How to start a business in Tennessee
If you’re considering opening a small business in Tennessee, you’re not alone. Tennessee is home to over 600,000 small businesses, representing 99.5% of total Tennessee businesses.
Nicknamed the Volunteer State, Tennessee is a popular place to start a small business because of its workforce statistics, economic environment and affordable tax rates
Whether you’re planning an old-fashioned candy store or blues-themed diner, here’s what you need to know about starting your own Tennessee business.
What do you need to start a Tennessee business?
To start a business in Tennessee, the steps below will be a big help. Along the way, you’ll work with local, state and federal agencies. While this might sound a little intimidating, we’re breaking the process down with guidance and action steps to help make the process easier. This is a worthwhile pursuit, and you’ve got this!
Choose your business idea and develop your business plan
A business idea is crucial to starting any business, and is the first step to creating a new business. There are many ways to choose a business idea. Maybe you have always dreamed of starting a particular business, or perhaps you noticed a need in the market for a certain product or service. Many businesses also develop as a result of a small business owner’s passion project that turns into a full-fledged operation.
No matter how you end up with your business idea, you’ll need to perform research before bringing your idea to life. You should look at the target market and competition: Who are you selling to? What other types of businesses will you compete against? Once you’ve done a little research, it’s time to develop a business plan.
Your business plan outlines the goals of your business, and potential lenders, partners, investors and clients will use it to better understand the concept and forecast your company’s success. If you plan to apply for financing for your business, a business plan is crucial to securing a bank or Small Business Administration (SBA) loan. You’ll need to include the following information in your business plan:
Serving as the introduction to your business, this section should cover a brief company overview as well as your mission and vision statement. You’ll describe your business idea, the goods or services you intend to sell, your leadership structure and relevant financial figures.
Think of this as a big picture overview. It should include a variety of information like who your customer base is, what pain points your business will solve, the competitive advantages you have and your business type (like B2B or B2C).
Are you noticing a theme yet? Money and numbers are a big part of a business plan. Here, you’ll give financial projections and calculations and detail how and when your business will achieve profit.
Here, you’ll explain how your business will succeed based on research you’ve completed. You’ll want to share market conditions, a competitor analysis and customer demographics.
Products or services
Full of details big and small, this section is a deep-dive into the products or services you’ll offer. Describe the entire product or service lifecycle, including specifics like procurement (how will you select and buy your products?) and any affiliated intellectual property (how often will licenses need to be renewed?).
Market and sales
Advertising is crucial for new businesses. In this section you’ll outline how you’ll market your products or services. Get specific about pricing and the channels, methods and promotions you’ll use to spread the word and generate revenue.
Bankers and investors will want to know your financing requirements and how you plan to use the capital you’re seeking, whether you’re going for venture capital, a small business loan, investment programming or crowdfunding.
Last, you’ll create a section with any other necessary information, including product or service descriptions, permits, licensing and credentials.
Determine the legal structure of your business
After you’ve decided on a particular business idea and put your business plan together, you’ll need to determine your company’s legal structure. This decision can impact personal liability, business liability, access to funding and more. Therefore, it’s important to know the pros and cons of each structure and how each works before choosing which is right for your business. If you want additional information or guidance, reach out to a local attorney or accountant — even better if a trusted mentor can make a recommendation.
In a sole proprietorship, a single person owns and operates the business. As the simplest structure, it has the fewest legal or regulatory requirements. That makes it a great choice for someone just starting out, although there can be a higher risk and more personal liability for sole proprietors.
In many cases, a sole proprietorship will operate under the person’s name. However, there are some sole proprietorships that operate under a doing business as (DBA) name. For instance, a house painter named Paul Jones may choose to operate under the name Paul’s Painting instead of his legal name. If you elect a DBA name, you’ll need to register an assumed name with the Tennessee Secretary of State. The filing fee is $20.
A sole proprietorship is a pass-through entity, meaning that the government taxes income for sole proprietorship businesses through the individual’s income tax return.
Limited partnership (LP)
In a limited partnership, two or more people join together to form a business. This structure has at least one general partner and at least one limited partner. General partners share liability for debts and obligations, while limited partners incur limited liability based on their contributions to the partnership.
If you form a limited partnership in Tennessee, you’ll be required to file a Certificate of Limited Partnership with the Tennessee Secretary of State. For limited partnerships, tax obligations pass through the partnership and fall to each of the partners based on their share of the business’s income.
General partnership (GP)
A general partnership is very similar to a limited partnership, except that each general partner is liable jointly and severally. Like many states, Tennessee does not require general partnerships to register at the state level. However, applying for state tax identification and registering the business name is necessary. Once again, a general partnership is a pass-through entity, so each partner assumes tax responsibility on their personal tax returns.
Limited liability company (LLC)
A limited liability company provides advantages and liability protections similar to a corporation with tax advantages similar to partnerships and sole proprietorships. To form an LLC in Tennessee, you’ll need to file Tennessee Articles of Organization with the Secretary of State. In addition, you need to pay the filing fee, which is $50 per member with a minimum fee of $300 and a maximum fee of $3,000.
LLC members should designate a registered agent and ensure they have an operating agreement in place, as it binds how the LLC will operate between members.
A corporation is a legal entity separate from its shareholders. As a corporation, the business is responsible for the debts and obligations of the business, which protects shareholders from personal liability for claims against the corporation. The trade-off for this liability protection is higher tax rates than other business structures.
To register a corporation in Tennessee, you’ll need to file a For-Profit Charter with the Secretary of State. This is similar to the Articles of Incorporation in many other states. You’ll need to appoint a registered agent for the corporation and ensure you’ve filed for an Assumed Name for the business. In addition, you should write corporation bylaws, appoint directors and hold directors’ meetings.
Select a business name
While you decide on the legal structure that fits your business best, you can work on finalizing your business name. The name you choose should stand out from the rest of the market and give customers information about your business and what it offers. To double check that the name you pick is available, run it through the Business Name Availability Search.
If preferred, you can reserve your business name before you file your business registration paperwork. You’ll submit an Application for Name Reservation and pay the $20 filing fee to do this. In Tennessee, name reservations are valid for 120 days.
Register your Tennessee business entity
Next, you’ll need to register your business for tax purposes. Most business structures require you to pay local, state and federal taxes. First, you’ll need to apply for a federal employer identification number (EIN). This unique number helps you pay the Internal Revenue Service (IRS). An EIN is also crucial for opening a business bank account, applying for the right licensing and permits and hiring and paying employees. If you are opening a sole proprietorship, you can use your social security number instead of an EIN.
Depending if your business meets the criteria, you’ll need to apply for an Employer Identification Number with the Tennessee Department of Labor and Workforce Development. You’ll use this number to pay unemployment insurance premiums. Your business may also need to register for certain tax types, including sales and use taxes. A local professional familiar with the laws and requirements in Tennessee will be able to ensure you’ve registered correctly.
Apply for Tennessee licenses and permits
After registering, check to see if your business requires any special licenses or permits. Because these permits vary by industry, you’ll need to do a Tennessee Regulations Search to confirm which licenses or permits you need. Though it’s optional, it can be helpful to check with local city or county officials to make sure you’ve met all the requirements.
Pick a business location and check zoning laws
Once you have the necessary business licenses and permits, you’ll need to choose a physical location — whether a retail space, office or warehouse — for your business. When selecting a location, consider accessibility, proximity, zoning and – of course – expenses. Zoning laws can be very specific, so you may need to contact your city or county clerk’s office to confirm the rules and regulations for the building or land.
File and report business taxes
As a business, you have to file business taxes and report all business income. If your business is subject to business tax, you’ll need to register using the Tennessee Department of Revenue’s Tennessee Taxpayer Access Point (TNTAP).
Making late tax payments or missing them entirely can result in big fines and penalties, so it’s important to work with a local tax professional, if needed, to ensure payments are completed.
Obtain business insurance
While many businesses won’t need business insurance, it’s important to understand the various types so you can decide what’s right for your business. Here are the most important types of insurance for businesses:
General liability insurance
This insurance type covers losses your business causes to other companies, vendors or clients. While many businesses never have to worry about utilizing general liability, it’s a good idea for your peace of mind.
Workers’ compensation insurance
In Tennessee, businesses with more than five employees are required to carry workers’ compensation insurance. This insurance type covers any claims that result from work-related injuries or accidents.
Professional liability insurance
Businesses that provide professional advice, consulting or accounting services should consider professional liability insurance, as this insurance type covers financial losses due to instances of business malpractice or negligence.
Open a business bank account
Keeping your business finances and personal assets separate is crucial when you’re opening a startup. You’ll want to open a business bank account, which can help simplify your bookkeeping, payroll and bill pay.
Opening a business bank account is easy. First, compare local and national credit unions and banks, choosing the best option for your business needs. Then, visit your choice in person or online to open an account. Keep in mind that most banks require an EIN to open a business bank account, so you’ll want to complete register your business entity first.
In addition to a business bank account, a business credit card can also help you build your business credit and keep business-related expenses separate from personal expenses. Like personal credit cards, business credit card applications can be found online.
Frequently Asked Questions (FAQs)
How much is it to start a business in Tennessee?
Startup costs can vary based on the type of business you have and the industry you’re in. For example, starting your LLC could cost between $300 and $3,000 depending on how many members it has.
What do you have to do to start a business in Tennessee?
Starting a business in Tennessee can be a rewarding experience, and this step-by-step guide is a great jumping off point. You can also find more resources to help you run and grow a business below!
Is it hard to start a business in Tennessee?
Starting a Tennessee business is relatively straightforward, but it does require some work up front — just like it would in any other state. You’ve got this!
Do you need a business license to start a business in Tennessee?
This will depend on the amount of annual gross receipts from your business. You do not need a business license if your business makes under $3,000 annually. If it makes more than $3,000 and less than $100,000 in gross sales, you will need a minimum activity license. Any business that makes over $100,000 in gross sales annually will need to register for a standard business license.
What does a business license cost in Tennessee?
Business license fees vary based on the local jurisdictions, but most business licenses cost between $15 and $50.
Ready to work with a company that knows what it’s like to start a business?
Establishing a small business or startup requires a lot of work, but with your passion and our guide (there’s additional resources below!), we’re confident you have what you need to put your best foot forward.
You can get additional guidance and lots of inspiration when you check out the Start-Up Path for Entrepreneurs. It’s a curated resource that complements the information reviewed here, and you can reference it anytime as your business grows or shifts. The best part? It’s completely free.
From interactive worksheets and planning tools to advice from real entrepreneurs who know what it’s like to launch a business, The Start-Up Path gives you invaluable tips and advice — from marketing to profitability — that you can move through at your own pace.
We know you’re busy, so if tuning in on-the-go content suits you better, give the Entrepreneur’s Studio podcast a listen.
Whenever you’re ready to open your Tennessee-based business, know that Heartland is here to assist you.
Heartland is the point of sale, payments and payroll solution of choice for entrepreneurs that need human-centered technology to sell more, keep customers coming back and spend less time in the back office. Nearly 1,000,000 businesses trust us to guide them through market changes and technology challenges, so they can stay competitive and focus on building remarkable businesses instead of managing the daily grind. Learn more at heartland.us