research and examine the competition to gain insights from their achievements while skipping their mistakes.
Aside from the practicalities of your day-to-day operations, you must also decide if becoming a business owner is right at this point in your life. Certain ventures take years before reaching profitability, and you'll deal with countless setbacks along the way. Are you prepared to handle the stress, headaches, and responsibilities that the gimmicky "be your own boss" ads never talk about? (By the way, the customer is and always will be the boss because they have all the money.)
If your business idea still has you enamored with the prospect of the startup hustle, now is the time to begin. While you may break each stage down into smaller, manageable activities, it is essential that you promptly complete the process to start serving your client base.
2) Set up your legal structure
The legal structure is also referred to as the business structure, business entity, or legal entity. Nevertheless, all of these terms relate to the legal organization of your organization. Besides sole proprietorships and partnerships, every Alaskan company must appoint an owner or staff member to serve as a registered agent because that's the individual who receives all state correspondence. Here are some options for setting up a business:
- Sole proprietorship: One of the easiest ways to organize your new business is to work as a sole proprietor. Profits from your efforts are paid to you as the firm's owner, but any corporate debt is your personal responsibility. Because they are not incorporated, sole proprietorships maintain the least volume of paperwork. In addition, since there are no employees, company owners may use their Social Security Number to report all revenue on a personal tax return.
- Partnership: A general partnership may be ideal for setting up a business with another individual. As with sole proprietorships, partnership owners are personally liable for company debt and lack liability protection for their respective personal assets.
- C Corporation: The shareholders own the c corporation. This structure is typically a more attractive option for companies seeking investment. C corporations are legal entities distinct from the individuals who work for them, and they are often big enterprises. Because Alaska does not have a Secretary of State, you must file your Articles of Incorporation with the State of Alaska Division of Corporations, Business, and Professional Licensing.
- S Corporation: Companies with 100 or fewer shareholders may choose to structure their activities as an S corporation, also known as a small business corporation, to take advantage of specific Internal Revenue Service (IRS) regulations and avoid federal business taxes. They may require you to complete further paperwork, such as IRS Form 2553.
- Limited Liability Company (LLC): This model comes with simplicity, like sole proprietorships and partnerships, and it adds the financial safeguards afforded to corporations. As an Alaska LLC, you must file Articles of Organization with the Division of Corporations, Business, and Professional Licensing in the state of Alaska.
- Nonprofit: If your organization intends to focus on social issues and generate money via donations, incorporating as a nonprofit may work. In most cases, nonprofit organizations are excluded from paying income taxes.
In addition, although the state doesn't require it, corporations and nonprofits should think about crafting bylaws to outlay how they will run the day-to-day business operations. Similarly, LLCs should create an operating agreement, an especially valuable tool, when there are partners. These agreements outline your profit shares, ownership percentages, responsibilities, and what happens if one owner leaves your LLC.
Once you've settled on the best structure for your company, you must create a business plan. Your business plan should include a market study, business model, and financial forecasts.
3) Name and register your business
To most people, picking a business structure is a chore, so now you deserve a bit of fun. Selecting a business name ranks as one of the most satisfying and creative aspects of the business formation process, though there are a few things to consider.
For LLCs and corporations, you must ensure that your name is distinct from other business organizations in the Alaska Division of Corporations, Business, and Professional Licensing (CBPL) database. You may check the CBPL website for available names by doing an Alaska Corporation Name Search. By submitting a Business Name Reservation with the CBPL, you may reserve a name for a maximum of 120 days. Additionally, some name restrictions apply to LLCs and corporations (such as including "LLC" or "Company" in the respective title).
And sole proprietorships and partnerships doing business as any trade name that's not their legal name must register a "dba" with the Department of Commerce, Community, and Economic Development using the Alaska New Business Name Registration form.
If applicable, after securing a business name, register with the IRS and get a federal Employer Identification Number. You'll use this ID number when the time comes to file federal taxes. In addition, Alaska has no state tax on personal income. However, corporations are taxed and must file with the Alaska Department of Revenue. Finally, you may also need to register with your city or municipality, depending on where you locate your business.
4) Apply for licenses and permits
The Alaska Department of Commerce, Community, and Economic Development requires anybody doing business in the state to obtain an Alaska business license. Also, head over to the U.S. Small Business Administration (SBA) website or one of the field offices in Anchorage or Fairbanks for additional info on licenses, permits, and filing fees relevant to your industry. For example, opening a gym has much different requirements than starting a restaurant, so any preliminary research will only help guide you that much closer to your first customer.
While the state of Alaska doesn't charge sales tax, large cities like Anchorage, Juneau, and Fairbanks have their own licensing, permitting, and taxing regulations, so be sure you comply with all of them.
5) Choose a location
Many new business owners make the mistake of starting with this step because they found a great deal on a nearby retail space. While it’s critical to evaluate prospective locations, advance with caution before signing a lease.
At this point, you’ve presumably pondered what kind of business you'll be managing, and your business plan describes your vision for your actual site. Furthermore, you've probably decided whether you'll start with a couple of employees, how quickly you'd want to grow, and what your competition is up to.
All these variables will influence where you locate your company, so it's wise to make your choice at this part of the journey. In addition, zoning restrictions may apply to particular buildings, so getting your shop or office up and running may take a while.
6) Open a bank account and prepare for future taxes
For sole proprietorships and partnerships, personal banking is acceptable for business transactions. Conversely, other kinds of structures need a business bank account. Since corporations and LLCs separate revenues and debt from an owner's personal liability, any commercial activity will need its own account. With a bank account opened, you may finance your company via credit cards, business loans, or even investors.
At this point, you've probably already received an IRS tax ID number and paid filing fees for your licenses and permits. While you're still planning to open to customers, be sure you're prepared to file both federal and state taxes, if applicable. If cash flow statements and balance sheets read like a foreign language to you, rely on accounting software or a bookkeeper for help.
7) Purchase business insurance
In far too many cases, new business owners in Alaska neglect to do one of the primary administrative tasks of founding a company. Small business insurance is just as important as all other types of coverage you already own. Now, of course, you wouldn't drive without insurance. Likewise, you shouldn't try to drive sales without proper protection.
Additionally, state law may mandate business insurance before your startup gets the green light, especially if you hire employees. Because each sector has different needs, the following is a list of coverages you may need:
- Workers' compensation insurance is required for businesses with one or more employees. This insurance helps cover an employee's missed earnings and medical care due to job-related sickness or injury.
- General liability insurance may protect you if someone sues your company for bodily injury or property damage. If your workers visit a customer's property, such as for a landscaping company you've started, this coverage may be helpful.
- Business interruption insurance is another option to explore, which may help you pay your expenses if your company is forced to close temporarily for a covered reason.
- Both business property insurance and business personal property insurance are also smart protections to consider. For instance, the former may cover your building if it's damaged or destroyed, while the latter may cover damages to the items inside your building.
Except for workers' compensation, you could combine all the above insurance selections into a single policy known as a Business Owner's Policy, which offers a great deal of peace of mind in the case of a mishap and significant savings versus the à-la-carte cost.
8) Create a marketing plan, hire employees, and more
If a business is like a snow-go, without a marketing plan, it's a "no-go." A great product or service is the price of entry, but unless people know your name, your sales engine stalls out. Unfortunately, some businesses make the mistake of only relying on word-of-mouth. Conversely, an astute owner will employ a marketing strategy so potential customers will anticipate the business’s grand opening like kids on Christmas Eve.
Before you can build that sort of buzz, pick up a website with a unique domain name, print up some business cards, and create your social media accounts. Just review your business plan to figure out which tasks will help you reap the most significant benefits.
Unless you are a sole proprietor or partner, you'll eventually need to recruit your first employee, which means you'll need workers' compensation insurance. In addition, top-notch business resources like the Small Business Administration and Alaska Small Business Development Centers can guide you through the process and provide mentoring as your company and business needs grow.
Just like Iditarod, starting your own business can leave you dog-tired, but it's truly the adventure of a lifetime. There are so many tools to help entrepreneurs through every length of the journey in the Last Frontier, and here's one for your small business insurance:
Huckleberry can help you get a policy in about the time it takes to make a king crab leg disappear—most small business owners can easily get a policy in minutes.