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How To Start A Business In Hawaii [2023 Guide]

How To Start A Business In Hawaii [2023 Guide]

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How To Start A Business In Hawaii [2023 Guide]

How To Start A Business In Hawaii

Nestled in the heart of the Pacific, Hawaii offers a unique blend of opportunities for entrepreneurs looking to start a business.

While there are many advantages to starting a business in Hawaii, such as its booming tourism industry, diverse economy, and strategic location, it is essential to consider the challenges, such as the high cost of living, limited land availability, and geographical isolation.

Hawaii Small Business Stats

Steps To Starting A Business In Hawaii

Utilizing our comprehensive checklist, aspiring entrepreneurs can navigate the process of starting a small business in Hawaii. Our checklist covers common topics that most businesses will need to follow, such as choosing a business name, registering your business, applying for licenses and permits, and more.

Step 1: Choose a Business Idea

Choosing the right type of business to start can be challenging, especially in a diverse economic landscape like Hawaii. To help guide you in this process, here are some recommendations.

First off, conduct thorough market research to identify gaps and opportunities. Analyze the various thriving sectors in Hawaii, such as tourism, agriculture, renewable energy, and technology, and consider how your skills and interests can align with these industries. Keep an eye on emerging trends, both locally and globally, as they may present unique business opportunities to pursue within the state.

In addition to market research, it’s crucial to assess your strengths, passions, and expertise. Reflect on your past experiences and determine the skills you can leverage to create a successful business. When you pursue a venture that aligns with your interests and abilities, you will be more motivated and resilient in overcoming possible challenges.

As you narrow down your options, network with local entrepreneurs, attend business workshops and connect with industry professionals to gain insight into potential opportunities. Remember, starting a business is a significant commitment, and it is essential to identify a venture that you are genuinely passionate about and has the potential to thrive in Hawaii’s unique market environment.

For more information on over 300 industries, check out our small business idea library.

Step 2: Write a Business Plan

A business plan is an essential tool for any entrepreneur looking to start a business. It not only provides a roadmap for the company’s future, by gaining clarity on their vision and outlining goals and strategies for success, but a well-crafted business plan can help entrepreneurs secure financing or attract investors.

According to the Small Business Administration (SBA), more than half of small businesses fail within five years due to a lack of planning and having a comprehensive business plan in place can help entrepreneurs avoid common pitfalls that lead to failure.

Related: How to write a business plan

Step 3: Select a Business Entity

A business entity (also called a legal or business structure) is an organization that is formed to conduct business. The type of entity determines how a business is taxed and the legal liability of its owners or shareholders. Hawaii has four primary types of business entities: sole proprietorship, general partnership, corporation, and Limited Liability Company (LLC).

We briefly break down each business entity type below.

A sole proprietorship is a business owned and operated by one individual with no legal distinction between the owner and the business. This type of entity offers no protection from personal liability for debts or obligations incurred by the business.

Conversely, a general partnership is similar to a sole proprietorship in that it has two or more individuals who share ownership, management responsibilities, and profits or losses. Each partner is personally liable for the business’s debts and obligations.

A corporation, on the other hand, is a separate legal entity from its owners (shareholders). It provides limited liability protection, meaning shareholders are not personally liable for the corporation’s debts (in many cases).

Related: How to form a Hawaii Corporation

Finally, a Limited Liability Company (LLC) combines elements of both corporations and partnerships. An LLC offers limited liability protection for its owners (members) and provides the flexibility of choosing to be taxed as either a sole proprietorship, partnership, or corporation, depending on the preferences of its members.

Related: How to form a Hawaii 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

Businesses in Hawaii are often required to register or obtain a variety of business licenses before becoming fully operational. This is necessary to ensure that businesses are compliant with the laws and regulations of the state.

Business Licenses: The state of Hawaii doesn’t have a general business license; however, many cities require a business license to operate.

Employer Identification Number: An EIN is required for most businesses, especially if you have employees or plan to form a partnership, corporation, or LLC. You can obtain an EIN from the Internal Revenue Service (IRS) at no cost.

Hawaii Tax Identification Number: All businesses operating in Hawaii will need to register for a Hawaii Tax Identification Number with the Hawaii Department of Taxation through the Hawaii Business Express website. The tax ID number registers a business for various tax licenses, with the most common being the General Excise Tax License (GET), which is similar to a sales tax.

Other Licensing: In addition to the General Excise Tax License, businesses may also need to obtain additional permits or licenses depending on their industry and location. For example, businesses that sell food products may need to get a Food Establishment Permit from the Department of Health; those that serve alcohol may need an Alcoholic Beverage Control License; and those that provide regulated services such as auto repair, pest control, legal advice, or medical care may need a permit from the Professional & Vocational Licensing Division (PVL) of the Hawaii Department of Commerce & Consumer Affairs (DCCA).

Related: What business registration is needed in Hawaii?

Step 5: Open a Business Bank Account

As a business owner, it is important to separate your business and personal funds for several reasons.

First, it helps you keep track of your expenses and income more easily. When all of your transactions are in one account, it can be difficult to distinguish between what is related to the business and what is personal. Additionally, having separate personal and business checking accounts makes filing taxes much easier since you can clearly see which expenses are deductible. Additionally, maintaining separate accounts safeguards your personal assets from potential business liabilities and ensures a more professional image for your business.

Opening a business bank account in Hawaii is relatively straightforward. Generally speaking, the process involves gathering business entity documents such as the Articles of Organization (LLC) or Incorporation, or a Trade Name certificate for a sole proprietorship or partnership. Depending on the bank you choose, there may also be other requirements such as minimum opening deposits or specific forms that need to be filled out.

Step 6: Find Financing

Several funding options are available for small businesses in Hawaii, ranging from personal savings to government-backed loan guarantees. Here is an overview of common funding sources and their requirements:

Personal Savings: Many entrepreneurs begin by using their personal savings to fund their business venture. This self-funding approach allows for complete control over the business and avoids accruing debt or giving away equity.

Conventional Bank Loans: Bank loans typically require a solid credit history, collateral, and a well-prepared business plan. Lenders often expect the business owner to have a personal investment in the business, which can range from 15%-25%.

Banks and other lenders typically require certain criteria to be met before providing funding for a new business. Some common requirements include:

Personal investment: Lenders often expect entrepreneurs to invest a certain percentage of their own money into the business, demonstrating their commitment and reducing the lender’s risk.
– Good credit score: A strong personal credit score indicates responsible financial behavior and increases the likelihood of loan approval.
– Collateral: Lenders may require collateral, such as real estate, equipment, or other assets, to secure the loan in case the borrower defaults.
Solid business plan: A well-prepared business plan that outlines the company’s objectives, target market, financial projections, and strategies is essential to convince lenders of the venture’s viability and potential profitability
Financial statements and projections: Lenders typically require financial statements, such as balance sheets, income statements, and cash flow projections, to assess the business’s financial health and repayment ability.

SBA Loan Guarantees: The U.S. Small Business Administration (SBA) provides loan guarantee programs for small businesses that may not qualify for conventional loans. These guarantees encourage banks and other financial institutions to lend to small businesses by reducing their risk. Popular SBA loan programs include the 7(a) Loan Program and 504 Loan Program.

Investors: Small businesses in Hawaii can also seek funding from investors, such as angel investors or venture capitalists. These investors provide capital in exchange for equity in the business or convertible debt.

Related: Understanding the different types of business funding.

Step 7: Hire Employees

Navigating the complex landscape of employment regulations and best practices can be challenging for a new small business owner, but it’s critical to become familiar with federal and state labor laws, as well as guidelines provided by organizations like the U.S. Department of Labor (DOL) and the Hawaii Department of Labor and Industrial Relations (DLIR).

A few requirements when hiring an employee in Hawaii include obtaining a Federal Employer Identification Number (FEIN) from the Internal Revenue Service, verifying employment eligibility, having employees fill out Form W-4, reporting new hires to the Child Support Enforcement Agency, and registering for unemployment insurance taxes.

Related: Steps to hiring your first employee in Hawaii

Step 8: Obtain Business Insurance

Having the right insurance policies protect your business from unforeseen events, financial losses, and potential liabilities, allowing you to focus on growing your company with confidence. There are a variety of insurance policies available to small business owners that can help protect their assets and investments and some common ones are explained below.

Workers’ Compensation Insurance: Hawaii state law mandates that businesses with one or more employees to carry workers’ compensation insurance. This policy provides protection for your business by covering medical expenses, lost wages, and rehabilitation costs for employees who suffer work-related injuries or illnesses.

General Liability Insurance: While not legally required, general liability insurance is highly recommended for most small businesses. This coverage safeguards your business from potential lawsuits and the financial burden associated with claims related to third-party bodily injury, property damage, and personal or advertising injury.

Commercial Property Insurance: If your business owns or leases physical property, such as office space, equipment, or inventory, commercial property insurance is essential. This policy covers losses or damages resulting from events like fire, theft, or natural disasters. In Hawaii, it is particularly important to consider additional coverage for natural disasters like hurricanes, volcanic eruptions, and tsunamis, as these events can lead to significant financial losses.

Professional Liability Insurance: Also known as errors and omissions (E&O) insurance, professional liability insurance is crucial for businesses that provide professional services, such as consultants, accountants, or attorneys. This coverage protects your business from claims related to negligence, errors, or omissions in the services you provide to clients.

Commercial Auto Insurance: Commercial auto insurance is necessary if your business owns or operates vehicles for work purposes. This policy covers liability and physical damage in the event of an accident involving a company or personally owned vehicle.

Business Interruption Insurance: Hawaii’s susceptibility to natural disasters makes business interruption insurance a valuable consideration. This coverage compensates for lost income and additional expenses if your business is temporarily unable to operate due to a covered event, such as a hurricane or fire.

When selecting insurance policies for your small business in Hawaii, it’s important to evaluate your specific risks and requirements. Consulting with a knowledgeable insurance agent can help you determine the appropriate coverage levels and tailor an insurance package to meet your business’s unique needs.

Related: Types of insurance your business may need

Step 9: Set up an Accounting System

Having a reliable and efficient bookkeeping system for your small business is essential for various reasons, including accurate financial records, timely tax filings, and informed decision-making. Here are some key aspects to consider regarding the significance of a well-organized bookkeeping system:

Accurate financial records: A sound bookkeeping system helps you keep track of your business’s financial transactions, such as income, expenses, assets, and liabilities. This information is crucial for understanding your business’s financial health and identifying areas of improvement or growth. Regularly updated records also ensure that you can access up-to-date financial information when needed, such as when applying for loans or making critical business decisions.

Tax compliance: In Hawaii, businesses are subject to various state and federal taxes, including General Excise Tax (GET), income tax, and payroll taxes. Proper bookkeeping ensures that you can accurately calculate, report, and remit these taxes on time, avoiding penalties and interest for late or inaccurate filings. Additionally, well-maintained records make it easier to substantiate deductions and credits claimed on your tax returns, reducing the likelihood of audits or disputes with the Internal Revenue Service (IRS) or the Hawaii Department of Taxation.

Cash flow management: Effective bookkeeping allows you to monitor and manage your business’s cash flow, ensuring that you have sufficient funds to cover expenses, invest in growth opportunities, or address unexpected financial challenges. By staying on top of your cash flow, you can make informed decisions about your business’s financial priorities and maintain a stable financial foundation.

Financial reporting: A solid bookkeeping system enables you to generate accurate financial reports, such as balance sheets, income statements, and cash flow statements. These reports provide valuable insights into your business’s financial performance and position, helping you make data-driven decisions and evaluate the effectiveness of your strategies.

Audit preparation: In the event of an audit by the IRS, the Hawaii Department of Taxation, or other regulatory bodies, well-organized financial records make it easier to provide the necessary documentation and demonstrate compliance with applicable laws and regulations.

Implementing a reliable bookkeeping system for your small business in Hawaii not only helps you maintain compliance with tax and regulatory requirements but also contributes to the overall success and growth of your venture.

Related: Setting up accounting for a business

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Common questions when starting a business in Hawaii

Is Hawaii a good state to start a business?

While there are many advantages to starting a business in Hawaii, it is essential to consider the challenges, such as the high cost of living, limited land availability, and geographical isolation. Conducting thorough research and understanding these factors will help entrepreneurs make informed decisions.

Below are some reasons that explain why Hawaii is a good place to start a business:

Tourism: As one of the most popular vacation destinations in the world, Hawaii has a thriving tourism industry, which creates numerous business opportunities.

Diverse Economy: Hawaii’s economy has multiple thriving sectors, including agriculture, renewable energy, technology, and defense. This diversity offers a range of possibilities for new businesses.

Government Support: Hawaii’s government actively supports small businesses through various programs and initiatives. The Hawaii Department of Business, Economic Development & Tourism (DBEDT) offers numerous resources and services for entrepreneurs, such as funding, networking, and access to information.

Unique Geographical Location: Hawaii’s strategic location in the Pacific region allows businesses to tap into Asian and Pacific markets. Its proximity to major economies like Japan, China, and Australia presents opportunities for businesses that focus on international trade.

High Quality of Life: Hawaii offers an exceptional quality of life, thanks to its natural beauty, climate, and cultural diversity. This can attract and retain talented employees, creating a strong workforce for businesses.

Research and Innovation: Hawaii is home to several research institutions, such as the University of Hawaii, which foster innovation and technology development. These institutions can provide collaboration opportunities and access to a skilled workforce for businesses in research-intensive industries.

Sustainability and Clean Energy: Hawaii has set ambitious clean energy goals, aiming for 100% renewable energy by 2045. This commitment to sustainability creates opportunities for businesses in the renewable energy sector.

What are the steps to starting an LLC in Hawaii?

What are the steps to starting an LLC in Hawaii?
There are three main steps to starting an LLC in Hawaii. These include:

1. Making sure the LLC name is available
2. Appointing a Registered Agent
3. Filing the Articles of Organization

There are a few more details to consider depending on the business, so be sure to check out how to start an LLC in Hawaii.

How much does it cost to start an LLC in Hawaii?

The cost to start an LLC in Hawaii is $50 to file the Articles of Organization with the Hawaii Department of Commerce and Consumer Affairs (DCCA).

Related: How to form an LLC in Hawaii

What licenses do I need to start a business in Hawaii?

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.

Related: What business licenses and permits are needed in Hawaii?

How To Start A Business In Hawaii [2023 Guide]

How To Start A Business In Hawaii [2023 Guide]

Greg Bouhl

Greg Bouhl

Welcome! My name is Greg Bouhl, and I am a serial entrepreneur, educator, business advisor, and investor.

StartingYourBusiness.com is here because of the many clients I worked with who made decisions based on inaccurate and outdated information.

Starting a business is hard, but here you will find the practical tools, resources, and insider tips to help you successfully start a business.

If there is a question about starting a business or help finding a resource, I'm here to help!

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