How to start a business in New Jersey in 8 steps
Bagels, Bon Jovi, and business opportunities—that's New Jersey in a nutshell. According to U.S. News and World Report, the state ranked 1st for education, 4th for healthcare, and 5th for crime and corrections, which means smart kids become enterprising entrepreneurs who hire from a robust workforce to build businesses in safe and reliable communities.
Those rankings came out before the COVID crisis, adding even more possibilities for creative and passionate startup founders to disrupt and innovate in all kinds of industries. But before you can start raking in the profits, read on to avoid pitfalls and find strategies to launch with success in the Garden State.
1) Think about the type of business you want to start
Entrepreneurs who want to make a mark in the business world must first choose what kind of firm they want to run. While some decisions are straightforward, such as building an online business or opening a storefront, others may be more challenging. Conduct research and look at other local small businesses in your industry to see how you can learn from their achievements while minding their mistakes.
Aside from the details of your everyday operations, it's also critical to determine if being a business owner is a good match for you at this point in your life. Some business structures take a while to get off the ground, and when something undoubtedly goes wrong, you'll be the one responsible for fixing the headache.
It's time to start the process if your business idea still sparks excitement and you want that startup life. While you may break each stage down into smaller, simpler tasks, it's crucial to complete the process in adequate time so you can begin servicing your prospective client base.
2) Set up your legal structure
The legal structure is sometimes known as the business structure, business entity, or legal entity, and they all relate to the legal framework of your company. Every New Jersey company must pick an owner or employee to serve as a registered agent, the person who receives state correspondence. If your physical address is in New Jersey, you may be your own registered agent.
Check out the different ways to set up your new venture:
- Sole proprietorship: One of the easiest ways to organize your new business is to run it as a single proprietorship. Profits from your work are paid to you, the business owner, but any debt incurred by the company becomes your personal liability. Because they are not incorporated, sole proprietorships often require the least amount of paperwork. These companies have no workers, and owners file their taxes using their Social Security Number on personal tax returns.
- Partnership: If you want to start a business with someone else, a partnership may be ideal. Small business owners in partnerships, like sole proprietorships, have no liability protection for their personal assets and are responsible for business debt.
- C Corporation: A C company is owned by its shareholders, making it a more attractive option for businesses looking to raise capital. C companies are legal entities that are distinct from the individuals that work for them, and they are often sizable organizations. A board of directors, annual reports, and Articles of Incorporation must all be sent to the Division of Revenue and Enterprise Services in New Jersey (DORES). In addition, shareholder-employees pay state income taxes through their state tax filings, and the business pays New Jersey corporation taxes.
- S Corporation: Businesses with 100 or fewer shareholders may incorporate as an S company, also known as a small business corporation. This designation allows you to benefit from specific Internal Revenue Service (IRS) regulations and avoid federal corporate taxes. However, other paperwork, such as IRS Form 2553, may be required.
- Limited Liability Company (LLC): Many New Jersey businesses opt for LLCs. New Jersey LLCs marry the simplicity of a partnership or sole proprietorship with the financial safeguards of a corporation. Although it is not mandated by law, you may wish to draft an operating agreement, particularly if you have a partner, that spells out ownership percentages, responsibilities, profit sharing, and what happens if one owner leaves your LLC.
- Nonprofit: If you want to focus on social problems and raise money via donations, you might form a nonprofit organization. Nonprofits are exempted from paying income taxes in most cases.
You must submit a Public Records Filing, which becomes a Certificate of Business Formation once the process is completed, with the New Jersey Division of Revenue and Enterprise Services to form an LLC or corporation in New Jersey. After you've decided on the best structure for your company, it's critical to create a business plan. Your business plan should include your market study, business model, and financial forecasts.
3) Name and register your business
After you've spent some time deciding on a business structure, you deserve a little fun. Of course, selecting a name is among the most exhilarating and creative aspects of starting a business, but there are some things to consider.
First, go to the New Jersey Business Name Search to ensure that your company name is unique. It's one approach to prevent perplexing consumers while still setting up your brand. Sole proprietorships and partnerships that conduct business under a trade name different from their legal name must file a "dba" (doing business as) with their local county clerk.
Then, after you've settled on a name, you should also register with the IRS and get your federal Employer Identification Number, if applicable. You'll need your ID number when for tax purposes. Depending on where you're located, you may also need to register to pay business taxes to your city or other local government.
4) Apply for licenses and permits
Although New Jersey doesn't require a general business license, there are specific professional and occupational licensing requirements. So, before you start your company, visit the U.S. Small Business Administration (SBA) website or the field office in Newark to find out which licenses and permits apply, as well as their filing fees. For example, starting a gym has different criteria than opening a restaurant, so it pays to do your research.
In addition, you'll want to check the State of New Jersey Business Portal to make sure you acquire any safety or construction permits and environmental licenses related to your business. As part of your New Jersey Business Registration Certificate (Form NJ-REG), you'll also register for the New Jersey Certificate of Authority to collect sales tax, if applicable.
5) Choose a location
Many new business owners begin with this stage after spotting a great deal on a nearby retail location. While monitoring prospective sites is essential, be careful before signing a lease.
At this point, you presumably know what kind of business you'll be running, and your business plan almost likely describes your goals for your physical location. In addition, you've probably decided whether you'll recruit a handful of employees, how quickly you want to grow, and what you'll do to stand out from your competition.
All these variables will affect where you start your company, so it's wise to wait until this point to make your choice. In addition, certain buildings may be subject to zoning restrictions, so opening your storefront or office may take some time.
6) Open a bank account and prepare for future taxes
While sole proprietors may use their personal bank account for company purposes, every other business needs a business bank account. You'll need to set up a different account for any commercial operations since corporations and LLCs separate revenue and debts from an owner's personal expenses. With a bank account, you may consider credit cards, business loans, or even investors to help finance your company.
You've most likely got a tax ID from the IRS and the state and paid filing fees for your licenses and permits. While you're still gearing up to open for business, be sure you're prepared to file both federal and state taxes. If you're not good with numbers, you may hire a bookkeeper or use accounting software.
7) Purchase business insurance
New business owners often forget one of the most critical steps of starting a company in New Jersey. Small business insurance is just as important as other types of coverage when preparing for the unexpected—after all, you wouldn't drive without insurance, would you? However, when driving business success, the state may mandate business insurance before giving you the green light. Here are some coverages you may need, depending on your industry and business entity:
- 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 a landscaping company, 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 wise 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, the above insurance options may be bundled into a single policy known as a Business Owner's Policy, which offers great peace of mind when the unforeseen arises. Also, your business may have to pay for unemployment insurance for your workers by the Division of Unemployment Insurance.
8) Create a marketing plan, hire employees, and more
Marketing plans and profit go together like breakfast and Taylor ham. But before you can start serving customers, identify your target market and the best ways to get their attention. You may have already calculated your advertising budget. And depending on your niche, you may expect a sizable client base hungry for your products or services.
If you want to generate buzz in the marketplace, you might build a website, set up social media, and print business cards, among other tasks. Consult your business plan to decide which efforts are most appropriate.
Unless you're in a sole proprietorship or a partnership, eventually, you'll need to recruit your first employee, prompting you to look at workers' compensation insurance. The Small Business Administration, New Jersey Business Action Center, and New Jersey Small Business Development Centers can help you through the hiring process and provide mentoring and advice as your business grows.
Launching your own business may be a lot to digest in the Garden State, but the results could feed you for a lifetime. There are various tools available to help you at every stage of the process, and here's one for small business insurance.
Huckleberry can help you buy insurance in about the time it takes to make your favorite bagel disappear—most small business owners can easily get a policy in minutes.