How to start a business in Illinois in 8 steps
Starting a business is like deep-dish pizza—it's multi-layered, there's a lot to consume, and at the end of the day, it's all about the cheese. Of course, profit is every entrepreneur's favorite topping, but first, you have to add in the passion and persistence to make your dream a reality.
Perhaps the collective fire in the belly amongst residents makes Illinois home to the best place to launch a startup in the Midwest, Chicago. Also, Champaign, Bloomington, Peoria, Springfield, and Rockford all ranked in the top 59 cities. So for your startup, read on to avoid the pitfalls common to many novice business owners, and soon you'll be slicing up your serving of success in the Prairie State.
1) Think about the type of business you want to start
Entrepreneurs who wish to create a name for themselves in business must first decide what kind of company they want to run. While certain aspects may be obvious, such as operating an online or physical location, others may be more difficult to decide. Therefore, it's a good idea to conduct some research and look at other local small companies in your sector to see how you can learn from their successes while avoiding their failures.
Aside from the mechanics of your daily operations, it's also essential to determine whether being a business owner is right for you. Some business structures take a long time to start, and when something inevitably goes wrong, can you manage the stress, hassle, and headaches that go with your industry?
If you're still enthusiastic about your business idea and nothing seems more satisfying than the startup grind, it's time to jump into the process. While you may divide each step into smaller, actionable tasks, it is critical to finish the process in time to sell to your future customer base.
2) Set up your legal structure
The legal structure is sometimes called the business entity, business structure, or legal entity, but they all refer to how your venture is legally organized. Every Illinois business must choose an owner or employee to be a registered agent, which is the person who receives all communication from the state. Here are the different ways you can set up your new business:
- Sole proprietorship: Choosing to run as a sole proprietor is one of the simplest methods to structure your new company. Profits from your labor are paid to you as the company owner, but any business debt becomes your personal responsibility. Sole proprietorships require the least amount of paperwork because they're not incorporated. These businesses hire no employees, and you may use your Social Security Number to file all income on your personal tax return.
- Partnership: A general partnership may be perfect for building a company with another person. Like sole proprietorships, small business owners in a partnership are responsible for business debt and have no liability protection for their personal assets.
- C Corporation: A C corporation is owned by its shareholders and is often a more appealing choice for startups looking to attract investors. C corporations are separate legal entities from the people that work for them and are generally large organizations. This structure requires a board of directors, annual reports, and Articles of Incorporation, filed with the Illinois Secretary of State (SOS). In addition, shareholder-employees must pay their state income taxes on their personal state tax returns, and the company must pay Illinois corporation taxes.
- S Corporation: To take advantage of particular Internal Revenue Service (IRS) rules and avoid federal corporate taxes, businesses with 100 or fewer shareholders may opt to organize their operations as an S company, often known as a small business corporation. You may need to fill out added documentation, such as IRS Form 2553.
- Limited Liability Company (LLC): Many Illinois businesses choose to form LLCs. This structure combines the simplicity of a sole proprietorship or partnership with the financial protections of a corporation. As an Illinois LLC, you must submit Articles of Organization to the Illinois SOS. In addition, although not required by law, you may want to create an operating agreement, especially if you have a partner, that sets ownership percentages, profit shares, responsibilities, and what happens if an owner leaves your LLC.
- Nonprofit: If your organization plans to concentrate on social issues and earn money via contributions, consider incorporating as a nonprofit. Nonprofits are generally exempt from paying income taxes.
Once you've decided on the proper structure for your business entity, it's crucial to develop a business plan. Your business plan should include your market analysis, business model, and financial projections. For industry insights and information about labor conditions, check with the Illinois Department of Employment Security.
3) Name and register your business
After you've spent some time picking a business structure, you deserve some fun. Of course, choosing a business name is one of the most enjoyable and creative parts of establishing a company, but there are a few factors to keep in mind.
It would help to head over to the Illinois Corporation Name Search to ensure your business name is unique. It's one way to avoid confusing customers and start building your brand. And sole proprietorships and partnerships that are doing business as a trade name other than their business name must set up a "dba" with their local county clerk, according to the Assumed Name Act.
Once you’ve locked in a name, you should also register with the IRS and get your federal Employer Identification Number, if applicable. When it comes time to submit your state and federal taxes, you'll need this ID number. Also, every new business must register with the Illinois Department of Revenue and receive a state tax number. Depending on where your company is located, you might have to register with your city or local government, too.
4) Apply for licenses and permits
Although the state doesn't issue general business licenses, cities like Chicago may require one. So check the U.S. Small Business Administration (SBA) website and the field offices in Chicago and Springfield to figure out which licenses, permits, and filing fees you'll need to get going. Starting a restaurant, for example, has different requirements than opening a gym: For instance, one requires an Illinois liquor license while the other (presumably!) doesn't. So any upfront homework will only shine a light on your path to your first customer.
As part of your Illinois Business Registration Application (Form REG-1), you also register for the Sales Tax Permit, if applicable. Also, you'll want to check the Illinois Department of Financial and Professional Regulation (IDFPR) Occupational Listing for other licensing requirements.
5) Choose a location
After spotting a fantastic bargain on a retail location nearby, many new business owners mistakenly start with this step. While it's essential to monitor potential sites, be cautious before signing a lease.
You probably already know what sort of company you'll be running at this stage, and your business plan outlines your vision for your physical location. In addition, you've probably figured out whether you'll start with a few workers and how fast you'd want to expand, and you're well informed of who your competitors are.
All these factors will influence where you set up the business, so it's best to wait until this step to make your decision. In addition, zoning limitations may apply to specific structures, so getting your storefront or office set up may require patience.
6) Open a bank account and prepare for future taxes
While sole proprietors may use a personal bank account for their business needs, other types of business structures require a business bank account. Because corporations and LLCs separate income and debt from an owner's personal responsibility, you'll need to set up a different account for any business activities. With a bank account set up, you can think about funding your venture with business loans, credit cards, or even investors.
By now, you've probably already received a tax ID from the IRS and state and paid filing fees for licenses and permits. While you're still preparing to open for business, it's a good idea to make sure you're ready to submit both your federal and state taxes. If you're not a numbers person, you can lean on a bookkeeper or accounting software for help.
7) Purchase business insurance
New business owners often overlook one of the key administrative steps of starting a company in Illinois. Small business insurance is just as essential as other kinds of coverage to prepare for the unexpected—you wouldn't drive without insurance, right? And, when driving your startup to success, the state may require business insurance before you even get going. Depending on your industry and business entity, here are coverages you may need:
- Workers' compensation insurance is required for businesses with one or more employees. This insurance helps to cover an employee's missed earnings and medical care if they get sick or injured on the job.
- 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 if you've started a landscaping business, 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 may combine all the insurance choices mentioned above into a single policy called a Business Owner's Policy, which provides a great deal of peace of mind in the event of a circumstance beyond your control. In addition, your business may have to pay for unemployment insurance for your workers by the Illinois Department of Economic Security (IDES).
8) Create a marketing plan, hire employees, and more
Before you can get your piece of that profitable pie, you may need to develop your marketing strategy and decide on your advertising budget. Other businesses can hold off too later. Conversely, depending on your industry, you may already have many customers excited about your grand opening.
If now's as good a time as any, to build your website, print business cards, and set up your social media accounts to create buzz amongst your target market. Just refer to your business plan to decide what activities make the most sense.
Unless you're a sole proprietor or in a partnership, at some point, you'll need to hire your first employee, meaning you'll want workers' compensation insurance. Again, the Small Business Administration and the Illinois Small Business Development Centers can walk you through the process and give you mentorship and guidance as you grow your venture.
Starting your own business can be a lot to digest in the Prairie State, but when you're finished, the results could leave you full for a lifetime. There are so many resources to help entrepreneurs through every step of the process, and here's one for your small business insurance.
Huckleberry can help you get a policy in about the time it takes to make your favorite slice disappear—most small business owners can easily get a policy in minutes.