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Alabama boasts a dynamic business climate, with various tax incentives and enterprise zone programs, a growing population, and fast-developing metropolitan areas. It can be a rewarding place to start a business. Here are eight steps to make it happen.
Start a business in Alabama
1. Choose a business idea
The first step toward getting your new business up and running in Alabama is identifying your core business idea. It may be an idea you’ve been working on for a while or one that immediately comes to you. Will you offer products, services, or some combination of both? Once you have a concept, ask yourself the following key questions:
- Who is your customer? It’s simple: No customers, no business. Who are you selling to? Will you market directly to consumers (B2C) or business-to-business (B2B)? Will you sell purely online, in a traditional brick-and-mortar storefront, or through a combination of the two? Analyze other businesses in the same market and research industry trends to understand what you’re up against.
- What is your projected profitability? Not only does your business need to make money, it also needs to make more than it spends over the long term. Consider your pricing, distribution opportunities, business model, and the costs you’ll incur building your business and developing your product or service. What’s your break-even point? How much must you sell to cover your expenses?
2. Name your business
Once you have an idea for your Alabama business, the next step is to name it. There are several factors to think about when picking a business name—not to mention a few local rules you must follow in Alabama. Here are a few considerations when choosing a business name:
- Be unique. You can’t have the same name as another business. Check to see if your desired title is different from other businesses in the state by running a search on the Alabama Secretary of State website.
- Include certain words. Your business name must contain words indicating the entity type. LLCs must contain “Limited Liability Company” or an abbreviation such as “LLC” or “L.L.C.”; corporations must contain “Corporation,” “Incorporation,” “Co.,” or “Inc.” Sole proprietorships must operate under the proprietor’s name, and partnerships must contain the partners’ surnames, and depending on the type of partnership, either “General Partnership” or “Not For Profit General Partnership,” or their abbreviated forms.
- Exclude certain words. Your business name can’t contain words that might confuse it with a legitimate government agency, like the FBI or Treasury, nor can it contain words suggesting you operate in certain professional fields, like law or accounting (unless your business has obtained the proper licensing).
- Reserve a business name. You must reserve your business name online or by mail before registering your business with the state. (You can reserve your business name online at the same time as you register your business online.) It costs $28 to reserve a name in Alabama.
- Reserve a trade name. Known as “DBAs” (doing business as) in other parts of the country, trade names in Alabama allow you to operate under a name different from your business’s legal name. Trade names are subject to the same rules as legal ones; they must be unique and include and exclude certain words. To file a trade name in Alabama, you must provide the date the name was first used (in Alabama and elsewhere), a statement claiming ownership of and right to use the trade name, a brief description of your business, and a declaration as to whether a federal trademark exists for the trade name. It costs $30 to register a trade name in Alabama, and you must renew it every 10 years.
- Reserve domain names and social media handles. A lot of your business transactions could happen online. Your domain name (URL) and social media handles should correspond to your business name or trade name to make it easy for potential customers to find you.
3. Write a business plan
- Executive summary
- Detailed company description
- Market analysis
- Outline of organizational and managerial structure
- List of products or services
- Customer segmentation report
- Sub-plans for marketing, logistics, and business finances
You can also choose a business plan suited to your goals, such as a lean plan (which keeps things simple and agile, only including information management needs to know) or a plan specific to your legal business entity type or tax status, like a nonprofit.
4. Choose a business structure
Your business structure determines how your company is taxed and how easily you can secure investments, among other factors. There are four primary business structures: sole proprietorships, partnerships, limited liability companies (LLCs), and corporations. Here’s how they differ:
- Sole proprietorships. Sole proprietorship is the default designation for businesses that don’t formally incorporate and have no partnership agreement. Sole proprietorships are owned and operated by a single person and are taxed at the business owner’s personal-income rate. However, a sole proprietor’s personal assets are not protected against creditors or legal damages.
- Partnerships. A partnership has two or more owners. Partners are taxed at their personal-income rates. However, they do not enjoy protection for personal assets if the company is sued.
- LLCs. Limited liability companies (LLCs) are popular in Alabama and across the United States. They are considered “pass-through entities” in that, like partnerships and sole proprietorships, their business income is taxed at business ownership’s personal-income levels, but at the same time LLCs enjoy certain legal insulations of corporate entities, such as personal asset protection for owners.
- Corporations. Owners of corporations enjoy the protection of their personal assets and the ability to raise capital through the issuance of stock. The downside is corporations are usually more work to incorporate and maintain. They can be formed as C corporations or S corporations. S corporations are more limited in the number and kind of shares they can issue but, like LLCs, enjoy pass-through taxation status.
Apply for a federal employer identification number (EIN)
Once you choose a formal business structure for your Alabama business, you must register for a federal employer identification number, or EIN. Although these nine-digit numbers are issued and administered by the Internal Revenue Service (IRS), federal and state tax authorities use them to identify businesses for tax purposes. They can also help secure lines of credit and obtain business credit cards. You can apply for an EIN online through the IRS website, free of charge.
With your EIN, you can formally establish your new business in Alabama. Register your business through the Alabama Secretary of State’s office. Only LLCs and corporations must be officially incorporated. For LLCs, you must file a Certificate of Formation online or by mail, along with a $200 filing fee. For corporations, you must file a Certificate of Incorporation online or by mail for $200.
5. Obtain business licenses and permits
While there’s no general business license in Alabama, almost every business operating in the state must obtain a business privilege license from the county or municipality in which they’re based. These cost between 25¢ and $1.75 for every $1,000 of your business’s net worth, with a minimum fee of $100. The state Department of Revenue provides instructions and local contact information for obtaining this permit. Companies that sell products ordinarily subject to sales tax also need a business tax registration, known in other states as a seller’s permit.
6. Examine business insurance options in Alabama
Purchasing business insurance is essential to managing risk and attaining a degree of liability protection for your new Alabama business and allows you to devote more energy to growing your business. Standard insurance packages available for purchase in Alabama include:
- General liability insurance. A general liability insurance policy protects you from lawsuits, financial losses due to property damage, and injuries on business property (such as customer slip-and-falls). General liability insurance is not mandatory for Alabama businesses, though many commercial leases require it.
- Workers’ compensation insurance. Known as workers’ comp, this insurance policy covers injuries and illnesses that employees might sustain on the job (including death). If you plan to hire employees, know that you’re required by law to purchase workers’ comp if you have more than five.
- Professional liability insurance. Sometimes called errors and omissions coverage (E&O), professional liability insurance is meant for businesses that offer expert advice or special professional services, like lawyers, accountants, real estate agents, and doctors. It covers financial losses resulting from mistakes like poor advice.
7. Understand financial considerations
Aside from purchasing insurance, you may need to make other investments in your Alabama business. These might include hiring certain professionals or contractors, like a lawyer, accountant, or web designer. You’ll also want to pay for web hosting services and possibly professional social media management. If you decide to run a shop or rent a warehouse, you’ll need money for rent. If all of this feels overwhelming, Shopify offers business resources to assist with funding.
8. Market your business
Once your Alabama business is up and running, you can get the word out about your products or services. This is where your marketing plan comes in. You can raise your business’s profile both in Alabama and across the country by investing in paid advertising, having a robust social media presence on platforms like Facebook, Instagram, and TikTok, and building relationships with the press locally and further afield.
Building a marketing campaign for your company means you can build out slogans and taglines, design logos, and develop a unified written voice, color schemes, and fonts. All of these elements can end up in different types of marketing campaigns, including:
- TV and radio ads. Broadcast media ads are a more traditional form of advertising that expose your company to a broad, but untargeted, audience.
- Pay-per-click web ads. Your customers interact with pay-per-click web ads on web pages, social media feeds, and online videos. Compared to TV and radio commercials, web ads can be more focused. You can target specific customers based on demographics, interests, search histories, and geographic location.
- Social media influencer campaigns. You can pay influencers to promote your products, give reviews, and offer discount codes, which in turn gives you access to their huge followings.
Shopify’s small business marketing guide provides more information on marketing fundamentals, including how to build an online audience, convert customers, and sustain existing customer relationships.
Starting a business in Alabama FAQ
What is required to open a business in Alabama?
You must register your business with the Alabama Secretary of State’s office by filing either a Certificate of Formation (for LLCs) or a Certificate of Incorporation (for corporations). You also need to apply for certain county or municipal business licenses.
Do I need a business license in Alabama?
You need a business privilege license to operate in Alabama, which costs between 25¢ and $1.75 for every $1,000 of your business’s net worth, with a minimum fee of $100. You must also complete a business tax registration, which costs $10 annually.
Is Alabama a good place to start a business?
Alabama is an excellent place to start a business. It’s home to a diverse business landscape, from rich agricultural areas to growing urban regions and college towns. Alabama also offers several favorable tax programs, including a small business and agribusiness tax credit for companies with 75 employees or less and a state investment credit for job creators.