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Aside from being a nexus of international trade and a major East Coast hub for the US tech industry, one of the main draws for starting a business in Massachusetts is its people.
The state consistently ranks as the most educated state in the country and is home to over 100 universities and colleges, including some of the top-rated schools in the world such as Harvard, Tufts, MIT, Northeastern, Boston College, Amherst, Williams, and Wellesley—to name a few.
Your new business has the opportunity to grow alongside and maybe even employ some of the best minds in the country. It’s an exciting and dynamic place to start a business, but the process to get going can be complex. This step-by-step guide will take you through the main elements of starting a business in Massachusetts.
1. Choose a business idea
When it comes to starting a business, you must first have a great business idea. Are you going to sell something new that fills a gap in the market? Or perhaps you’re going to improve on an existing product or service? There are two key questions you should ask yourself:
- Who is your customer? Is your business direct to consumer (B2C) or business to business (B2B)? Identify your target customer, thinking through who they are and their needs or wants. Will you sell your products online, through a brick-and-mortar storefront, or both? You should survey prospective customers, conduct market research, and research industry trends.
- What is your projected profitability? Every business has to make a profit in order to survive, and businesses in Massachusetts are no different. There are several variables to profit strategies, such as price, distribution, and overhead costs. Figure out how much you need to sell in order to break even, then generate a healthy profit margin.
2. Name your business
You need to come up with an effective business name once your idea is finalized. Creativity is a consideration but so is ensuring that the name is easy to remember. Above all, land on a name that can grow with you and your business. When naming a new Massachusetts business, you must:
- Check state availability. You need a business name that isn’t used by any other business in the state of Massachusetts. Search through Massachusetts business entities to see if any of your top choices for names are available for registration.
- Include required terms. If you choose to form an LLC or corporation, registered Massachusetts business names must contain words or abbreviations that distinguish their business type. That usually includes terms like limited liability company, limited company, corporation, Co., LLC, LC, L.L.C., or L.C.
- Be separate from government entities. Your name cannot be a term that could be reasonably confused with a government entity. For example, you can’t name your company “Massachusetts Police Department LLC” or “CIA LLC.” Additionally, you cannot name your business something that could reasonably be confused with another existing, registered business with the state or that would wrongly indicate you operate in a regulated industry, such as health care, law, financial services, or higher education.
- Consider a DBA. A DBA, or “doing business as,” allows you to operate under a different name than that of your legal entity. In Massachusetts, this process is known as getting a business certificate. City governments are the entities that approve business certificates, not the state itself. In Boston they cost $65 but fees vary from city to city.
- Acquire a domain and social media handles. Ideally, the name you want for your business should be available for purchase online as a website domain. Check to see if your top picks for a website name are available—and buy one or more domains as necessary. Repeat this process for social media handles.
3. Create a business plan
Your next step is to draft a business plan, which acts as the master document you use to map how your business will run, how it will make money, and how you plan to grow. The process of writing a business plan is crucial to help you put pen to paper on your vision, and is especially vital if you’re planning on pitching your business to investors to raise capital. To get a headstart on your business plan, you could use a template to organize your thoughts or review example business plans for inspiration. Your plan should include:
- An executive summary
- A company description and mission statement
- A portfolio of products or services
- A summary of the company’s organizational and managerial structure
- Financial plans, including forecasted business income and business expenses
- A customer segmentation report
- Market research and target market analysis
- A comprehensive marketing plan
- An operations and logistics plan
4. Choose a business structure
The most popular business structures for up-and-coming entrepreneurs are sole proprietorships, limited liability companies, and corporations. More than one option may fit your business, but the distinctions can help you identify the best fit for you. Here’s a breakdown of each business structure:
A sole proprietorship is often the most straightforward way to start a business. Within this structure, there is no legal distinction between you and your business. You receive all of the money from your business and pay tax through your own personal tax return. As of 2022, Massachusetts has an individual tax rate of 5% on all earned or unearned income, though certain capital gains can be taxed at 12%.
This option is a flexible, simple way to start a business, especially if you have little risk, low overheads, and no employees. Plus, it’s easy to transition into an LLC or corporation in the future.
Limited liability company (LLC)
Limited liability companies, or LLCs, are an excellent option for small business owners because they’re straightforward to apply for and, unlike sole proprietorships, include liability protection. Your personal assets are insulated in the event that your business is sued or takes on debt it cannot repay. LLCs are owned by members and are considered pass-through entities, meaning your business income will flow to the members to then be taxed at the Massachusetts personal rate of 5%.
A corporation, or C corp, is a formal business structure that is completely independent from its founding members. Corporations provide the most liability protection for founders when compared to LLCs or sole proprietorships, and owners are allowed to sell shares in exchange for outside investment. This makes them a great option for companies that need to raise significant cash before getting off the ground or to grow quickly.
A corporation pays taxes on its profits as a business. In Massachusetts, this is called the corporate excise tax. Though rates can differ across industries, plan to pay 8% of your taxable net income as a business. From there, your pay as a shareholder would also be taxed personally—however, you can file Form 2553 with the IRS to be viewed as an S corporation, which would eliminate double taxation.
This option is best for founders who have a business idea that is ripe for growth and fundraising. It’s also ideal if you can project high profitability in your business or a substantial chance of future acquisition.
Get a federal employer identification number (EIN)
For most business options, you will have to apply for a federal employer identification number (EIN). The EIN allows your business to file permits and licenses, hire employees, open business bank accounts, and pay federal and state taxes. You can apply for an EIN number for free with the IRS online. If you’re a sole proprietor and would prefer to use your own Social Security number to report your tax payments, however, an EIN is not required for your business.
Incorporating in Massachusetts
To incorporate in Massachusetts, you must file Articles of Organization with the Secretary of the Commonwealth of Massachusetts. This costs $275 for access of up to 275,000 shares and an additional $100 per 100,000 extra shares.
5. Obtain business licenses and permits
Massachusetts does not have a general business license but, depending on your industry, you may have to obtain specific business licenses and permits. Industries that require certain licenses include retail, transportation, health care, and real estate. Massachusetts maintains a database of the various permits and licenses that may be necessary for your business.
6. Examine business insurance options in Massachusetts
The state of Massachusetts requires LLCs and corporations to have two types of insurance: workers’ compensation insurance to help cover the costs of medical expenses for work-related employee injuries, and commercial auto insurance to cover business vehicles. Another federally mandated business insurance for companies with employees is unemployment insurance. This is a fund used to pay employees who have lost their job through no fault of their own.You may also want to prepare accordingly for disasters or emergencies using an insurance policy that aligns with your business. Other common business insurance policies include:
- Professional liability insurance. Professional liability insurance protects your business in the case that a customer or client is harmed due to a professional error you’ve made in your business.
- General liability insurance. General liability insurance, sometimes called “slip-and-fall insurance,” protects you in the case that a customer or client is injured in your place of business.
- Commercial property insurance. Commercial property insurance protects you in the case that a natural disaster, such as a flood or a hurricane, damages your place of business.
7. Understanding financial considerations
Your business plan is going to be the go-to document to assess how much money you’re going to need to get your company up and running. Here are some different ways you can raise money for your new Massachusetts business:
- Bootstrapping. This is when you save up your own money to fund your business.
- Funding from friends and family. You can raise money for your startup by taking on loans or investments from friends and family. Be mindful of developing a plan of how to pay this money back to ensure that personal relationships are preserved.
- Angel investors and venture capital. An angel investor is an individual who invests a sum of money into your business, while a venture capital firm is a group of professional investors. These types of investments are often made in exchange for shares in the company, meaning you will have to be organized as a C corp in order to issue stock. Massachusetts is home to a number of angel investors and venture capitalists.
- Business loans. Small business loans can come in the form of microloans, commercial bank loans, and Small Business Administration (SBA) guaranteed loans. There are even online options, like Shopify Capital, that provide access to startup funds and allow you to pay back your loan via small amounts over time.
8. Market your business
Marketing is the process of reaching out to, engaging with, and converting customers. Start by building a brand—creating logos, slogans, color schemes, fonts, and marketing language—and eventually develop a detailed marketing strategy to connect to your audience. Key steps to conquer marketing include:
- Conducting market research. >Marketing research is when you determine who your ideal customer is based on demographics like age, location, or gender. Once you decide who your target customer is, you can explore avenues to reach them.
- Determine a content strategy. Create a roadmap of how you’re going to approach your social media and website campaigns for your business. One size doesn’t fit every business, so think through the ways you can connect your communication strengths as a business owner with your target market.
- Analyze conversion.Set aside time each month to analyze which of your marketing strategies are converting casual browsers into customers. Those strategies may be videos, guides, or email campaigns, but knowing how many people are converting from different sources will help you invest more into channels that make a difference.
Starting a business in Massachusetts FAQ
How much is a business license in Massachusetts?
Massachusetts does not require a general business license.
Does the state of Massachusetts require a business license?
Business licenses and permits are only required in Massachusetts for specific industries, such as health care, the building trades, and commercial transportation.
Do I need a business license to sell online in Massachusetts?
No, but depending on what you sell online, you may need to get a seller's permit and collect sales tax. Massachusetts taxes business transactions of physical goods at a sales tax rate of 6.25%, with exceptions for clothing, groceries, medicine, prescription medicine, and some digital goods.