Benefits of Opening a Business in Arizona
Arizona is one of many states seeing a surge in entrepreneurship. New business applications skyrocketed from 19,052 in the third quarter of 2019 to 30,356 in the third quarter of 2020. For example, with little regulatory friction and a low cost of living, Phoenix ranks ninth for the best U.S. city to start a business, and second for net business creation.
Arizona entrepreneurs can also benefit from a growing workforce statewide and broader skills thanks to schools such as Arizona State University. Small business is also a large component of Arizona’s business makeup. In Phoenix alone, about 95% of businesses have 50 employees or fewer.
How to Start a Business in Arizona
Resources abound for entrepreneurs to figure out the nuts and bolts of how to get their business up and running in Arizona.
That help extends to the local level, too. Cities like Surprise have economic development teams that can help you on your way. Programs like the AZ TechCelerator offer coaching, business plan consulting, and assistance with accessing private and public startup resources, from networking to local bureaucracy, commercial real estate research to a state logo sign program.
Whatever your business dream is, use the checklist below to start making it come true.
Checklist for Starting a Business in Arizona
- Create a business plan
- Choose a business entity
- Determine your Arizona business startup and operation costs
- Create a business name
- Register your Arizona company, get business insurance, and open bank accounts
- Market your business in Arizona
1: Create a business plan
As you transform your enterprising idea from concept to reality, writing a business plan is vital.
Your plan can help you:
- Think through potential problems the business may face
- Understand your target customer and how you’ll win them over
- Find local, state, and/or federal business development incentives your business may qualify for
- Identify your competitors
- Examine how you’ll stand out in your market
- Develop the “SMART” goals and metrics you’ll track
Above all, a business plan helps you understand your entrepreneurial path. You can get a better grasp of the problem your service or product can solve. You can also work through how you’ll finance your business, what your pathway to profitability may look like, and how you plan to scale the business as it grows.
Trying to refine your plan in the time of COVID-19? Check out Arizona’s Small Business Boot Camp for insights on dealing with the pandemic as a small business owner.
Financing assistance and aid may also be available from resources such as the Phoenix Community Development and Investment Corporation, Small Business Administration (SBA), Maricopa SBDC, and the Arizona Entrepreneur’s Edge.
2: Choose a business entity
It’s time to determine which legal entity you’ll establish your business as. Two common business structures in Arizona are the sole proprietorship and limited liability company (LLC). As you consider your choice, examine the pros and cons of each before deciding.
A sole proprietorship is a simple business structure that has one owner. It can be established without state registration and includes a fairly straightforward taxation scheme. Along with your personal return, you file a separate schedule that details your sole proprietorship’s losses and profits.
However, sole proprietorships offer no way to separate business and personal assets or liabilities. Legal or financial problems in the business could put your personal property at risk, including savings, real estate, or other assets. Plus, while business taxes can be easier to figure out, it may be harder to attract long-term financing.
On the other hand, LLCs can have one or multiple owners known as members. This entity structure can shield your personal assets from business liabilities, and may allow you to take advantage of lower taxation than business entities like corporations.
While you have to establish your LLC by filing the proper paperwork with the Arizona Corporation Commission and maintain annual filings, starting an LLC can be a more sustainable way to run your Arizona business.
3: Determine your Arizona business startup and operation costs
From leases to licenses, insurance to equipment, costs and expenses will be part of your startup and ongoing operations. For example, in the city of Surprise, an initial business license currently costs $168 per license, with an annual per-license renewal fee of $84.
Depending on your industry, your costs may include:
- Paying employees and contractors
- Purchasing office equipment, computers, and furniture
- Transportation expenses such as buying or leasing vehicles, plus fuel, parking, and repairs
- Insurance: Common coverage includes general liability protection, commercial auto, and professional liability.
Taxes are another consideration. For example, Arizona businesses pay the transaction privilege tax. Other state and federal taxes may apply based on your business size, revenue, and/or industry. Also, check with your business’s locality for local taxes that may apply.
4: Create a business name
Naming your Arizona business is a crucial step toward building your brand. You also have the option to file an “assumed business name” or “doing business as” name (DBA) that you can operate under.
When deciding what to name your business, consider those that are easy to spell, easy to say, and easy to understand. But first, you need to make sure your name is available.
Arizona requires that business names be “distinguishable” from all other business names and DBA names in the state. In other words, if another business is already using the name you want, you’ll need to work with a different, available name instead. Trying to use a name already taken by another business could result in legal issues.
To check if a business name is in use, search the Arizona Corporation Commission’s business database.
Once you’ve identified an available business name, check what domain names are available to register for your company website (and email addresses, too). If you plan to use social media in your marketing, make sure you can reserve your business name on your preferred platforms.
5: Register your Arizona company, get business insurance, and open bank accounts
Setting up required registrations with Arizona is one of your next steps as a business owner. DBAs, LLCs, and corporations need to register, though this typically isn’t required for a sole proprietorship trading under one’s own personal name.
State and local business licensing and zoning compliance is also necessary, and requirements will vary depending on your town or city. Communities such as Surprise also list their zoning codes online for reference. And, while the City of Maricopa hasn’t required a general business license since 2019, regulated businesses like auctioneers, tattooists, and scrap dealers must apply for a business license.
Your business will also need to register with the Arizona Department of Revenue “before conducting any taxable business activity in Arizona.” TPT tax licensing is required, and your business may be subject to other taxes, too.
The IRS can provide your business with an employer identification number (EIN), which you’ll use for hiring, filing taxes, and opening business bank accounts. Speaking of which, consider applying for a business credit card to build up your company’s credit.
Also, consider speaking with a local insurance agent to secure the necessary business insurance for your enterprise.
6: Market your business in Arizona
Craft a marketing plan that works through your company’s branding, how you’ll engage with the public, who your target customer is, and how you’re different from competitors.
For example, are your prospects active on social media? If so, narrow down where they’re talking the most and engage with them on platforms such as Instagram, Facebook, or Twitter.
Optimizing your business profile in directories such as Yelp or Google My Business can also help people find your company online. Word of mouth continues to be a solid way to get new business, too. As you work with customers, ask them to tell others about your company, and consider setting up a loyalty program that rewards customers for spreading the word.
Set up a company website, too, so you can fully explain your business services, who you are, and how customers can get in touch.
Examples of Good Businesses to Start in Arizona
With so much population and business growth in the Grand Canyon State, there’s opportunity for all sorts of new businesses, such as:
- App development
- Specialty foods
- AC repair and installation
- Financial services
- Sports and recreational equipment
- Dog walking
- Barber shops and beauty salons
- Life coaching
Arizona wants to be a place where new businesses are welcome, and where they can open their doors without a lot of red tape. With the right business plan, understanding of your customers, some financing, and a knowledge of how you want to grow your company, you too could become a successful business owner in Arizona.
Arizona Business FAQs
What is a good city to start a business in Arizona?
Along with established and growing urban areas like Phoenix, Scottsdale, Flagstaff, Tempe, and Tucson, other cities to consider for your new business include Sedona, Globe, Tolleson, Longwood, and Prescott.
How much does it cost to open an LLC in Arizona?
Filing fees and other fees to establish an LLC in Arizona typically range from $50 to $130. Other kinds of businesses have different setup fees.
What business and tax regulations are compulsory for an LLC business in Arizona?
Taxation requirements vary by factors such as type of business. Your business taxes may include the transaction privilege tax (TPT), state sales tax, and state unemployment tax.
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