Deciding to start a business can be terrifying. The endless list of administrative steps and unanswered questions is enough to discourage entrepreneurs. But don’t let this fear keep you from your dream of starting a business in Arizona.
To start, congratulations on choosing the Grand Canyon State to throw down your business roots. Arizona is home not only to the famous Grand Canyon, but also to over 500,000 small businesses. Arizona’s small businesses employed 44.5% of the private workforce and created nearly 40,000 jobs in 2015.
Are you ready to finally begin your entrepreneurial adventure? If you excitedly answered yes, we’re here to help you. Here is a step-by-step guide on how to start a business in Arizona.
How to start a business in Arizona in 8 steps
You probably have a lot of questions when it comes to how to start a business in Arizona. Check out the steps below to see if we can help you.
Step 1: Choose your business entity
When you’re first starting a business in Arizona, it’s easy to feel overwhelmed by the different types of business entities available to you. The business entity you choose can have serious legal and tax consequences in the future, so you know it’s an important step. Fortunately, we’ve narrowed your research down to the three most common business structures. Note that there are others out there if you don’t think any of the below work for you.
This business entity is technically the default option for single-member businesses, like those that offer freelance services. Typically, no paperwork is required to operate one. However, there are certain characteristics to this business structure you should be aware of.
First, filing as a sole proprietorship means that you and your business are one and the same, legally speaking. That means that you are legally liable should any debt or legal issues arise. Your personal assets and business assets will be the same when filing taxes.
Limited liability company (LLC)
Forming an LLC does offer some attractive advantages over a sole proprietorship. For one, you do gain some liability protections. Should you ever get targeted in a legal dispute, in most cases the opposing party can only sue the company and not you, the individual.
Another benefit of forming an LLC is that they are allowed pass-through taxation. However, LLCs are required to pay full self-employment taxes, an expense that corporations have methods to mitigate.
Note that LLCs can operate as a single-member business or can be formed with multiple business partners.
A corporation enjoys liability protections similar to LLCs. If you have plans to aggressively grow your business, a corporation may be the right business structure for you.
However, this advantage does come with more paperwork and costs compared to an LLC or sole proprietorship. Forming a corporation can get complex, especially because you need to write bylaws, form a board of directors, and file special forms with the IRS.
Step 2: Choose a business name
Your business name acts as your brand’s first impression on your customers. That’s why you want to choose a business name that is unique and easily distinguishable from other businesses.
Conduct an online business name search
Verifying your desired business name’s availability will help you avoid any legal mishaps with other companies when starting a business in Arizona. Here are a few steps to take before you can register your business name:
Search the U.S. Patent and Trademark database.
Search your desired domain name on Name.com or GoDaddy.com.
Business name requirements
This may be news to you but your business name has certain requirements depending on your chosen business entity.
When you’re forming a limited liability company (LLC), your business name must end with “limited liability company” or “LLC.”
Alternatively, if you’re forming a corporation, your business name must include the word “corporation,” “company,” “incorporated,” or “limited.”
Reserve your business name
After verifying its availability, you may reserve your business name for up to 120 days. This is helpful for securing your business name even if you’re in the planning stages of starting a business in Arizona. Reserve your business name by filing an application with the Arizona Corporation Commission. Please note that it costs $45 to file online or $10 to mail in your name reservation form.
Step 3: Write your business plan
When learning how to start a business in Arizona, it’s critical that you have a solid business plan in place. Your business plan will be your guide to planning, running, and scaling your business, so it’s important that you not rush this step—it might actually help you answer questions you have about how to start a business in Arizona. Also, lenders tend to approve business loan applicants who have prepared a comprehensive business plan. Here are a few things to consider when writing your business plan:
1. Products and services
In this section, you’ll want to describe your product or service highlights. Plainly state what exactly the product or service you are offering is. Using your market research, describe how your business addresses your customers’ needs. After all, the most valuable business ideas are those that solve problems.
2. Market analysis
Before starting a business in Arizona, it’s critical that you analyze your target market’s size and demand. Also, consider your competition. How can you deliver a product or service that is different or better than your competitors? How will you use branding to differentiate yourself in a saturated market?
3. Financial planning
How well your business performs depends on how thoughtful you are with your business finances when first starting a business in Arizona. A good financial habit is to always record your expenses. Expenses can quickly accumulate when starting a business: filing paperwork, business insurance, marketing, payroll, and more. Consulting a business attorney or an accountant will help you better manage your business finances and prepare for tax season.
Writing your own business plan can be daunting, especially when writer’s block kicks in. Our business plan template or a business plan software can help you get started.
Step 4: Register your business in Arizona
You have your business name, you’ve chosen your business entity, and you’ve written your business plan. Now, it’s finally time to make starting a business in Arizona official by registering your business with the state.
Select a statutory agent
In Arizona, a registered agent is called a statutory agent and their responsibility is to receive business-related tax and legal documents on your behalf. Retaining a statutory agent is a requirement to register and operate your business in Arizona.
Hiring a professional statutory agent does have its advantages but you can appoint yourself, a business partner, or even a trusted friend as your statutory agent. Just verify that that individual is over 18 years old, a resident of Arizona, and is always available during normal business hours.
Create an eCorp account
Starting a business in Arizona is more convenient now that you can register your business online with eCorp, Arizona’s web-based application to “manage the life cycle of your business registration.” After you create your eCorp account, you will be directed to the online registration process.
File registration papers with the state
The type of paperwork you need to file when registering your business depends on which business entity you choose. Sole proprietors may have to file a DBA with the state, as we’ll discuss below.
Forming an LLC requires you to file the articles of organization. Forming a corporation requires you to file the articles of incorporation. You can complete the filing process online with the Arizona Corporation Commission after you create your eCorp account.
Please note that you will be charged a filing fee when submitting your application ($50 for LLCs or $60 for corporations).
Filing for a DBA in Arizona
When your company is operating under a business name different from your legal name, you usually are required to file a DBA (or “doing business as”). In Arizona, they use the term “trade name” instead of DBA and filing for a trade name is not legally required.
If you’re starting a business in Arizona, you may apply online with the Arizona Secretary of State to register your trade name. Please note that a $10 filing fee would apply and it may take two to three weeks for your application to be processed.
Obtain your federal employer identification number (EIN)
When you file your personal taxes, you use your SSN. When filing your business taxes, you use your employer identification number, if you’re an LLC or corporation. Sole proprietors with no employees can file their business taxes using their SSN.
However, we recommend that you apply for an employer identification number because you’ll need it when hiring employees and, in some cases, when opening a business bank account.
Step 5: Separate your personal and business assets
When operating your business you’ll want to avoid piercing the corporate veil. You can avoid doing this by separating your personal and business finances. A business bank account can create a barrier between the two, which will be a life-saver for:
Tax purposes: Avoid the nightmare of reviewing business expenditures for tax write-offs when your business and personal expenses are muddled together. Keeping them separate can expedite the process.
Personal liability: If you’ve formed an LLC or corporation, your business is a separate legal entity equipped with some personal liability protections. Separating your personal and business assets ensures that your personal assets are mostly protected during any legal disputes.
Also, you might want to consider finding a business credit card. Many entrepreneurs starting a business in Arizona may find business credit cards useful for keeping business expenses separate and building their business credit scores.
Step 6: Secure funding
Securing and generating capital is a huge part of learning how to open a business in Arizona. That’s why we recommend that you have a firm handle on your finances from the beginning. Fortunately, if you need some funding to get your business off the ground, there are several financing options available to small business owners:
Usually, your first stop for a business loan is with your bank. However, if you’re starting a business in Arizona with no business experience, you might run into a roadblock here. Even with a thorough business plan, lenders may be hesitant to finance your first business. If this happens to you, rest easy because there are other loan options to explore.
An SBA loan is an attractive option because their loan products are targeted to small business owners. The SBA, or Small Business Association, doesn’t loan the money, but they do guarantee the loans, which are mostly issued by banks. While the loan terms will vary with your business requirements and your credit history, you can be approved for up to $5 million with interest rates as low as 7.75%.
Depending on which industry you enter, your business may require specialty equipment that you can’t afford to purchase, or rent and maintain. Fortunately, there are equipment financing options that will help you secure the tools you need to operate your business. Like with any loan, the details of your loan will depend on your business history and credit score.
If you want to self-finance your business and rely on your own cash reserves, then bootstrapping may be an option to consider. Many people who self-finance their companies enjoy having full ownership of their business and usually have the financial discipline to run a lean business. However, a smaller budget may stunt how rapidly your business grows and scales.
Step 7: Obtain your licenses and permits
The state does not offer a general business license for those starting a business in Arizona and you may need to obtain licenses and permits specific to your business. Since it can be difficult pinpointing which licenses and permits you need, we recommend that you consult your local county office. If you have specific questions about how to start a business in Arizona, they’ll be able to give you the most precise information.
Apply for a transaction privilege tax license
According to the Arizona Department of Revenue (ADOR), a transaction privilege tax (TPT) is a “tax on a vendor for the privilege of doing business in the state.” If you’re starting a business in Arizona, we recommend that you review this list of businesses subject to the TPT before you apply online for your TPT license:
Commercial real estate businesses
Amusement businesses including sports arenas, movie theaters, and arcades
Property rental businesses
Metal and non-metal mining
Publishing and telecommunications businesses
Please note that the cost for a TPT per location is $12. Tax rates themselves vary depending on the type of business you’re running, and the city and county in which you’re operating.
Step 8: Review an employer’s responsibilities
You will quickly learn that transitioning from an employee to a business owner will include additional responsibilities like:
Obtaining small business insurance
It’s important to understand all of your responsibilities as an employer when starting a business in Arizona so that you’re prepared to run a smooth business operation. While switching between many hats can get exhausting, you can hire employees to offset some of these responsibilities as your business scales.
Starting a business in Arizona: Your next step
Starting a business, even in the great Grand Canyon state, can be an overwhelming venture. In the beginning, it’s normal to have a lot of questions about how to start a business in Arizona. You’ve made it to the end of this guide and now we have a question for you: When will you start?
This article originally appeared on JustBusiness, a subsidiary of NerdWallet.