How To Start A Business In Kansas
Kansas, located in the heart of America, offers an exceptional environment for entrepreneurs looking to establish and grow their businesses. With its strategic central location, competitive cost of living, skilled workforce, and favorable regulatory environment, the state has become a magnet for ambitious business owners seeking success. Furthermore, Kansas boasts an extensive transportation network, providing seamless access to major national and international markets. As a result, Kansas has emerged as a top destination for startups and established enterprises alike, offering a perfect blend of opportunity, accessibility, and affordability.
Kansas Small Business Stats
- There are 258,384 small businesses in Kansas, which is 99.1% of all businesses in the state. (2022 SBA Small Business Profile)
- Exports by small Kansas firms reached $2.1 billion. (2022 SBA Small Business Profile)
- Small businesses in Kansas employ 601,426 employees, which is 49.7 percent of the total employees in the state, which exceeds the national average. (Statistics of US Businesses)
- Site Selection Magazine
- Kansas was ranked as the #2 best state for its low cost of living by CNBC.
- US News & World Report ranked Kansas #7 for infrastructure and #16 for opportunity and natural environment.
- In WalletHub’s Best States to Start a Business, Kansas ranked as the 15th best state for business costs.
Steps To Start A Business In Kansas
If you’re thinking about starting a small business in Kansas, I’ve got just the thing for you: a comprehensive checklist. This handy guide is designed to walk you through the essential steps you need to take in order to establish a successful business in the Sunflower State. Our checklist will help you identify and prioritize the tasks that matter most, from choosing the right business structure and registering your company to securing financing, navigating local regulations, and more.
Step 1: Choose a Business Idea
Choosing the right business idea is a critical first step on your entrepreneurial journey, and I’m here to offer some tips and encouragement as you make this important decision.
First and foremost, when selecting a business idea for your new venture, think about your passions and strengths. By aligning your business with what truly excites and motivates you, you’ll be more likely to stay committed and focused, even when the going gets tough. Remember, while money can be a great motivator, you’ll be pouring a significant amount of time and energy into your business, so make sure it’s something you’re genuinely passionate about.
Next, consider the local market and identify gaps or unmet needs in your area. Research the industries and niches that are thriving in the state, and look for opportunities where your unique skills, experience, and vision can make a difference. Be prepared to adapt your idea to the specific needs and preferences of Kansans, as understanding your target market is essential for success.
To learn more about over 300 industries, check out our library of business ideas.
Finally, don’t be afraid to seek out advice and support from fellow entrepreneurs, mentors, and industry experts. Kansas has a vibrant business community with guidance and technical assistance from resources such as local chambers of commerce, Small Business Development Centers, and networking events. By connecting with others who have walked the path before you, you’ll gain valuable insights and guidance that can help you refine your business idea and set the stage for success.
Step 2: Write a Business Plan
A business plan is an essential tool for any entrepreneur looking to start a business in Kansas—or anywhere else for that matter. This roadmap not only helps you outline your vision, goals, and strategies but also serves as a communication tool for potential investors, partners, and employees. I’ll explain why a solid business plan is so important.
First, a business plan helps you clarify your thoughts and ideas, forcing you to think critically about your business’s viability and long-term success. It allows you to identify potential challenges and devise strategies to overcome them.
Second, a business plan is crucial for securing funding. Whether you’re approaching banks or investors, a thorough and convincing plan demonstrates that you’ve done your homework and have a clear path to profitability.
Third, a business plan serves as a guide for decision-making and setting milestones. It helps you measure your progress and make adjustments along the way.
If you aren’t sure how to get started, check out our resource on how to write a business plan.
Step 3: Select a Business Entity
When starting a business in Kansas, one of the first and most important decisions you’ll need to make is choosing the right business entity. A business entity refers to how a company is organized to operate, and it can significantly impact your personal liability, taxation, and overall management.
Let’s dive into the differences and pros and cons of four common business structures in Kansas: sole proprietorship, general partnership, corporation, and Limited Liability Company (LLC).
Sole Proprietorship: This is the simplest and most common form of business entity. It’s owned and operated by a single individual, with no legal separation between the owner and the business.
– Easy and inexpensive to establish.
– Minimal paperwork and regulatory requirements.
– Complete control over business decisions.
– Business profits are taxed only once as personal income.
– Unlimited personal liability for business debts and liabilities.
– Difficulty in raising capital.
– Limited growth potential, as the business is tied to the owner.
General Partnership: A general partnership consists of two or more individuals who share the management, profits, and liabilities of a business.
– Simple and affordable to set up.
– Shared decision-making and management responsibilities.
– Business profits are taxed only once as personal income for each partner.
– Unlimited personal liability for all partners, even for debts or liabilities incurred by a single partner.
– Potential for conflicts between partners.
– Difficulty raising capital compared to corporations or LLCs.
Corporation: A corporation is a separate legal entity owned by shareholders, providing limited liability protection and the ability to raise capital by selling shares.
– Limited liability for shareholders, protecting personal assets from business debts.
– Easier to raise capital through the sale of shares.
– Longevity, as the corporation continues to exist even if the founder or shareholders leave.
– More complex and expensive to establish and maintain.
– Increased regulations and reporting requirements.
– Double taxation: corporate income is taxed, and shareholders also pay taxes on dividends.
Related: How to form a Kansas Corporation
Limited Liability Company (LLC): An LLC combines the limited liability protection of a corporation with the tax advantages and flexibility of a partnership or sole proprietorship.
– Limited liability for members, protecting personal assets from business debts.
– Pass-through taxation: business profits are taxed only once as personal income for each member.
– Flexibility in management and decision-making structure.
– More complex and costly to set up compared to sole proprietorships or general partnerships (but easier than a corporation).
– Potential for self-employment taxes on members’ share of business profits.
– Varying state regulations can complicate interstate operations.
Related: How to form a Kansas 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
When starting a business in Kansas, it’s essential to make sure you comply with all federal, state, and local regulations, which include obtaining the necessary licenses and registrations. While the specific requirements can vary depending on your business type and location, I’ll outline some common licenses and registration steps you’ll need to follow when setting up shop in Kansas.
Business Licenses – The state of Kansas doesn’t have a general business license; however, many cities require a business license in order to operate.
Employer Identification Number (EIN): Most businesses will need to get an EIN from the Internal Revenue Service (IRS). This is a unique nine-digit number that is used to identify a busienss for tax purposes.
Business Tax Application – Businesses will need to register for a Business Tax License with the Kansas Department of Revenue. The Business Tax Application allows for the registration of several licenses, such as sales tax, withholding tax, and several others.
Professional Licensing – Some services such as contractors, bakeries, bed & breakfasts, kennels, and businesses selling on the internet require licensing in Kansas. While this isn’t a license on the business, licensing is required to operate.
Step 5: Open a Business Bank Account
Separating your business and personal funds is crucial, especially for simplified accounting and tax preparation. Also, for business entities like corporations and LLCs, maintaining separate finances helps preserve the limited liability protection these structures provide. If you mix personal and business funds, you risk “piercing the corporate veil,” which could expose your personal assets to business liabilities.
Sole proprietorship & partnership – Trade Name Certificate, EIN or SSN, and owner(s) driver’s license.
Corporation – Articles of Incorporation, bylaws, Certificate of Good Standing, EIN, and owner(s) driver’s license.
LLC – Articles of Organization, Operating Agreement, Certificate of Good Standing, EIN, and owner(s) driver’s license.
Step 6: Find Financing
Securing funding is a crucial step for many Kansas small businesses, and there are several options available to you, including conventional bank loans, SBA loan guarantees, microloan programs, and investors. Let’s go through each of these options and discuss the differences:
Conventional bank loans: Traditional bank loans are a common funding source for small businesses. Banks in Kansas offer various loan products, such as term loans, lines of credit, and commercial real estate loans. When applying for a conventional bank loan, you’ll typically need a strong credit score, a detailed business plan, financial projections, and collateral to secure the loan.
Lenders will require that you personally invest money into the business, with a 15%-25% investment being common.
SBA loan guarantees: The U.S. Small Business Administration (SBA) offers loan guarantee programs to help small businesses secure financing through approved lenders. These programs, such as the 7(a) loan program and 504 loan program, reduce the risk for lenders by guaranteeing a portion of the loan amount. To qualify for an SBA loan guarantee, you’ll need to meet the SBA’s eligibility requirements, which may include a good credit score, personal investment, collateral, and a solid business plan.
Microloan programs: Microloans are small, short-term loans designed to help startups and small businesses with lower capital needs. In Kansas, various organizations offer microloan programs, such as local economic development agencies, nonprofit organizations, and community development financial institutions (CDFIs). Microloan programs often have more lenient eligibility requirements, making them accessible to businesses that might not qualify for traditional bank loans or SBA loan guarantees.
Investors: Another option for funding your Kansas small business is to seek out investors, such as venture capitalists, angel investors, or even friends and family. These individuals or organizations provide capital in exchange for equity in your company or a percentage of future profits. To attract investors, you’ll need a compelling business plan, a clear path to profitability, and the ability to demonstrate the potential for high returns on their investment.
Step 7: Hire Employees
Hiring your first employee is an exciting milestone for any small business owner, but it also comes with responsibilities and obligations. A few considerations include:
Understand the labor laws: Familiarize yourself with federal and Kansas state labor laws to ensure compliance. The U.S. Department of Labor (DOL) and the Kansas Department of Labor (KDOL) are two key sources of information on new hire reporting, minimum wage, overtime, safety regulations, and workers’ compensation requirements.
Obtain an Employer Identification Number (EIN): If you haven’t already, apply for an EIN from the Internal Revenue Service (IRS). This unique number is required for tax purposes and when reporting employee information to the state and federal government.
Verify eligibility to work in the United States: Ensure your new employee is legally authorized to work in the U.S. by completing the I-9 Employment Eligibility Verification form and verifying the required documents.
Prepare and post required notices: Make sure to display all required labor law posters in a visible location at your workplace. These posters inform employees of their rights and your obligations as an employer.
Step 8: Obtain Business Insurance
Insurance is a vital aspect of running a business, as it helps protect your investment, assets, and potential liabilities. As a small business owner in Kansas, it’s essential to understand the importance of insurance.
Financial protection: Insurance helps protect your business from unexpected financial losses, such as property damage, theft, or liability claims. Having the right coverage in place can save your business from bankruptcy or severe financial strain.
Legal compliance: Depending on your industry and location, certain types of insurance may be required by law. For example, most states, including Kansas, require businesses with employees to carry workers’ compensation insurance.
Contractual obligations: Insurance may be required to fulfill contractual agreements, such as leases or client contracts. Many commercial landlords require tenants to carry general liability and property insurance, while clients may require professional liability coverage or bonding for construction projects.
Employee protection: Insurance not only protects your business, but it also safeguards your employees. Offering benefits such as health insurance and workers’ compensation can help you attract and retain top talent while ensuring their well-being. All employers, except those in certain agricultural businesses or if they have a gross annual payroll of $20,000 or less, must provide Worker’s Compensation insurance for all employees, including family members.
Peace of mind: Lastly, having the appropriate insurance coverage provides peace of mind, knowing that your business and assets are protected from unforeseen events.
Step 9: Set up an Accounting System
Establishing a good accounting system is crucial for a variety of reasons.
Compliance with tax laws: A good accounting system helps ensure your business complies with federal and state tax laws. Proper recordkeeping is vital when it comes to filing your taxes accurately and on time. In Kansas, businesses are subject to various taxes, such as sales tax, withholding tax, and unemployment insurance tax. By maintaining accurate financial records, you’ll be better equipped to calculate and report the correct tax amounts and avoid potential penalties or audits.
Simplified tax preparation: When tax season rolls around, having a well-organized accounting system will make the process of tax preparation much smoother. Detailed financial records enable you, your bookkeeper, or your accountant to quickly and easily identify deductible expenses, calculate depreciation, and determine your taxable income. This not only saves time but also minimizes the risk of errors and ensures that you’re taking advantage of all the tax benefits available to your business.
Informed decision-making: Accurate financial records provide valuable insights into your business’s performance and financial health. A good accounting system allows you to track your income, expenses, and profitability, which is essential when making strategic decisions about your business operations. These insights can help you identify growth opportunities, cut unnecessary expenses, and manage cash flow more effectively.
Related: Setting up accounting for a business
This material is property of StartingYourBusiness.com
Common questions when starting a business in Kansas
Is Kansas a good place to start a business?
Kansas is a great place to start a business for several reasons, including its central location, business-friendly environment, and diverse industries. Here are some factors that make Kansas stand out as an excellent location to launch a business:
Strategic location: Kansas’s central location in the United States provides businesses with easy access to major markets across the country. Its extensive transportation infrastructure includes highways, railroads, and airports, allowing for efficient distribution and logistics operations. According to the Kansas Department of Commerce, businesses can reach nearly 85% of the US population within two days by truck from Kansas.
Business-friendly environment: Kansas offers a supportive environment for businesses, with competitive tax rates, financial incentives, and a streamlined regulatory framework. The Kansas Department of Commerce provides resources, such as the Kansas Business One Stop, to help entrepreneurs navigate the process of starting and operating a business in the state.
Skilled workforce: Kansas boasts a well-educated and skilled workforce, with a high school graduation rate of 89.1% and over 30 colleges and universities in the state, which helps to provide a steady supply of talent.
Diverse industries: Kansas is home to a wide range of industries, including agriculture, aerospace, advanced manufacturing, biosciences, and renewable energy. This diversity provides ample opportunities for businesses to grow and thrive, regardless of their sector.
Affordable cost of living: Kansas offers a low cost of living, which can be attractive to both business owners and employees. The overall cost of living in Kansas is about 12% lower than the national average.
Support for innovation: Kansas has a strong commitment to fostering innovation and entrepreneurship. Programs like the Kansas Angel Tax Credit encourage investment in innovative, early-stage businesses by offering tax credits to investors.
What are the steps to starting an LLC in Kansas?
There are three main steps to starting an LLC in Kansas. 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 learn about, so be sure to check out how to start an LLC in Kansas.
How much does it cost to start an LLC in Kansas?
The filing fee to start an LLC in Kansas is $160 to file the Articles of Organization with the Kansas Secretary of State.
What licenses do I need to start a business in Kansas?
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.