How To Start A Business In Arizona 
Arizona is an ideal destination for entrepreneurs seeking to launch a small business, thanks to its business-friendly environment, skilled workforce, and affordable living costs. The state’s competitive tax policies and limited regulations create a supportive atmosphere for business growth and innovation. Furthermore, Arizona’s diverse and well-educated workforce, nurtured by renowned institutions like Arizona State University, provides a steady pool of talent to drive operations across multiple industries. Additionally, the relatively low cost of living and affordable real estate market make it an attractive choice for small business owners looking to minimize overhead expenses.
Arizona Small Business Stats
- There are 641,025 small businesses in Arizona that employ 1.1 million employees. (2022 SBA Small Business Profile)
- Export by small Arizona companies reached $4.6 billion. (2022 SBA Small Business Profile)
- Small businesses in Arizona accounted for 42.5% of employees (Statistics of US Businesses)
- Arizona ranked #13 in the Top States for Doing Business Survey, with a favorable regulatory environment, fast project permitting, and overall cost of doing business as being the top reasons.
- Chief Executive Magazine listed Arizona as #4 in their Best States for Business survey.
- Arizona ranked #1 for economic performance over the last 10 years and #3 for economic outlook from the American Legislative Exchange Council.
- Site Selection Magazine ranked Arizona #4 in the nation for sustainability.
Steps for Starting a Business in Arizona
Our comprehensive checklist is designed to cover the most common requirements of launching a business in Arizona. Below we cover crucial aspects of launching your venture – from choosing the right business structure and registering your company to obtaining necessary permits, licenses, insurance, and more.
Our resource not only helps you comply with Arizona’s legal and regulatory requirements but also empowers you with the knowledge to avoid common mistakes, setting your small business on a solid path toward long-term success and growth.
Step 1: Choose a Business Idea
Arizona offers a fertile ground for various types of small businesses, thanks to its thriving industries, diverse economy, and supportive business environment. Based on online search data, some popular options for small businesses in Arizona include:
– Food truck
– E commerce
– Property management
– Party rental
– Yoga studio
– Home staging
– Pool cleaning
– Pest control
If you’re interested in starting a business in Arizona but aren’t sure which type of business to start, consider the following advice to help guide your decision-making process:
1- Check out our library of business ideas to help generate ideas, get detailed industry information, trends, costs to start, tips, and lots more.
2. Assess your skills and interests by identifying your strengths, skills, and passions. Consider the industries and fields where you have experience, as well as the activities you enjoy and are knowledgeable about.
3. Conduct market research and investigate the local market and identify potential gaps or unmet needs. Research existing competitors, emerging trends, and the target demographics in your area to determine which businesses might have the highest chances of success.
4. Analyze industry growth and potential and consider industries that are experiencing growth or have strong potential for growth in Arizona, such as technology, renewable energy, and healthcare. Starting a business in a growing industry increases the likelihood of success and sustainability.
5. Determine startup costs and scalability and consider the initial investment and ongoing costs associated with different types of businesses. Choose a business model that fits your budget and offers scalability, allowing you to expand and adapt as the business grows.
Step 2: Write a Business Plan
Writing a business plan is crucial for several reasons, as it helps guide entrepreneurs through the various stages of establishing and running a successful business. Some key reasons to consider writing a business plan include
– Clarifying your vision
– Organizing your thoughts
– Secure financing
– Attract partners and employees
– Measure progress and adapt
While many people focus on funding as their reason for writing a business plan, this is an essential step that will ultimately increase your chances of success.
Related: How to write a business plan
Step 3: Select a Business Entity
The next step in starting a business in Arizona is selecting a business entity.
The business entity is sometimes referred to as a business structure or legal structure, which refers to how a business is legally organized. There are four primary business entities: sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). A brief description of each is below.
Sole Proprietorships are a simple and common type of business structure where an individual owns, manages, and operates the business without forming a separate legal entity, such as a corporation or Limited Liability Company (LLC). In a sole proprietorship, the owner is personally responsible for all aspects of the business, including liabilities, debts, and taxes.
Related: What is a sole proprietorship?
A General Partnership is a type of business structure where two or more individuals agree to carry on a business together, sharing profits, losses, and management responsibilities. Unlike corporations or limited liability companies (LLCs), general partnerships do not require registration with the state and are not considered separate legal entities.
Related: What is a partnership?
A Corporation is a type of legal business structure that is considered a separate legal entity from its owners (shareholders). Corporations provide limited liability protection to shareholders and have specific requirements for formation, taxation, and management. This liability protection separates the owner’s personal assets and the assets of the business, so if the business is sued, their personal assets are generally safe.
Related: How to form a corporation in Arizona
The Limited Liability Company (LLC) is a popular type of legal business structure that combines the limited liability protection of a corporation with the flexibility and pass-through taxation of a partnership or sole proprietorship. An LLC is a separate legal entity from its owners, known as members, and is governed by Arizona state law.
Both the Arizona corporation and LLC are a little more complicated to form as a filing is required through the Arizona Corporation Commission. It is required that the business name is unique as there can’t be another corporation or LLC in Arizona with the same name, and each must appoint a Statutory Agent, which is a central point of contact for receiving important state and legal correspondence.
Related: How to form an Arizona LLC
Forming a corporation or LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular formation services include:
IncFile - Great service and free registered agent the first year.
Northwest - Privacy-Focused: Free registered agent and private business address for 1 year!
ZenBusiness - Easy to use and free registered agent for 1 year!
Step 4: Register the Business
The specific business licenses required in Arizona depend on the type of business, its location, and the nature of the products or services it offers. Although requirements may vary, some common business licenses and permits that businesses in Arizona might need include:
Business Licenses – There is no general state of Arizona business license; however, many cities require a business license to operate.
Transaction Privilege Tax License – Businesses selling products and certain services must register for an Arizona Transaction Privilege Tax Permit (TPT) with the Arizona Department of Revenue (ADOR). The TPT is similar to sales tax in other states.
Professional Licensing – Some services, such as construction, transporting for hire, massage, child care, home inspection, and pest control, require licensing in the state. The Arizona Commerce Authority’s Small Business Services website has more information regarding regulations for professional licenses.
Employer Identification Number or EIN (commonly referred to as a Federal Employer Identification Number or Federal Tax Identification Number) is not a state-specific registration but rather a federal tax identification number assigned by the Internal Revenue Service (IRS)
An EIN is used to identify a business for tax purposes, and businesses typically require one if they have employees, operate as a corporation or partnership, or need to file certain tax returns, such as excise or employment tax returns. Additionally, an EIN may be required for opening a business bank account or applying for loans and credit.
Related: What business licenses and permits are needed in Arizona
Step 5: Open a Business Bank Account
Opening a business bank account is a critical step when starting a new business in Arizona. A separate account for your business transactions enables you to accept payments, make purchases, and helps to organize your finances
Every bank is different, but in general, they will request the following:
Sole proprietorship & partnership – Trade Name Certificate, EIN or SSN, and owner(s) driver’s license
Corporation – Filed Articles of Incorporation, bylaws, Certificate of Good Standing, EIN, and owner(s) driver’s license
LLC – Filed Articles of Organization, Operating Agreement, Certificate of Good Standing, EIN, and owner(s) driver’s license
Step 6: Find Financing
Finding financing for a business can be a challenging task, but there are several options available to entrepreneurs.
Obtaining the funds to start a small business is a challenging process for many. Not only are there unfamiliar terms like collateral, equity, assets, liabilities, and others, but there are several sources of funding with different rules, processes, and costs.
From traditional bank loans, Small Business Administration (SBA) loan guarantees, alternative lenders, investors, and many others, it can be difficult to wade through what is available and best for your business.
Related: Understanding the different types of business funding.
Step 7: Hire Employees
Hiring employees is a complex and often overwhelming process for a new small business owner as there are multiple agencies to register with and labor laws to understand.
Employers are responsible for reporting new hires, verifying employees are eligible to work in the U.S., income tax withholding, unemployment taxes, and payroll withholding taxes including Social Security, and Medicare.
Step 8: Obtain Business Insurance
Business insurance is never at the top of anyone’s list of things they want to do when starting their business, however business insurance may be critical to protecting your business.
Most types of business insurance are optional, except for workers’ compensation insurance in most states. Some states will also require professional liability insurance for businesses offering certain services and commercial auto insurance.
Even if insurance isn’t required and there is a fire, theft, or personal injury lawsuit, the business owner may have to pay out-of-pocket for damages and legal fees. Home-based businesses and side-businesses may want to consider business insurance too as personal home and vehicle policies may not cover in the event of a business loss.
Step 9: Set up an Accounting System
Getting your accounting in place not only keeps you in compliance with the government but it also provides financial control, better decision-making, and improved organization. Whether you choose to use accounting software or work with an accountant, having an accounting system in place helps ensure the long-term success of your business.
Related: Setting up accounting for a business
This material is property of StartingYourBusiness.com
Common questions when starting a business in Arizona
Is Arizona a good state to start a business?
Arizona is a great place to start a business for several reasons, including its business-friendly environment, skilled workforce, relatively low cost of living, and strategic location. A few reasons include the following:
Pro-business environment: Arizona has been consistently ranked as one of the top states for businesses due to its favorable tax policies, incentives, and regulatory environment. According to the Tax Foundation’s 2023 State Business Tax Climate Index, Arizona ranked 19th in the nation. Additionally, the Arizona Commerce Authority offers various incentives to attract and support businesses, such as the Arizona Innovation Challenge and the Angel Investment Tax Credit.
Skilled workforce: Arizona has a diverse and well-educated workforce, thanks in part to its strong education system and universities. The state is home to Arizona State University (ASU), which has been consistently ranked as the nation’s most innovative school by U.S. News & World Report. ASU and other institutions in the state help create a pipeline of talent for businesses in various industries.
Low cost of living and favorable real estate market: Arizona offers a relatively low cost of living compared to other states, making it an attractive place to start a business. The cost of living in Phoenix, for example, is significantly lower than in cities like Los Angeles or San Francisco. Furthermore, the real estate market in Arizona is generally more affordable, which can help reduce overhead costs for businesses.
Growing industries and innovation:
Arizona is home to several growing industries, including technology, aerospace, renewable energy, and healthcare. The state has become a hub for tech companies (ranked #15 in North America), with major players like Intel, Apple, and Amazon operating facilities.
Overall, Arizona’s favorable business climate, skilled workforce, low cost of living, strategic location, and growing industries make it an attractive place to start a business.
How much does it cost to start an LLC in Arizona?
The cost to start an LLC in Arizona includes a state filing fee of $$50. In addition, a Notice of Publication must be run in a local newspaper, which typically costs between $60 – $130.
Related: How to start an LLC in Arizona
What licenses do you need to start a business in Arizona?
The business licenses required to start a business in Arizona depend on the type of business, its location, and the nature of the products or services it offers. There isn’t a general business license required by the state; however, there are potentially several different licenses and permits a business will need before starting.
Related: What business licenses and permits are needed in Arizona?