How to start a business in Arizona in 8 steps
Many people see business ownership as a path to freedom. No longer will you have to punch the clock for someone else or work a job that you don’t enjoy. Instead, you can create a business focused on work that you’re passionate about. You can make your own hours and establish a schedule that works for you.
Even though owning a business allows business owners the freedom to run the company how they see fit, some obstacles need to be overcome. For most, actually starting the business can prove to be the hardest part of the process. To help you establish a solid foundation for your company, Huckleberry has outlined 8 steps that every Arizona business owner should follow.
1) Think about the type of business you want to start
In most cases, a potential owner has a good idea of the business they want to start. It might be a new restaurant in their hometown, an eCommerce store, or a consumer goods company. It’s good to think about the different types of businesses you could start, but you will want to make sure you invest time into research as well.
Simply picking a type of business just because you are passionate about it might seem like a good idea but could leave holes in your plan. For example, if you plan to open a breakfast diner because you love classic diner food, you may run into issues if there are other places in town offering the same experience.
Researching your competition is a good way to understand how much you will need to market your business. Along with this, here are a few other things you will want to consider when selecting the type of business you want to start:
- Customer demand
- Startup costs
- Growth potential
- Time commitment
Through this additional research, you should determine if your business idea is viable or not. You may also begin to wonder if opening and running a business makes sense for you. To help determine if entrepreneurship makes sense for your current situation, ask yourself these questions.
If you are still excited and determined to have your own business, then the rest of this 8 step guide will help you establish the foundation of your company.
2) Set up your legal structure
The next most important step after determining what business you like to open up is how you will structure it. The nature of your company will ultimately help determine what business structure makes the most sense. You may also consider one option over another based on the business taxes you have to pay or comfort levels surrounding liability protection.
Here are the most common legal structures that small business owners consider when starting a business.
For business owners that don’t plan on having employees, sole proprietorship is often the easiest legal structure to set up in Arizona. Not only does it require less paperwork, but it also offers a simplistic business tax model for sole proprietors. Even with these benefits, there are a few disadvantages to be aware of.
The biggest downside to having a sole proprietorship is that there is no protection for your personal assets if your company can’t pay its debt. This is one of the reasons why many owners consider going with a structure that offers more liability protection.
Here are a few other items to keep in mind with a sole proprietorship:
- Unless you file a DBA, or doing business as, with the Arizona Secretary of State, you will need to use your name as the business name.
- Unless you want to use your Social Security Number, you must obtain an Employer Identification Number, EIN, from the IRS.
Limited Liability Company (LLC)
Owners that have employees and want protection for their personal assets should consider a limited liability company, LLC. Similar to sole proprietorships, the process to create one is simple and requires very little paperwork. LLCs also provide flexibility when it comes to the name of your business, as it isn’t a requirement to have your personal name included.
With an Arizona LLC, any debts or lawsuits brought against the company can’t be brought against the owner, personally. Instead, debtors can only go after business assets. A limited liability company also offers flexibility in how the structure of the organization is set up.
For example, a board of directors isn’t a requirement, and there aren’t as many reporting requirements as there are with corporations.
Companies that have more than one owner may want to consider forming a general partnership. Structuring the business this way allows responsibility and company ownership to be split between partners. One drawback with general partnerships comes back to liability. Like sole proprietorships, the personal assets belonging to each partner will be unprotected if the business can’t pay its debt.
Limited partnerships are a great option for business owners who want a partnership structure with a little more protection. In these structures, a general partner normally runs the business and takes on the majority of the risk. On the other side, there is a limited partner that has less risk to their personal assets but isn’t able to make managerial decisions.
Some Arizona owners should consider a corporation if they are looking for an option that protects their personal assets and is very structured. Most small businesses will fall into either the C corporation or S corporation bucket. Each is a little different but provides owners with the opportunity to have shareholders and regulated processes.
If you seek to support a specific cause instead of making a profit, then a non-profit organization may be the best way to set up your business entity. A non-profit is generally funded by donations instead of investors and is exempt from paying taxes.
The way you decide to structure your new business is an important step in building a good foundation. Along with choosing how it will operate, you will also want to pay any filing fees and determine whether an operating agreement, Articles of Organization, or Articles of Incorporation are necessary for your business.
3) Name and register your business
The name you choose for your small business should be well thought out before registering it. Not only do you want to select a business name that conveys what your company offers, but you also want to consider how your business might evolve. If you plan to add additional products or services in the future, you will want a name that represents those offerings.
If you plan on offering your business services as a sole proprietorship, you will need to decide if you will use your name as the business name. If you decide you would prefer to use a fictitious name, you will need to file a DBA, or trade name, with the Arizona Secretary of State.
Once you have a name you would like to use, you must register it with the Arizona Corporation Commission. Following this step, there are a couple of other things you will want to do, including:
- Obtaining an EIN if you still need one
- Identifying a statutory agent, also known as a registered agent, that will accept legal and tax documents on your business’s behalf
- Filing any additional documents that the state of Arizona requires for your specific business structure
4) Apply for licenses and permits
Since there are no general business license requirements by the State of Arizona, it is important to look into any industry-specific licenses requirement. If you are unsure what permits and licenses are required to operate your company, the local county office can often guide you.
Although there are no general business licensing requirements, you will still need to apply for a transaction privilege tax license. This license is a requirement for any business selling a product or providing a service that is subject to transaction privilege tax. The transaction privilege tax (TPT) is imposed by the Arizona Department of Revenue (ADOR) on businesses as a fee for doing business in the state.
5) Choose a location
Business owners who want a storefront will want to consider location early on. Depending on how your business plan is laid out, you may even want to look into multiple locations. One of the biggest mistakes small business owners make is falling in love with a location before researching. This is especially true in the bigger cities of Arizona like Phoenix, Tuscan, and Scottsdale.
When selecting a location, you will want to think about your customers. If your business sells a product like coffee or sandwiches, you will need to be in an area with a lot of foot traffic. However, this might not be necessary for a professional service business like a dentist’s office or an accounting firm.
6) Open a bank account and prepare for future taxes
Accounting can be difficult for first-time business owners to manage, especially if personal and business finances aren’t kept separate. One way to keep the two separate is to open a business bank account. You would strictly use this account for business transactions such as invoicing and paying for expenses.
Along with a business bank account, it’s a good idea to obtain a business credit card. A credit card provides additional funds for the company, but it can also help build credit. You can use good credit in the future to secure business loans as needed.
Taxes are unavoidable and should be prepared for in advance. For example, since every business will need to file a tax return at the end of the year, preparing federal tax, income tax, and state tax in advance can save time during tax season.
7) Purchase business insurance
Setting a solid foundation for your business is only one part of running a successful company. Without the proper protection in place, lawsuits and insurance claims can quickly derail your startup. While there are several small business insurance coverages that you will need, having a comprehensive all-in-one policy is the best place to start.
Huckleberry makes the insurance process simple and can help you quickly identify the perfect small business insurance policy for your company within minutes.
8) Create a marketing plan, hire employees, and more
Once your business has been established, it is important to have a plan for how you will grow. This can include how you are going to market your products or services, when you plan on adding employees, and goals you need to achieve before expanding operations.
It is okay to try new strategies and tactics as you grow. During different phases of your business, it might make more sense to lean on paid online advertising to drive traffic to your website, while other times, word-of-mouth advertising makes more sense.
Regardless of what you try, the most important thing is to continue to learn and grow as an entrepreneur.