Starting a business in Maine can be an exciting and rewarding experience and to ensure success, it’s important to start by establishing a viable business idea that matches the entrepreneur’s strengths, interests, and skills. Brainstorm potential opportunities by highlighting popular local trends and underserved market segments that could support the business.

Rather than assume that your business idea is going to work, it’s important to research the industry and local market to ensure it is viable and sustainable. Our library of business ideas can help you get started.

A solid business plan serves as a roadmap to guide entrepreneurs through the various stages of their venture, helping them anticipate challenges and identify opportunities. This strategic document is essential for securing funding or attracting potential investors.

Many people only consider writing a business plan because the bank asks for one to get funding. While that’s a valid reason, more importantly, writing a business plan gets the ideas out of the entrepreneur’s head and helps create a roadmap for where they want the business to go. Just as most builders wouldn’t build a house without blueprints, an entrepreneur shouldn’t build a business without a business plan.

Related: How to write a business plan

The next step in starting a business in Maine is selecting a business entity, which refers to a legal structure defining how your business operates, its ownership, taxation, and liability. Choosing the right entity type is crucial, as it impacts your personal liability, tax obligations, and the ability to raise capital.

Sole Proprietorship: This is the simplest type of business structure, where the owner is the sole decision-maker and is personally responsible for all business debts and liabilities. In Maine, a sole proprietorship doesn’t require formal registration (except for an Assumed Business Name if operating under a business name), and the profits are taxed as personal income.
Pros: Easy to establish, low startup costs, and complete control over business decisions.
Cons: Unlimited personal liability, challenging to raise capital, and limited growth potential.

General Partnership: In this structure, two or more individuals share ownership, management, profits, and liabilities. Although registration is not necessary, you should create a partnership agreement outlining the partners’ roles and responsibilities. Profits are taxed as personal income for each partner.
Pros: Easy to establish, pooled resources, and shared decision-making.
Cons: Unlimited personal liability for each partner, potential for disagreements, and challenges in raising capital.

Corporation: A corporation is a separate legal entity owned by shareholders, offering limited liability protection. In Maine, corporations must register with the Secretary of State and adhere to specific legal and reporting requirements.
Pros: Limited liability for shareholders, easier to raise capital, and increased credibility.
Cons: Complex and costly to establish, potential for double taxation, and extensive legal and reporting requirements.

Related: How to form a Maine Corporation

Limited Liability Company (LLC): An LLC is a hybrid structure combining the limited liability protection of a corporation with the tax flexibility of a sole proprietorship or partnership. In Maine, you need to register your LLC with the Secretary of State.
Pros: Limited liability for owners, flexible taxation options, and simpler management structure than a corporation.
Cons: More complex and costly to establish than a sole proprietorship or partnership, and potential challenges in raising capital.

Related:  How to form a Maine LLC

Depending on the type of business you are operating, you may need to obtain certain licenses and permits from the state or local government in order to legally operate your business. Common types of business licenses required for businesses are listed below.

Business Licenses: The state of Maine doesn’t have a general business license; however, many cities require a business license to operate. The Maine Department of Economic and Community Development has a One-Stop Licensing Center and Business Answers service for all the information needed to obtain appropriate licenses for your business and can be reached at 800-872-3838.

Employer Identification Number: The EIN (sometimes referred to as the Federal Employer Identification Number or FEIN) is a nine-digit tax identification number issued by the Internal Revenue Service (IRS). This number identifies a business operating in the U.S. and is used for paying payroll taxes, filing tax returns, and more.

Business Tax Registration: Businesses selling products and certain services will need to Register with Maine Revenue Services to register for a Sales Tax License, Service Provider Tax, and/or Withholding Taxes from Maine Revenue Services.

Professional Licensing: Some services, such as electricians, door-to-door home repair sellers, and landscape architects, require licensing in Maine.  While this isn’t a license on the business, licensing is required to operate.

Additional Permits, Certifications, and Regulations: Depending on your business type, there may be other requirements to ensure legal compliance. For example, food establishments may require food handler permits, while bars may need to register to sell alcohol. construction companies may need building permits.

Related: What business licenses and permits are needed in Maine

Once the business has been formed and registered, the next step is to open a business bank account. Maintaining separate accounts helps you better manage your finances, maintain accurate records for taxes and financial reporting, and protect your personal assets from potential business liabilities.

Separating business and personal funds can provide the following benefits:

Simplified accounting: Keeping separate accounts allows for more straightforward and organized bookkeeping, making it easier to track income, expenses, and cash flow for your business.
Professionalism: Having a dedicated business account adds a level of professionalism when dealing with clients, vendors, and partners.
Legal protection: If your business is structured as an LLC or corporation, keeping personal finances separate from your business is crucial in preserving the limited liability protection these structures offer.
Accurate tax reporting: Separate accounts ensure that you correctly report your business income and expenses, helping you avoid tax issues and potential penalties.

Funding is a critical step for most small businesses, and several sources of funding are available, such as conventional bank loans, SBA loan guarantees, investment, and other essential sources available in the region.

Small businesses must meet certain criteria to be approved for funding from banks and other sources. Banks and other lenders typically look at a business’s credit score, personal credit score, amount of personal investment (15%-25% of the total project is common), well-developed business plan and financial statements, and collateral. Market conditions also play an important role in determining whether or not a small business will be approved for funding.

If the bank feels the loan is too risky, they can take advantage of the Small Business Administration (SBA) loan guarantee programs. These programs provide a government-backed guarantee to banks and other lending institutions, which helps reduce the lenders’ risk and makes it easier for small businesses to access financing. To qualify for an SBA loan guarantee, you will need a strong credit score, a well-developed business plan, and the ability to demonstrate your ability to repay the loan.

If the business owner isn’t able to secure traditional financing, there are microloan programs that can help. Microloans are small, short-term loans designed to help entrepreneurs and small businesses obtain funding to start or grow their businesses. These programs typically have more flexible eligibility requirements than conventional loans and may offer lower interest rates and smaller loan amounts.

Another funding option for small businesses is to seek investment from angel investors, venture capitalists, or private equity firms. These investors provide capital in exchange for equity (ownership) in the company or convertible debt. To attract investors, you will need a compelling business plan, a scalable business model, and a strong management team.

Related: Understanding the different types of business funding

The process of hiring an employee can be complex and intimidating, but with the right knowledge and resources, it can be made easier. The first step for small business owners to hire employees in Maine should be to familiarize themselves with the relevant laws and regulations regarding hiring employees.

This information can be found on the Maine Department of Labor website and other relevant government organizations. It is important for business owners to understand the legal requirements that they must adhere to when hiring an employee, such as minimum wage laws, overtime pay laws, anti-discrimination laws, etc.

Once a business owner has become familiar with the relevant laws and regulations regarding hiring employees in Maine, they should create a list of steps that they need to take when hiring an employee. This list should include conducting interviews, running background checks, negotiating salaries and benefits, onboarding new employees, payroll and tax compliance, workers’ compensation insurance requirements, etc.

Related: Steps to hiring your first employee in Maine

Business insurance is never at the top of anyone’s list of things they want to do when starting their business; insurance is necessary to protect a small business from unforeseen risks and potential financial losses. Here’s an overview of a handful of types of coverage a small business owner should consider when starting their business in Maine:

General Liability Insurance: This coverage protects your business against third-party claims for bodily injury, property damage, and personal injury, such as libel or slander. It is essential for most businesses, regardless of their size or industry.

Property Insurance: Property insurance covers damage or loss to your business property, including buildings, equipment, and inventory, due to events such as fire, theft, or natural disasters. This coverage is crucial if you own or lease a physical location for your business.

Workers’ Compensation Insurance: In Maine, businesses with employees are required to carry workers’ compensation insurance, which covers medical expenses and lost wages for employees who suffer work-related injuries or illnesses.

Commercial Auto Insurance: If your business owns, leases, or uses vehicles for work purposes, commercial auto insurance is necessary to cover potential damages and liabilities resulting from accidents or other incidents.

Professional Liability Insurance: Also known as errors and omissions (E&O) insurance, this coverage protects businesses that provide professional services or advice, such as consultants or financial advisors, against claims of negligence or errors in their work.

Related: Types of insurance your business may need

Maine businesses need to have an effective accounting system in place to ensure accurate recordkeeping, avoid tax penalties, and monitor financial performance. Investing in a reliable accounting system and maintaining accurate records will not only help you comply with tax regulations but also contribute to the long-term success and growth of your business.

Related: Setting up accounting for a business