Urban Extension

Starting a Business in Alabama

3 min read
business people

Getting Started

Entrepreneurship and owning a small business are part of the American dream. Some individuals pursue business ownership for independence, to highlight their talents, or to turn hobbies into profit. Others may choose this path to meet others’ needs or solve problems in their communities. According to the U.S. Small Business Administration, small businesses account for over 99 percent of all businesses in Alabama and employ over 800,000 individuals.

Entrepreneurship is a way that society can address economic challenges, including joblessness and unemployment. Plus, it can improve the lives of individuals and families. While challenges such as job loss or barriers to employment may create fear and uncertainty, for some, this may be a nudge to start a small business.

The Alabama Cooperative Extension System’s community resource development team (CRD) at Alabama A&M University is ready to assist you along your journey to small business ownership. To start, you can schedule a virtual appointment with one of our team members today, and begin turning your dream into reality. Just visit www.aces.edu/go/1on1s. Also, start working through the steps listed below.

Conduct Research

For starters, beginning a business requires extensive research about your business idea, potential customers, and competition.

  • Determine if there is a need for your business idea. Are you filling a service or product void in your community?
  • Gather information on similar businesses already operating in your community.
  • Identify potential customers.

 Create a Business Plan

Business plans help entrepreneurs to develop business goals and define what it takes to accomplish these goals.

  • Traditional business plans are more common. They have a standard structure and are very detailed.
  • Lean startup plans are less common. They focus on summarizing only the important key points of your business.
  • Your business plan layout needs to include plans for the next three to five years of operation.

Determine Legal Structure

Business structure indicates the legal structure of a business in a given state and how it operates.

  • Know the four main types: sole proprietorship, general partnership, corporations, and limited liability company (LLC).
  • Determine how much tax you will have to pay.
  • A business structure will also determine the requirements to register a business.

Obtain an EIN Number

Businesses need an employment identification number (EIN) to pay employees, to file tax returns, or to report employment taxes. Another option used for identification and not employment tax purposes, is the taxpayer identification number (TIN).

  • The EIN is a nine-digit number that is assigned by the Internal Revenue Service (IRS).
  • Apply for an EIN or TIN through the IRS website for free.

Business License and Permits

Business licenses and permits may be necessary for taxes, loans, hiring employees, and setting up a bank account.

  • There are a variety of local permits and licenses that may be mandatory.
  • Registration allows a company to do business in a city, county, or state.
  • Register a business at your local county courthouse, probate office, or city hall.
  • Business owners may need to show proof of an EIN to register.

If you are opening an LLC:

Alabama Tax Account

Business owners receive a state identification number when they register a business. 

  • Register your business to make it a distinct legal entity.
  • The state tax ID number allows owners to hire employees and to direct taxes on their behalf. It is different from your federal tax ID number.

Note: Click here to access Alabama’s Business Tax Online Registration System.

Business Bank Accounts

Business bank accounts are important assets to small businesses and proof that owners conduct business activities separate from personal activities.

  • Business owners will need state incorporation papers and an EIN.
  • All partners whose names need to be on the account must be present.
  • Select a bank that best suits your needs.
  • Create a business bank account that helps to build a company credit profile.

Set Up Accounting System

Accounting enables a business to track income and expenses, as well as manage its financial operations of a business.

  • Consider whether to hire an accountant or handle the accounting on your own.
  • Be sure to keep up with profits and losses.

Obtain Insurance

Like home insurance, business insurance provides some protection from liabilities.

  • Become familiar with regulations in the industry.
  • Identify insurance options.
  • Look into liability insurance, including insurance for manmade or natural disasters.

Hire Employees

Hiring the right employees can make or break a business. 

  • Look for candidates with skills that match a job’s requirements. This includes soft skills, such as communication, problem-solving, and teamwork.
  • Make sure you have the proper paperwork before you hire an employee.
  • Be sure to use forms from the IRS.

Starting a small business can be challenging, since it requires learning as much as possible about owning and operating a business. Being informed helps to remove some of the fear, uncertainty, and self-doubt you may experience. Use this information to help you to get started on running a successful small business.

More Information

Starting a business can be overwhelming, considering all of the information and resources available. Be sure to sign up for the CRD listserv to be notified about upcoming workshops, programs, and courses: www.aces.edu/go/crdinfo