How to Start a Business in Alabama

Starting a small business in Alabama and growing it into something big can be daunting. There are many things you’ll have to do, like create a business plan, decide on a business structure (limited liability company (LLC), corporation, etc.) and choose a business name.

All of these will take a lot of consideration, and if you aren’t sure where to start or what to do, then our six-step guide can help. If you want to turn your business idea into a success, follow our steps below.

Step 1: Create a business plan

This is where it all starts. Before choosing a business structure, picking a business name, and everything else, you’ll need to create a business plan. If you’ve never put one together before and have no idea where to start or what to add, then read on.

What is a business plan?

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 it. Your business plan will also set you up for the best chance of success. Business plans are great to have since they show that you’re serious about running your company.

Does Alabama require business plans?

Alabama doesn’t require business owners to draft a business plan, but doing so anyway can really give you an edge in how you run your company. You might have a few questions about doing this, though. Let’s go over what to add to your business plan.

What to add to your business plan

If you’ve never owned an Alabama business before and need to know what to add to your business plan, then consider the following:

  • 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 involved in running your business.

Need help creating a business plan for your Alabama business? We put together a comprehensive library of articles and guides on business planning.

Now you have a good start on your business plan. It’s time to select a business structure.

Step 2: Choose a business structure

You can choose from several business entities to structure your business. Depending on your situation and which types of benefits you’d like to enjoy, consider the following carefully.

Sole Proprietorships

Sole proprietorships offer the simplest business entity, but they come with the most personal liability. With this set up, there’s no legal separation between the business and the proprietor. As the owner, you’re personally liable for business losses. Your personal assets are not protected like with other business structures.

Corporations and LLCs

Corporations and limited liability companies (LLCs) help separate your business finances from your personal assets. LLCs are easier to form and maintain and provide personal asset protection without double taxation. But they’re more difficult to transfer and don’t offer the same level of liability protection corporations do. Pick a business entity that best fits your needs.

Start Your Alabama LLC or Corporation

You must register your business with the Alabama Secretary of State regardless of the business structure you choose. But we can help! Use our formation services and start your company in minutes. We can create an Alabama corporation or Alabama LLC for you!

Still not sure what business structure to choose for your business in Alabama? Get 100% certain by reading our business structures page.

Step 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: Including the cost of registering your business, choosing your business structure, and buying equipment. 
  • Fixed expenses: Including rent, insurance, employee compensation, retirement plan contributions, and others that recur on a regular basis. 
  • Variable expenses: Including employee compensation, cost of raw materials, and other changing costs.

Don’t get overwhelmed with the math, we are here to help with calculating your business start-up costs

Step 4: Pick a business name

Picking a business name is 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 business 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 taken. 

You can consult with your local business registration service to find out whether the name you’ve chosen is 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.

Do you need a DBA?

You may also want to use a “doing business as” (DBA) name for your business. DBAs are common if you’re a sole proprietorship or a general partnership because these business types 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, 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.

Step 5: Register your business and open financial accounts

Apply for an Employer Identification Number (EIN)

Registering your business with the state of Alabama is a cut-and-dried task that you can do online. If you don’t form a sole proprietorship, you’ll likely need a federal employer identification number (EIN). In most states, EINs are required if you want to open a business bank account or hire employees. You can visit the EIN application page on the IRS website or use our EIN service if you create your business with us.

Open a Business Bank Account

You’ll use your EIN as your tax ID to file your business tax returns and open your financial accounts. Consider opening a business bank account since it helps you separate your personal and business finances, making it easier to tackle your taxes. You can also better track your personal and business expenses this way since you’ll have separate accounts. And when it comes to banking services, we can help you with our service. And consider a business credit card as well for making small purchases and building credit. You can also make it easier to secure small business loans with an EIN.

Obtain Alabama Business Licenses and Permits

You can go to Atlas Alabama 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. The Alabama Chamber of Commerce website also has many business resources that can help you launch your firm.

Step 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 make your company more visible to customers 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.

Marketing a new business takes time and planning here are some great actionable ideas for marketing your business.

Examples of Good Businesses to Start in Alabama

There are many 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 you can start right from home.

One way to decide on a type of Alabama business to open is review your skills. Can they translate into a viable business model? If you love to cook, then a catering business may a good bet for your skillset.

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.

Get more information and new ideas about the best businesses to start in Alabama

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%). 

Top Alabama Cities to Form Businesses

Birmingham-Hoover Metro Area: Largest metro area in Alabama. Diverse economy with strong sectors in banking, telecommunications, and medical care. Home to major universities and colleges providing a skilled workforce.

Huntsville: Known for its aerospace industry and nicknamed “Rocket City.” Hosts the Cummings Research Park, the second-largest research park in the U.S. Growing sectors include biotechnology, IT, and manufacturing.

Mobile: Major Gulf Coast port city with strong shipping and manufacturing sectors. Growth in aerospace following the establishment of an Airbus assembly plant. Benefits from maritime and distribution business opportunities.

Montgomery: State capital with a stable economy centered around government and healthcare. Expanding tech sector and revitalizing historic downtown areas. Attracts tourism with ongoing urban modernization.

Auburn-Opelika: Driven by the educational sector led by Auburn University. Growing manufacturing base and research and development. Provides a skilled workforce through university resources.

Each city offers unique opportunities and incentives, making them favorable environments for launching a new business in Alabama.

We can help

If you’re interested in starting a business in Alabama, now may be the time to do it. All you need to do is prepare and follow our steps, and you’ll be off to a good start. Looking for more help? We can help you start a business in Alabama with our formation services.

Alabama Business FAQs

  • 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.

  • Meridianville, Athens, and Pell City are among the best cities and towns to start a business in Alabama. That’s according to research by on over 500 towns in the state. The three chief criteria they used include population, income, and expenses.

  • 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.

  • 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.

Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

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Written by Team ZenBusiness

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