Perhaps the most important, but often undervalued step to starting a business in Alaska is writing a business plan. While the business plan is most often thought of as something that is required to get a business loan, it can also serve as a roadmap for your business. Starting and running a business is complex and there are so many parts in motion, it’s next to impossible to keep track of everything – and that’s where the business plan comes in.
When most people think of business plans, most think about a formal document that’s as thick as a text book. Those don’t happen much anymore because they just aren’t useful. If you are writing a business plan for the bank, some formality is in order but you should also have a business plan that you can use to execute your vision, even if it’s just scribbled on notebook paper.
The second step in starting a business in Alaska is selecting a business entity. The business entity is how a business is legally organized to do business. The four primary types include the sole proprietorship, partnership, corporation and LLC. Each has pros and cons and a short description of each is below.
Sole Proprietorship: A sole proprietorship is an individual that decides to go into business. This is easiest and least expensive of the four to set up but has a serious potential downside which is unlimited liability. This unlimited liability opens the business owner up personally should the business be sued. There is no filing for a sole proprietorship in Alaska.
General Partnership: A general partnership is similar to the sole proprietor, except it involves two or more people conducting a business together. Like the sole proprietorship, there is no formal filing and also like the sole proprietorship, the partnership has unlimited liability.
Corporation: The corporation is more complex to form than the sole proprietorship or partnership but that complexity provides the owner with the ability to protect their personal assets through liability protection. If the corporation gets sued, the owner’s personal assets should be safe.
The cost to form a corporation in Alaska is $250. To form a corporation, the Articles of Incorporation must be filed with the Alaska Division of Corporations, Business and Professional Licensing.
Limited Liability Company (LLC): The LLC is similar to the corporation because of the liability protection but provides the ease of operation of a sole proprietorship by eliminating the administrative requirements of the corporation.
The initial cost to get an Alaska LLC is $250. To form an LLC, the Articles of Organization is filed with the Alaska Division of Corporations, Business and Professional Licensing.
After deciding on a business entity, the next step to start a business in Alaska is to register a business name.
HOW TO FILE A DBA IN ALASKA FOR SOLE PROPRIETORSHIPS & GENERAL PARTNERSHIPS
A sole proprietor or partnership can obtain exclusive use of a business name by filing with the State. This registration provides exclusive use for 5 years and ability to renew. Search registered Alaska business names.
In order to have exclusive use of a business name it must be distinguishable from any other names on record.
The business name reservation has a $25 filing fee and this is in addition to the business license. For more information and to register a business name visit the Alaska Division of Corporations, Business & Professional Licensing.
HOW TO RESERVE A BUSINESS NAME IN ALASKA FOR A CORPORATION OR LLC
Corporations and LLCs have to pick a name at the time of filing for the entity and each corporation/LLC has to also be uniquely named.
To check the availability of names, visit the Alaska Division of Corporations, Business & Professional Licensing..
Registering does not necessarily keep others from using the business name. For more details on registering a business name and protecting it with a trademark, click here.
The Employer Identification Number or EIN (sometimes referred to as the Federal Employer Identification Number or FEIN) is a unique nine digit number from the IRS to identify a business operating in the U.S. Much like what a social security number is to a person, the EIN is essentially a social security number for a business. While most businesses will need to get an EIN, some do not need to.
Businesses that are required to get an EIN include partnerships, corporations or LLCs OR sole proprietorships with employees.
A sole proprietorship with no employees isn’t required to get an EIN and would simply use the owner’s social security number instead.
For more information about how to apply and to see our video with step by step directions check out how to file for an EIN.
Starting a small business may require special permits and/or licensing, potentially from a variety of agencies before legally operating. Some of the most common licenses a business may need in Alaska include:
State of Alaska Business License – A business license from the Alaska Department of Commerce, Community and Economic Development is required for anyone engaging in any business activity in Alaska.
Typically, it costs $50 per year to register as a business in Alaska, however if you are a senior (age 65 and up) or a disabled veteran AND a sole proprietorship, the business license fee is discounted to $25 per year.
The discount fee is not available to partnerships, corporations, LLCs or other entities.
Local Business Licenses – Most towns, cities, counties and/or boroughs in Alaska require a business to register, even occasionally those that are home-based businesses. Each local entity has its own rules for business activity, so requirements vary depending on location as some require a business license while others have requirements for zoning, building/ building improvements, signage requirements, liquor licenses, etc.
Occupational Licenses – Some professions are required to register with the state of Alaska acupuncturists, barbers, home inspectors, accountants and many more.
Click for more details on Alaska business license requirements.
Getting the funds together to finance small business startups can be a time consuming process. Similar to getting a home loan, the bank is going to want lots of documentation on your personal finances in addition to a solid idea and business plan.
As a rule of thumb, banks will want to see the owner invest 15%-25% of their money (equity) into a start-up business. That can include cash but also any buildings, tools, vehicles, inventory and equipment that will be used in the business.
There are a number of small business loan options, but the primary ones that are used by small businesses include:
Conventional Bank Loans – These are available at most local banks and are where most entrepreneurs start when looking for a loan.
Loan Guarantee – When a loan is riskier than the bank wants to take on, many have the option to use the Small Business Administration (SBA). This is a federal program that provides a guarantee to the bank that will pay a percentage of the loan should the business owner default.
Alternative Lenders – A newer type of lender has emerged to make business loans online.
Revolving Loan Funds – Several communities, economic development agencies, etc. offer revolving loan funds to businesses as a way to encourage investment and job creation. They are often low interest and approval is typically not as strict as a bank since job creation in the community is a priority.
Expect the loan approval process to take anywhere from 2 weeks to 6 months (and possibly more) depending on the amount being borrowed, complexity of the project and owner’s personal financial condition.
Before stepping into a bank for financing, it is a good idea to know your credit score. A major factor in getting start-up business loan approval is the owner’s credit score. Typically scores above 650 are considered viable so if you aren’t sure, get a copy of your credit report.
More details about different loans for businesses is available on our financing a business page.
Depending on the type of business, there are a variety of taxes a business in Alaska needs to be aware of with the most common being sales tax, privilege tax and self-employment taxes.
Sales Tax – There is no sales tax collected by the state, however there are several municipal governments that do. More information about sales taxes and a list of municipalities is available from the Alaska Division of Community and Regional Affairs.
Self-Employment Taxes – Sole proprietors, partnerships and LLCs that elect to be taxed as such will be required to pay state and federal income taxes, Social Security, and Medicare based on the profits generated by the business.
More details are available on our Accounting & Taxes in Alaska page.
Before hiring employees, there are several items that businesses need to be familiar with before making their first hire.
Register as an Employer – Employers will need to register with the IRS and the Alaska Department of Labor & Workforce Development (Unemployment Compensation Account Number)
Fill Out Paperwork For New Employees – When hiring a new employee there are four forms that will need to be filled out; New-Hire Reporting Form (Alaska Department of Revenue), I9 (Form I-9, Employment Eligibility Verification), W-4 (IRS’s Publication 15 Employer Tax Guide).
Federal Income Tax Withholding – Employers withhold money from each employee’s paycheck to pay that employee’s federal income taxes. The employer pays no part of the withholding tax, but is responsible for collecting and remitting the taxes that are withheld.
Social Security & Medicare – To comply with the Federal Insurance Contributions Act (FICA), an employer must withhold the employee’s portion of Social Security and Medicare taxes and the employer matches.
Federal & State Unemployment Insurance – Employers are responsible for paying taxes to compensate workers who have recently lost their jobs, which is through federal & state unemployment insurance.
Worker’s Compensation Insurance – Workers’ compensation provides compensation benefits and covers medical costs to employees injured on the job. Worker’s Compensation Insurance is administered through the Alaska Department of Labor and Workforce Development.
Labor Laws – Employers should also understand the various regulations and laws pertaining to employees. If you plan to hire employees, learn the rules that apply to your business. Federal laws, depending on your sales volume and number of employees, may supersede state laws.
Consult with the U.S. Department of Labor and the Alaska Department of Labor to learn more. If you are unsure of your obligations, an attorney’s guidance can be also useful in assisting you to meet legal requirements.
This is a very brief overview and more information is available on our Hiring Employees in Alaska page.