Small businesses are the backbone of any state’s economy and Tennessee is no different. Many of the larger and thriving businesses in the state were once small businesses. One of the crucial differences between these thriving businesses and those that never seem to make it past their first year, is planning and access to resources. Knowing where to go to get the answers and who to talk to is half of the battle. There are several resources that have been created by the government of Tennessee, primarily through the Department of Economic and Community Development. The Small Business Administration is one such resource and is federally funded. The (BERO) Business Enterprise Resource Office is another free resource for new business owners. There are many ways to go into business in TN, and choosing which direction is best for you is one of the first of many decisions you will have to make. The following is intended to help you begin the thought process, and to give you an overview of how to start a business in Tennessee.
What type of Tennessee business will you start?
There are many ways you can go into business in Tennessee. One is purchasing an already existing business from someone else. Many chain stores offer franchises, so going into business could involve beginning a franchise. Lastly, you could start your own business from scratch. All business types can be successful in Tennessee, as long as you are fully aware of what each will require. If you purchase someone’s existing business, you are purchasing not only the building, but the inventory and the clientele. You are also purchasing any debts that may already exist. If you purchase someone’s business, and they were a sole proprietorship or a general partnership, then even though that owner had a current business license, you will have to get a new one in your name. This can be done through the local county clerk’s office. Franchises come with their own structures and processes. The advantage is that once you pay your upfront costs, the larger company acts as a safety net, producing many of the materials and furnishings that you will need to start with. Just bear in mind that with a franchise, you never fully own all of the rights to the business, and in many cases will have to pay the parent organization some monetary amount for varying lengths of time. Setting up your own business means that you will literally be starting from the beginning. The advantages are that you have not inherited anyone’s mistakes, bad choices or debts. In addition, you do not have someone at a corporate level dictating what you will do and how you will do it.
Setting Up the Proper Legal Business Structure in Tennessee
Most small businesses begin as sole proprietorships, and eventually switch out to another structure as their business grows. Sole proprietorships do not have as much paperwork, but there is also not as many tax breaks as other types of structures. Partnership structures are where two or more individuals decide to go into business together. A good example of this is a business that is owned equally by a husband and wife. Corporations are larger structures that can expand with growth, without having to shift or change the structure. There are several types of corporate structures, the C corporation and the S corporation. The C corporation will require you to have a board of directors, officers of the company, stockholders, owners, and regular board meetings that are recorded. S corporation structures take the best elements of a C corporation, and the best elements of a sole proprietorship. The result is limited liability if something goes wrong in the company, and the tax benefits are greater.
Identify Your Tennessee Business With the IRS
Once you have determined your business structure, you will have to either request a FEIN number from the IRS (Federal Employer Identification Number), or you can use your Social Security Number. The best strategy is to get the EIN number because if you decide to hire employees in the future, you will already have the number you need. Many local counties, but not all, require an additional business license for the area (depending on the business type). It may be referred to as a privilege tax. Certain businesses are exempt from this tax, however. You should check with your local clerk of court office to find out if your county requires one, and if your business is exempt. Register your business with the state of Tennessee online or in person.
Taxes on Businesses in Tennessee
You will be required to pay estimated taxes every three months (referred to as a financial quarter). An accountant can advise you as to how much that would be, initially. End of the year taxes will be due at an earlier date than personal taxes are, so be aware of those deadlines. If you have employees, you will be required to pay taxes, referred to as payroll taxes. This is where you will withhold a certain amount of money from their paycheck each pay period, on their behalf. The amount is based on the information the employee provides when he or she fills out W-4 forms.
Other Small Business Resources in Tennessee
Knowing who to talk to when you start your business is crucial to getting the right help, right when you need it. The state of Tennessee offers many such resources. BERO, the Tennessee Small Business Development Centers (TSBDC), SCORE, the Small Business Administration and The Tennessee Manufacturing Extension Program (TMEP) are all large nonprofit organizations that are knowledgeable about all aspects of business, especially small business.