Tourism in Pennsylvania draws visitors for its Hershey chocolate factory, the Amish, Philadelphia cheesesteaks, and the Liberty Bell, but there’s far more to the Keystone State.
For entrepreneurs wondering how to start a business in Pennsylvania, there’s plenty to learn, not only about the process but also the fertile business climate. For example, Pennsylvania has the sixth-biggest economy in the U.S., accounting for about $815 billion in 2019. It’s also home to nearly 50 of the largest public and private companies in terms of sales. The state boasts a lower unemployment rate, sales tax rate, and income tax rate than the national average, too.
Benefits of Opening a Business in Pennsylvania
There are plenty of benefits to starting a new business in Pennsylvania. The State of Pennsylvania lists the lowest cost of living in the Northeast, a 26-minute average commute time, national and international airports, port access to the Atlantic Ocean, Great Lakes, and the Gulf of Mexico, eight foreign trade zones, and three Class-1 railroads that carry nearly $500 million per year in business traffic.
For startup business owners specifically, Pennsylvania boasts these persuasive national rankings for Pennsylvania: 6th for access to capital, top 15 for technology and innovation, and 8th for a number of venture capital-assisted companies.
How to Start a Business in Pennsylvania Checklist
When the U.S. Chamber of Commerce Foundation examined the health of startup communities in the U.S., they found two Pennsylvania cities were developing innovative solutions to complex problems in their state. The cities are Pittsburgh (#12) and Philadelphia (#3). Convinced you’ve found your location? Now it’s just a matter of how to start your Pennsylvania business.
Following this guide could help you transform your idea into a profit.
1. Create a Business Plan
If you’re a first-time entrepreneur and aren’t sure how to start a business in Pennsylvania, your first step will be to write a business plan. Although it may feel overwhelming at first, it’s crucial to spell out the details of your business idea, address potential problems with provided solutions, hone in on your customer types, and set S.M.A.R.T. objectives (goals that are specific, measurable, attainable, realistic, and timely).
You may be able to obtain funding from government resources and Pennsylvania lenders, including private business loans, government grants, and initiatives. The Pennsylvania Department of Community and Economic Development’s Funding & Program Finder is a great starting point. Another is the U.S. Small Business Administration’s (SBA) page on funding programs and USA.gov’s page on financing for small business owners.
A business plan will also help flesh out your business structure, create an analysis of the customer market in Pennsylvania, and price your products or services. It’s also imperative to compare factors like the cost of living, median income, unemployment rate, and population. Do that in various Pennsylvania cities to estimate salary, overhead, payroll, and customers’ disposable income.
2. Choose a Business Structure
The kind and size of business you plan to launch will help determine which business structure you choose to form with the Bureau of Corporations at the office of the Pennsylvania Department of State.
While most small startups will probably opt to become a sole proprietor or limited liability company (LLC), the Pennsylvania Department of State Bureau of Corporations and Charitable Organizations created a free Guide to Business Registration in Pennsylvania, which explains the various options for choosing a business structure.
Opting to form an LLC or sole proprietorship doesn’t typically require a lawyer. That’s because a sole proprietorship business is owned by a single individual. Revenues are considered personal income and are taxed at the individual’s personal tax rate.
Likewise, with an LLC, individual members or managers aren’t personally liable for the company’s obligations and debts, despite providing the federal tax benefits of a partnership. It’s important to understand that LLCs can be taxed in a few different ways. For instance, an S-corp LLC is a “pass-through entity.” That means the owners are taxed directly on their share of the income.
Before choosing your business entity, research the specific municipality where the company will be located to see if specific permits or business licenses are required. Philadelphia and Harrisburg, for example, require that all businesses obtain an annual business privilege license.
3. Determine Your Business Costs
As you learn how to start a business in Pennsylvania, it becomes obvious that there are expenses to cover before you begin operations, including applying for an LLC and registering a domain name to promote your business. Many of these, including travel, advertising, and training, are capital expenses that you can deduct over time.
The Pennsylvania Department of Revenue is a good resource for understanding amortization, depreciation, and deductions. In the meantime, there are things you can do now to lighten your tax burden and ensure tax season is more manageable.
As you estimate your one-time, fixed, and ongoing expenses, it may be helpful to solicit advice from the many entrepreneur assistance centers in the state, many of which can be found through the Pennsylvania Department of Community and Economic Development. The organization’s free Entrepreneur’s Guide includes both a startup and operating costs worksheet that cover everything from building leases and initial inventory to payroll taxes and equipment leasing.
Pennsylvania can help arm entrepreneurs with more specific assistance in terms of financing, mentorship, hiring, and procurement thanks to a variety of resources designed to help underserved populations, such as veterans and minorities.
4. Create a Business Name Unique to Pennsylvania
It may be tempting to simply name your business after a Pennsylvania city and your product or service, but a quick search with the Pennsylvania Department of State will determine that Lancaster Plumbing and Philadelphia Bicycles are already taken. Get creative to find a unique name for your business by brainstorming on industry-specific terms, puns, or even made-up names, like PA’s Funtastik Skate and Snowboard Shop did.
There are some specific rules you’ll need to follow in Pennsylvania when naming your business. For example, Pennsylvania law dictates that LLCs must include “limited,” “company,” “limited liability company,” or an abbreviation of one of those terms.
Luckily, you’re not married to the formal name in everyday use. You can always create a fictitious name too, called a “doing business as” (DBA). So, while Scranton Travel Agency Limited may be the formal name on your filing paperwork and business taxes, your business cards, signs, and banners could use the DBA “Scranton Travel” if it’s not taken. Don’t assume that a name available with the Pennsylvania Department of State is also free on social media and as domain registration.
As long as you can avoid legal repercussions and market your business without confusion, the process of choosing a name can be fun.
5. Register Your Business, Open Financial Accounts, and Get Insurance
Once you’ve registered your business structure and name with the Pennsylvania Department of State, it’s time to open financial accounts and get business insurance. Start by obtaining a federal employer identification number (EIN) from the IRS if you’ve chosen an LLC. If you’re set on being a sole proprietor, you can use your social security number to file (though an EIN may be required in some cases, so do your research). Then, open a business bank account to keep your finances separate from your personal account.
Next, ensure you’ve obtained any required licenses, zoning, or building permits, which will vary by location, type of business, and structure. To get started, check the PA E-Library website, which offers zoning ordinances for townships throughout the state. It’s also a good idea to think about business insurance. A Pennsylvania business insurance vendor can advise you on the different policies you may need.
6. Market Your Business in Pennsylvania
In the old days, new businesses might run an ad in the Pittsburgh Post-Gazette, get a listing in the Pittsburgh Yellow Pages, and join the Pittsburgh Chamber of Commerce in hopes of networking to eventually drum up some new business. But while advertising, business directories, and word-of-mouth still hold value to promote a new business, technology has made marketing easier, inexpensive, and more efficient.
Use social media platforms like Facebook, Twitter, and Instagram to market your business, and optimize your website to drive users there from Google and other search engines. Look for opportunities to promote your business and network on LinkedIn and in Facebook groups, and capitalize on free resources like a listing on Google My Business to engage and connect with local customers performing searches on Google Search and Maps.
Good Business to Start in Pennsylvania
Entrepreneurs need to weigh a variety of factors to determine what businesses will be feasible, profitable, and fun. A stay-at-home parent may want to consider opening a home daycare, selling baked goods, or providing virtual assistant services.
Experience may also play a role for someone leaving employment to venture out on their own to launch a web design, internet technology, or tax accounting service. In Pennsylvania, where key industries include manufacturing, tourism, life sciences, natural gas, plastics, and agribusiness, it may make more sense to create a spin-off type of business that supports larger sectors, such as a wine tour company, commercial photography, or pest control.
From Penn and Paper to Profits
Don’t be intimidated if you don’t know how to start a business in Pennsylvania. Although choosing a registered agent, creating an operating agreement, and filing annual reports can feel scary, a little help from experts can make these tasks more manageable. Remember, entrepreneurs don’t have to be good at everything. That’s where research and outsourcing come into play. Focus on finding the right business for your interests, skills, and time, and whatever endeavor you pursue will feel less like work and more like an exciting adventure!
Pennsylvania Start a Business FAQs
What is a good city to start a business in Pennsylvania?
Livability lists Chambersburg, Erie, and Easton among the best cities for entrepreneurs.
How much does it cost to open an LLC in Pennsylvania?
The Pennsylvania Department of State charges $125 to file a Certificate of Organization for an LLC.
What is the cheapest city to open a business in Pennsylvania?
Pittsburgh has earned numerous accolades for access to capital, a living wage, and affordability.
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