The Grand Canyon state is a great place to do business. Arizona has the 3rd best economic growth prospects in the nation, as well as the 6th fastest rate of new entrepreneurs entering the world of business. And of course, it’s a beautiful place to live!
There are more than 571,000 small businesses in Arizona, which means that approximately 1 in every 12 Arizona residents owns their own business! More than 99.4% of all Arizona businesses are considered small businesses.
If you’re looking to join the ranks of these entrepreneurs, you’ve come to the right place. This guide will explain how to start an Arizona business, from start to finish.
But how do you start a business in Arizona? The specifics depend on what type of business you want to form, as well as the legal structure that you choose (LLC, corporation, etc.) Regardless of your plans, the guide below will walk you through everything you need to know.
Decide on a business idea
First and foremost, you’ll need to decide what kind of business you want to start. Chances are you already have something in mind, but if not, here are some things to consider:
- What are you talented or naturally skilled at? Could this talent make you well suited to a certain type of business?
- What business does your community need? Have you talked to people to find out?
- What are you interested in? Can you combine any of your passions with a business idea?
- Is this going to be a full time business, or more of a side hustle?
These are questions to ask yourself when deciding on a business idea. Once you have decided, move on to the next step.
Plan your Arizona business
Now it’s time to start planning. This means coming up with a business plan, naming your business, researching locations, and more. There’s a lot to cover here, so let’s break it down:
Select a business name
To name a business in Arizona, you must register the business with the state (see below). Before doing this, you must decide which business name you want to use. There are various rules and regulations that must be followed.
The biggest requirement is that the business name be distinguishable from other business entities in the state of Arizona. This means that your business name must be unique from all other businesses in AZ. To confirm that your desired name is available, you can conduct an Arizona business entity name search online.
Business names in Arizona must meet these requirements, among others:
- The name must be distinguishable from other Arizona businesses
- LLC names must contain the words “limited liability company”, or abbreviations such as “LLC” or “L.L.C.”
- Certain words or phrases require written permission in order to use. This includes terms like “bank”, “trust” or “credit union”.
- Other rules apply. See the full AZ business naming rules here.
Once you have selected a business name, you can move on to the next step. Alternatively, you can reserve the name for 120 days. This is helpful if you want to save the name but are not yet ready to proceed with forming the business entity.
Business owners should also be aware of the potential to use a trade name, otherwise known as a doing business as (DBA) name. This is essentially a secondary name that you can do business under. Once you register your LLC or corporation, you can add on trade names to give your company more flexibility in branding and marketing itself. DBA’s must be registered, but the process is simple. Learn more here.
Register a domain name
Once you choose a name, you should immediately register a domain name for your new business. In most cases, getting a .com domain name is ideal, but there are many other extensions (.biz, .net, etc.) that are worth considering.
You can use a tool like Namechk to search for an available domain name and find a great deal on the registration cost. You may find that your desired names are taken, so you may need to get creative.
Complete market research
Once you have an idea, you’ll want to do some market research. You want to gain a better understanding of who your customers – and competitors – are. You can achieve this by conducting online research, running focus groups, sending out surveys, and more. There are also companies that can help you complete market research, for a fee.
Select a business location
Unless you plan to run a remote/virtual business, you will need to find a physical location for your company. Research commercial property in your area, and take note of typical costs. For customer-facing businesses (retail and some services), location is very important, so take your time in selecting the right area for your business.
Create a business plan
You will now need to create a detailed business plan for your new venture. This plan is helpful for your own purposes, and will also be necessary in order to obtain funding from a bank. A good business plan should contain these elements:
- Finances: How much funding does the business need to get started? How many sales does it need each month to break even on expenses?
- Product: What do you plan to sell? Is it a product or a service? What problem does your business solve, and how is it distinct from your competitors?
- Marketing: How will you drive sales? What marketing and sales efforts do you plan to employ? How much money will you set aside to fund marketing efforts?
- Staff & Partnerships: How many people will you need to hire, and what skill sets do they need to have? Will you have any partnerships or arrangements with other local businesses?
If you need help, you can find business plan templates online that will help walk you through the steps you need to take to draft a detailed business plan. If you plan to seek funding, you may also wish to call your bank to see what they require in terms of business plans.
Decide on a business structure
Before you form your business as a legal entity, you will need to decide which business structure you will use. There are a few different types of businesses, each with its own pros and cons.
Sole props are single-person operations. Examples include freelancers, gig economy workers and consultants. A sole proprietorship business is very easy and inexpensive to form, and tax reporting is also fairly simple. As a sole proprietor, your business taxes are reported as part of your personal tax return.
The downsides to a sole prop are that you cannot hire employees, and you don’t have the legal liability shield that something like an LLC or corporation would provide. 100% of the debts and liability of a sole proprietorship go to the sole owner: you.
A general partnership is an unincorporated business structure similar to a sole proprietorship, except with two active owners/participants. Partnerships do not have liability protection.
Limited Liability Company (LLC)
A limited liability company, or LLC, is a popular choice for business owners because it provides liability protection to the owners. It separates the business from the owners, which means the personal assets of owners will not be at risk if the company gets sued or goes into bankruptcy.
LLCs are also a bit easier to form than corporations. Even so, there is definitely more work involved with an LLC than there is with a sole proprietorship.
A corporation is owned by its shareholders, and is a separate entity. There are a few different types of corporations (C-corp, S-corp, etc), with the main differences being the way they are treated tax-wise.
Corporations are more regulated than LLCs, which makes them more attractive to outside investors. For this reason, most large companies are corporations. The downside is that it takes more effort, and more paperwork, to form a corporation.
A nonprofit is a legal entity that is set up with charitable status, meaning that its goal is not to make a profit, but rather to address a certain cause. Nonprofits are funded by donations, rather than investors, and are subject to many regulations. They are exempt from most forms of taxation, although tax returns must still be filed.
Register your business in Arizona
Next, it’s time to actually formally register the new business. The specific steps of this process differ slightly, depending on the business structure you are forming (LLC, corporation, etc.)
To save time and hassle, it’s recommended to use a professional business formation service for this step. Some great options to use include Northwest Registered Agent, ZenBusiness, and Incfile. These companies charge you a small fee to help guide you through the entire formation process, ensuring that everything is done accurately.
Whether you use a service or do the work yourself, forming an Arizona company will include several important steps, like:
- Selecting a name for your business (see step #2 above)
- Choosing an Arizona Statutory Agent for the business (this agent is responsible for receiving important legal documents on behalf of your business. In other states, this is known as a Registered Agent.)
- Filing formation documents with the state of Arizona
- Applying for an Employer Identification Number (EIN) from the Internal Revenue Service (IRS)
Form a business in Arizona
You will need to work with the Arizona Corporations Commission (AZCC). The specific requirements will vary a bit depending on what type of business entity you are forming (LLC, corporation, etc), but regardless of the entity type, you will need to file some paperwork with AZCC.
The exception to this is if you plan to form a sole proprietorship. This process is quite simple, and generally requires no formal filings on the state level. Sole proprietors may still need to apply for local business licenses/permits, however (on the city/state level). The AZ Commerce Authority has more information.
For LLCs and corporations, the process is handled by the AZ Corporations Commission. Here’s how to proceed.
Form an Arizona LLC
Follow these steps:
- Name your LLC (follow the Arizona LLC naming rules)
- Choose a Registered Agent (or use a service such as Northwest Registered Agent)
- File the LLC Articles of Organization online, and pay the $50 filing fee. The form can also be filed by mail
- Draft an LLC operating agreement
- Apply for an EIN with the IRS
Form an Arizona corporation
Follow these steps:
Apply for business licenses and permits
Registering your business and forming an LLC or corporation is an important part of starting your business – but in order to operate legally, you will likely also need to obtain certain permits and/or business licenses.
The specifics vary depending on the type of business you are running, as well as your location. For example, restaurants will need health permits, bars will need liquor licenses, and medical service providers will need various professional licenses and federal permits. You will need to research the specifics that relate to your business type.
There are different requirements at each level of government:
- Local: Cities and counties may require certain business licenses or permits. Contact your county clerk for details.
- State: Arizona may require certain permits or licenses. Check the Arizona Department of Revenue website for details.
- Federal: Federal permits/licenses may be required for certain regulated industries, such as construction, medicine and legal services. Check the Small Business Administration (SBA) guide for more details.
At this time, you should also apply for an Employer Identification Number (EIN). An EIN is a federal tax ID that is required to hire employees. You can apply for an EIN online with the IRS – the application is free and quick.
For most businesses, some startup funding will be necessary in order to get started. In step #2, you should have calculated your funding needs while drafting a business plan. Use this information to determine how much funding you need to raise.
For bootstrapped companies, you may be able to get by with your own personal savings, or some seed investments from friends and family. If your funding needs are small, this is likely your best route.
If your business plan indicates that substantial funding is needed, you will likely need to apply for a loan and/or a grant.
- Small business loans are offered by banks, credit unions and other lenders. They can range from as little as a few thousand to hundreds of thousands. Specifics will depend on your business, as well as your personal creditworthiness. Most small business loans are issued in a lump sum, and paid back on a monthly basis, with interest.
- Small business grants are offered by government agencies and some nonprofits. They are essentially business loans that don’t need to be paid back – but they usually have substantial fine print. It’s worth looking into, however, as there may be grants available, particularly for businesses serving an important social need, or for underprivileged entrepreneurs starting their first business.
Set up your business finances
Beyond securing funding, there are other routine tasks that you need to take care of to get your business’ finances in order. This includes:
- Opening a business checking account. You should have a separate business bank account that you use solely for business purposes. You can open this account at most banks, credit unions and financial institutions. Call ahead to see what documents will be required to open this account.
- Open a business credit card or line of credit. This is not strictly necessary, but most businesses can benefit from having a business credit card, and/or a business line of credit. This can be used for day-to-day expenses and purchases, and may also earn you some rewards.
- Set up your accounting system. As a business owner, you will need to keep very detailed records about all revenue and expenses. To do this, you’ll want to set up the proper foundation from day one. This could be investing in an account software such as QuickBooks or Xero, hiring a bookkeeper, or at the very least establishing a spreadsheet to track everything. If you do not have any accounting experience, it’s wise to hire a professional to help.
- Purchase business insurance. Most businesses should have some form of liability insurance, and potentially other forms of business insurance as well. Insurance policies can help protect your equipment and buildings from costly damage, and help shield your company from liability if a worker or customer is injured or otherwise harmed. Speak with a local business insurance provider to get started.
Create a business website
In this day and age, having a solid web presence for your business is very important. And social media profiles, while important, are no replacement for an actual website. You will want to build a professional business website that you can use to drum up business, inform your customers, and stay connected with your clientele.
The simplest way to build a website is to use a website builder from a web hosting provider. When you register a new domain name, look for a provider that also offers web hosting and a site builder, so that you can purchase everything at once and get your site set up quickly.
Unless you plan to operate a solo business (with you as the only worker), you will likely need to hire employees. To do this, you will need a federal employer identification number (EIN), which is a free tax ID number issued by the Internal Revenue Service (IRS).
When you hire a new employee, you will also need to report the new hire to the Arizona New Hire Reporting Center within 20 days of hiring them. This can be done online.
At this point, you also should look into setting up your payroll system – whether you handle it yourself, or use a payroll service.
Run and grow your business
Now it’s time to get down to business and engage with the day-to-day activities that are sure to bring your business success. This means marketing your products and services, maintaining good relationships with your return customers, and setting yourself apart from the competition.
Arizona business FAQs
Still have questions about running a business in Arizona? Here are some answers to frequently asked questions that AZ business owners have.
What are some business resources in Arizona?
Business owners in Arizona have a variety of resources at their disposal. A great place to start is the Arizona Small Business Development Center (the AZBDC). This resource provides free business advisor services, webinars and training, and many other useful resources. The Arizona Commerce Authority is another good resource, as is the Arizona District Office of the Small Business Administration (SBA).
Are there business assistance programs available in Arizona?
There are many business assistance programs available in AZ, many of which target certain types of entrepreneurs. You can search the internet for assistance programs relevant to your industry, starting with resources linked above like the Commerce Authority and the AZ Small Business Development Center.
What is the minimum wage in Arizona?
The Arizona Minimum Wage is $12.15 per hour, as of 2021. Business owners can view the Industrial Commision of Arizona website for details. Certain cities or counties may impose their own minimum wage laws. For instance, Flagstaff currently has a minimum wage of $15 per hour, and a tipped minimum wage of $12 per hour.
What business taxes does Arizona have?
There are a variety of taxes in Arizona that business owners must pay. AZ has a state sales tax of 5.6% (called the Transaction Privilege Tax), plus there is sales tax on the local city/county level as well. Business owners will need to collect and pay these sales taxes if they are selling taxable goods or services.
Additionally, many firms will be subject to corporate income tax. Specialty taxes may be collected for industries like alcohol and tobacco sales, or gambling. And any Arizona business with employees will be subject to withholding tax and unemployment tax.
How do I dissolve an LLC or Corporation in Arizona?
If you end up needing to close your business, you will need to dissolve it. To do this, you must close down your tax accounts with the AZ DOR, and file some paperwork. You must submit the Articles of Termination online (see more info here).
Closing a business can be complex, so you may wish to hire a certified public accountant (CPA) for help with this process.
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