Most Alabama small companies (239,614) are sole proprietorships. But firms with 20 to 99 employees make up the largest share of Alabama’s small business workforce. About 30% of all small businesses in Alabama are owned by women. Another 46,916 self-employed workers in the state belong to a minority group.
If you’re thinking about starting your own business in Alabama, our guide can help.
Benefits of Opening a Business in Alabama
The state of Alabama encourages the development of small businesses by offering a wide range of tax credits. These credits are designed to help entrepreneurs defray their startup costs. Tax abatements, Enterprise Zone credits, an investment credit, and the Railroad Modernization Act of 2019 are among the litany of financial incentives available for small businesses in Alabama.
There are tax breaks for income tax, business privilege, sales and use, and property taxes that startups can use to help get off the ground. This state has the third-lowest property tax in the U.S. (0.33%).
How to Start a Business in Alabama
Even with the tax breaks that small businesses in Alabama enjoy, starting a small business can be a daunting task. Here are the necessary steps you’ll have to take to get things going:
Checklist for Starting a Business in Alabama
- Create a business plan
- Choose a business structure
- Determine your business costs
- Pick a business name
- Register your business and open financial accounts
- Market your business in Alabama
1: Create a business plan
This is where it all starts. Your business plan will outline what you need to do to get the business going. Any lender or investor who considers putting money into your business will want to see this plan, and it’ll also set you up for the best chance of success. Consider including these key elements:
- An executive summary: This is a high-level overview of your new business’s operations, marketing plan, and ultimate goals.
- A comprehensive description of the company: This is where you explain your business idea, and the problems it solves. List your company’s “SMART” goals (specific, measurable, attainable, realistic, and timely).
- An analysis of the current marketplace: List your main competitors and the types of customers you’ll serve.
- The products and/or services you’ll offer: Outline how these things will meet your customers’ needs and expectations.
- Personnel structure: Provide a breakdown of who’ll be doing what in your business operations.
- Your marketing plan: Outline how you plan to advertise your business and the marketing activities you’ll perform.
- Cash flow: Make a realistic assessment of the expenses that will be involved in running your business.
2: Choose a business structure
You can choose from several different types of business entities to structure your business. Sole proprietorships and general partnerships (GPs) have the simplest model, but they also come with the highest degree of personal liability. That’s because there is no legal separation between the business and the proprietor, so the proprietor is personally liable for business losses; if someone sues the business, they are also suing the owner. C and S corporations and limited liability companies (LLCs) are other options that can help you separate your business finances from your personal assets.
However, corporations can also come with the burden of double taxation. This is especially true for C corporations, which are always taxed as a separate entity. This means that the business’s profits are taxed at the corporate level and then taxed again when they’re distributed to the shareholders. S corporations can be structured as pass-through entities and avoid this double taxation, but have more restrictions and are more difficult to set up.
3: Determine your business costs
Before you start your business, you’ll need to know how much money it’ll take. Footing the startup costs is often the hardest part of running a company. You have to know both the one-time and recurring expenses. That’s the only way to know how much money you’ll need to bring in to make a profit.
Breaking your expenses down into their respective categories can make this task easier. Estimate the following expenses to map out your cash flow:
- One-time startup costs: This includes the cost of registering your business, choosing your business structure, buying equipment, office furnishings, and similar items.
- Fixed expenses: These include rent, insurance, employee compensation, retirement plan contributions, and others that recur on a regular basis.
- Variable expenses: These can include employee compensation (for work schedules that vary), the cost of raw materials, and other changing costs.
4: Pick a business name
This can be one of the most fun parts of starting a business. You may want to work your first or last name into the company name, or you may already have another name picked out. If you can’t decide on a name at first, ask friends, family, or a business consultant. A catchy business name is easier for people to remember than a generic one. Just be sure it’s easy to remember and not already being used by another business.
You can consult with your local business registration service to find out whether the name you’ve chosen has already been taken. The Alabama Secretary of State can tell you whether your business name is in use. Once you’ve found a name you like, you’ll need to claim it. You can do that on the Alabama name reservation page for $25.
You may also want to use a “doing business as” (DBA) name for your business, especially if you’re a sole proprietorship or a general partnership. That’s because these types of businesses are legally required to operate under the owner’s name (Bob Gilbert, for example) unless they use a DBA. DBAs can also be useful for LLCs and corporations that intend to operate under a different name than the business’s actual legal name. For instance, you may run a fishing guide company that also rents hunting cabins under a different name.
Once you’ve settled on a name, it’s a good idea to claim it online for website and email purposes. Here’s how to register your domain name. You’ll also want to stake claim to social media handles on platforms like Facebook and Twitter.
5: Register your business and open financial accounts
Registering your business with the state of Alabama is a cut-and-dried task that you can do online. If you decide to use a business entity other than a sole proprietorship (which can use your social security number), you’ll likely need to get a federal employer identification number (EIN). You can visit the EIN application page at irs.gov to get yours.
You’ll use your EIN as your tax ID to file your business tax returns and open your financial accounts. And when it comes to banking services, be sure to shop around and see who has the best terms and pricing. And consider a business credit card as well for making small purchases and building credit.
You can go to Atlas-Alabama.com to find out about business licenses or permits needed for your company to operate legally in Alabama. You can also consult with an Alabama business insurance agent about what kind of insurance you’ll need, including general liability, workers’ compensation, etc. The Alabama Chamber of Commerce website also has many business resources that can help you launch your firm.
6: Market your business in Alabama
In today’s marketplace, an online presence is just as important as advertising via more traditional means. Optimizing your website for search engines will increase the likelihood your company will come up quickly in internet searches.
Create a social media strategy to broaden your online presence, or hire a professional to do it for you. LinkedIn, Facebook, Twitter, and Instagram are all excellent places to build a strong online presence.
You can also go to Alabama’s Small Business Development Center Network site for more help with marketing your business in Alabama. The SBDC can help you identify new markets or create an e-marketing strategy if you need one. This website also identifies financing opportunities for startup companies and offers various other services needed by startup ventures.
Examples of Good Businesses to Start in Alabama
There are many good industries to consider in Alabama. Tourism, banking, livestock farming, electronics, and construction are healthy sectors in the state. But candy making, catering, and cleaning are also low-cost companies that you can start at any time, right from home.
The best way to decide on a type of Alabama business to open is to assess your passions and skills and see which of them could translate into a viable business model. If you love to cook, then a catering business could be a good bet for your skillset.
Alabama can be a good state in which to start a business. A forest of financial incentives helps entrepreneurs get off the ground. The state also maintains a strong online presence packed with resources for small business owners. Regardless of what type of business you decide to open, Alabama offers assistance at both the state and local levels that can help you.
Alabama Business FAQs
How much does it cost to start a business in Alabama?
The cost to start a business in Alabama depends on the business type, but you can register an Alabama LLC by paying the $100 state filing fee. The Alabama Secretary of State website gives a breakdown of the costs associated with starting your LLC in the state.
What is a good city to start a business in Alabama?
Meridianville, Athens, and Pell City are among the best cities and towns to start a business in Alabama. That’s according to research by Lendedu.com on over 500 towns in the state. The three chief criteria they used include population, income, and expenses.
What is the cheapest city to open a business in Alabama?
There is no single cheapest city in which to open a business in this state, but Headland, Southside, and Athens have been listed as three cheap cities to live in. This means that labor may be cheaper there, too, which could translate into lower payroll costs.
What business and state tax regulations are compulsory for an LLC business in Alabama?
The FAQ page from the Alabama Department of Revenue breaks down the Business Privilege Tax that must be paid by LLCs, as well as other taxes.