While the state isn’t without its challenges, Connecticut is still a prime destination for entrepreneurs seeking to launch and grow their businesses. With its strategic location between New York City and Boston, a highly skilled and educated workforce, comprehensive business support programs, and an exceptional quality of life, the state offers a nurturing environment for startups and small businesses. Aspiring business owners in Connecticut can capitalize on these benefits to drive innovation and success, while contributing to the state’s vibrant economy.
Connecticut Small Business Stats
- There are 360,127 small businesses in Connecticut, which is 99.4% of all businesses in the state. (2022 SBA Small Business Profile)
- Exports by small Connecticut firms reached $5.8 billion. (2022 SBA Small Business Profile)
- Small businesses in Connecticut employ 735,788 workers, which is 48.2 percent of the total employees in the state. (Statistics of US Businesses)
- According to the Kauffman Foundation, 78.82 percent of businesses in Connecticut survive their first year, which is higher than average.
- Connecticut was ranked as the #8 ranked state for business by CNBC for business friendliness.
Steps to Start a Business in Connecticut
Starting a business in Connecticut, but not sure what direction you need to take?
Our step-by-step checklist helps business owners navigate the complexities of starting a venture in Connecticut by highlighting the most common steps, from registering the businesses, acquiring the appropriate licenses, finding funding, and lots more.
Step 1: Choose a Business Idea
The first step in starting a business in Connecticut is having a good business idea. Maybe you already have an idea picked out, or maybe you are still deciding on one. Regardless, you can check out our library of business ideas to get detailed industry information on over 300 types of businesses, along with trends, costs to start, tips, and lots more.
If you are looking for some ideas of popular small businesses to start in Connecticut, taking into consideration the state’s demographics, local consumer preferences, and economic climate:
E-commerce business: Leverage Connecticut’s educated workforce and strategic location to start an online retail store, offering anything from apparel to niche products, with easy access to major shipping routes and distribution networks.
Eco-friendly and sustainable products store: Open a store focused on selling environmentally-friendly products, promoting sustainability and catering to a growing interest in green living.
Step 2: Write a Business Plan
Having a comprehensive business plan is essential for success when starting a new business in Connecticut. While the business plan is important for obtaining funding, a business plan also helps entrepreneurs set goals, establish a marketing plan, determine employee needs, and figure look at the feasibility of their business.
If you haven’t written a business plan before, check out our guide and template so you can get started.
Step 3: Select a Business Entity
Forming a business structure is a critical step when starting a business in Connecticut, as it determines the legal and tax framework under which your company will operate. Choosing the right business structure will impact your personal liability, tax obligations, and overall management.
The most common business structures are Sole Proprietorship, General Partnership, Limited Liability Company (LLC), and Corporation. Each structure has its own set of advantages and drawbacks in terms of liability protection, tax treatment, and administrative requirements. Research these options and consult with an attorney or accountant if necessary to determine the best structure for your specific needs and circumstances.
A Sole Proprietorship is an individual that decides to go into business. This is the easiest and least expensive of the four entities to set up, as there is no state filing. The ease of startup is a big selling point; however, a major downside to the sole proprietorship is that the owner is personally responsible for the company’s debts and actions. If the business is sued, the owner’s personal assets are potentially at risk.
As a sole proprietorship (and partnership too) operating under a Trade Name (sometimes referred to as a fictitious business name or DBA), a Trade Name will need to be registered with the Town Clerk’s Office where your business is located.
General Partnerships consist of two or more people conducting a business together. Like the sole proprietorship, there is no formal state filing. Also, like the sole proprietorship, the partnership has unlimited liability. If the partnership were to be sued, the partner’s personal assets would be equally at risk.
Related: What is a partnership?
A Corporation is a business structure that is a separate entity from the individual. While corporations are more expensive and difficult to form than sole proprietorships and partnerships, the major advantage is that the corporation provides personal asset protection for the owners, should the corporation be sued. The downside is the compliance requirements and administrative burdens of having a board of directors, annual meetings for directors and shareholders, taking minutes at the meetings, issuing stock certificates, and more.
The Limited Liability Company (LLC) is a popular business entity choice because it provides the liability protection of a corporation with the sole proprietorship’s ease of operation. The Limited Liability Company does not have all of the burdens of the corporation and has the greatest tax flexibility of the four entities.
Related: How to form a Connecticut 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
Depending on the nature of your business, you may need to acquire specific licenses or permits from federal, state, or local authorities. A few common registrations include:
General Business Licenses: There is no general state of Connecticut business license; however, many cities require a business license to operate.
Employer Identification Number: An Employer Identification Number (EIN) is a unique nine-digit number issued by the Internal Revenue Service (IRS) to identify a business entity. In Connecticut, an EIN is required for certain business structures, hire employees, or in some cases to open a bank account.
Connecticut Tax Registration Number: Businesses can register for their Sales Tax Permit, withholding taxes, and other state taxes with the Connecticut Department of Revenue Services.
Trade Licenses: Some services, such as acupuncturists, family planners, landscape architects, and pharmacists, require licensing in Connecticut. While this isn’t a license on the business, licensing is required to operate.
Zoning Permit: Many cities and/or counties require zoning approval before operating a business out of a location, which sometimes includes home-based businesses.
Step 5: Open a Business Bank Account
Establish a separate business bank account to keep your business finances separate from your personal finances. This is important for accounting, tax, and liability purposes. Every bank is different, but in general, they will request:
Sole proprietorship & partnership – Trade Name Certificate, EIN or SSN and owner(s) drivers license
Corporation – Articles of Incorporation, bylaws, Certificate of Good Standing, EIN, and owner(s) drivers license
LLC – Articles of Organization, Operating Agreement, Certificate of Good Standing, EIN and owner(s) drivers license
Step 6: Find Financing
Having a great idea is a big part of starting a business in Connecticut, but it can be challenging for entrepreneurs can find the funding they need to get their business off the ground.
There are a number of sources to find funds, from a Small Business Administration (SBA) loan guarantee, traditional bank loans, investors, or the Connecticut Department of Economic and Community Development has incentives, such as the Connecticut Small Business Boost Fund.
Step 7: Hire Employees
As a small business owner in Connecticut, hiring your first employee is a significant milestone that marks the expansion and growth of your enterprise. However, this exciting step comes with a new set of responsibilities, including compliance with federal and state employment laws, payroll and tax management.
It’s crucial to thoroughly prepare for these challenges and requirements to ensure a smooth and successful transition into your role as an employer.
Step 8: Obtain Business Insurance
Insurance plays a vital role in safeguarding your investment, employees, and business operations. When starting your business, there are several key considerations to keep in mind when it comes to insurance coverage:
Assess your risks: Every business has unique risks based on its industry, location, and specific operations. Begin by conducting a thorough risk assessment to identify potential exposures, such as property damage, liability claims, or employee injuries. This evaluation will help you determine the appropriate types and levels of coverage needed to protect your business.
Understand mandatory insurance requirements: As a small business owner in Connecticut, you may be required to carry certain types of insurance, depending on your business structure and operations. For example, workers’ compensation insurance is mandatory for most businesses with employees.
Explore additional insurance options: Beyond the mandatory insurance policies, consider additional coverage tailored to your specific business needs. Some common types of business insurance include:
– General Liability Insurance: Protects against third-party bodily injury, property damage, and personal injury claims arising from your business operations.
– Property Insurance: Covers damage to your business property, such as buildings, equipment, and inventory, resulting from events like fires, theft, or natural disasters.
– Professional Liability Insurance: Also known as Errors and Omissions (E&O) insurance, this coverage protects your business against claims of negligence or mistakes made while providing professional services.
– Business Interruption Insurance: Provides financial support if your business operations are temporarily halted due to a covered event, such as a natural disaster or fire.
Bundle policies to save on premiums: Many insurance providers offer bundled packages, known as Business Owners Policies (BOPs), which combine multiple types of coverage at a lower cost than purchasing individual policies. Consider a BOP to maximize your coverage while saving on premiums.
Work with a trusted insurance agent: Partnering with an experienced insurance agent who understands your industry and business needs is invaluable. They can guide you through the process of selecting the right coverage, help you assess your risks, and ensure that you receive the best value for your insurance investment.
By taking these considerations into account, you can build a comprehensive insurance plan that protects your small business from potential risks and liabilities, providing peace of mind and a solid foundation for growth and success.
Step 9: Set up an Accounting System
A good bookkeeping system is essential so a business can track its income and expenses, as well as accurately report its taxes and ensure compliance with state and federal regulations.
Having a good bookkeeping system also enables businesses to make informed decisions about their finances. By tracking income and expenses, businesses can better understand their financial performance and identify areas where they may need to improve or adjust spending habits. This information can help them plan for the future and make more informed decisions about how to allocate resources.
Related: Setting up accounting for a business
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Common questions when starting a business in Connecticut
Is Connecticut a good place to start a business?
Connecticut has long been known for its rich history, beautiful landscapes, and highly educated population, but over the years, the state has developed a favorable business climate that encourages growth and innovation across various industries.
As a result, Connecticut is becoming an increasingly attractive destination for entrepreneurs looking to start and expand their businesses. Several factors that make Connecticut a great place to start a business include:
Strategic Location: Connecticut’s location offers a significant advantage for businesses, as it is situated between two major metropolitan areas: New York City and Boston. This strategic positioning grants easy access to both markets, providing businesses with a large consumer base and a wealth of networking opportunities
Skilled Workforce: According to the U.S. Census Bureau, Connecticut boasts one of the highest percentages of adults with a bachelor’s degree or higher in the country.
Business Support Programs: Connecticut offers numerous resources and financial incentives for small businesses and startups through the Connecticut Department of Economic and Community Development.
High Quality of Life: The state’s high quality of life, with excellent educational institutions, healthcare facilities, and recreational opportunities, contributes to the attraction and retention of a talented workforce.
What are the steps to starting an LLC in Connecticut?
There are three main steps to starting an LLC in Connecticut. These include:
1. Making sure the LLC name is available
2. Appointing a Registered Agent
3. Filing the Certificate of Organization
There are a few more details to consider depending on the business. Learn more about starting an LLC in Connecticut.
How much does it cost to start an LLC in Connecticut?
The cost to start an LLC in Connecticut is $120 to file the Certificate of Organization with the Connecticut Secretary of State.
What licenses do I need to start a business in Connecticut?
There isn’t a general business license required by the state, however, there are potentially several different licenses and permits a business will need to obtain before starting.