How To Start A Business In Massachusetts
Massachusetts has long been recognized as a hub of innovation, education, and economic growth, making it an ideal location for entrepreneurs looking to launch their businesses. With its highly educated workforce, driven by world-renowned institutions such as Harvard and MIT, businesses have access to top-tier talent in various fields. The state’s diverse economy, encompassing industries like biotechnology, finance, and technology, offers a stable environment for new ventures to thrive. Massachusetts’ commitment to innovation and research & development, coupled with a supportive government and an unmatched quality of life, creates a perfect ecosystem for businesses to grow and prosper.
Overall, Massachusetts is an excellent place for entrepreneurs and investors alike due to its favorable business climate, great job growth opportunities, and promising financial future. With its low taxes and diverse workforce combined with its geographic location near major cities and ports, it’s no wonder why so many people choose this state as their home base when launching new ventures or investing in existing ones.
Massachusetts Small Business Stats
- There are 3 million small businesses in Massachusetts, which is 99.5% of all businesses in the state. (2022 SBA Small Business Profile)
- Exports by small Massachusetts firms reached $8 billion. (2022 SBA Small Business Profile)
- Small businesses in Massachusetts employ 1.5 million employees, which is 45.4 percent of the total employees in the state. (Statistics of US Businesses)
- While Massachusetts was only ranked #24 in the best state for business report by CNBC, the state ranked #1 for education, #6 for access to capital, and #10 for technology & innovation.
- Forbes ranked Massachusetts as the 13th best state to start a business due to business costs, economy, and workforce.
Steps To Start A Business In Massachusetts
The process of starting a business isn’t going to be the same for everyone, but our comprehensive checklist is a valuable tool for first-time entrepreneurs looking to establish their small businesses. With our step-by-step guide, we will cover the common steps most businesses will tackle so you can lay a strong foundation for launching your business.
Step 1: Choose a Business Idea
The first step in starting a new business is coming up with a good business idea, but what constitutes a good business idea?
While the answer is going to be different depending on the goals of the person being asked, when evaluating a potential business idea, I believe that it is important to consider multiple factors, a few of which include:
Owner Interest: One often overlooked factor of what makes a good business idea is the interest of the owner. It’s easy to get caught up in the money-making aspect of a business, but if the owner doesn’t really like the product or service being sold, or the customers of the business, it can be hard to stay motivated during the ups and downs of entrepreneurship.
Market Demand: A good business idea should cater to an existing market demand or create a new demand by solving a pressing problem.
Scalability and Growth Potential: A good business idea should have the potential to grow and scale over time. Entrepreneurs should consider how their business can expand beyond its initial stages, whether by adding new products or services, entering new markets, or reaching a broader customer base. A scalable business model allows for increased revenue and profitability, making it more attractive to investors and stakeholders.
To learn more on over 300 different types of businesses, check out our business idea library to get detailed industry information, trends, costs to start, tips, and lots more.
Step 2: Write a Business Plan
A well-developed business plan is critical to the success of any business and is used to help secure funding, set goals, and provide a roadmap for growth.
The key elements of a quality business plan include an executive summary, company description, market analysis, organization and management structure, products or services offered by the company, marketing strategy, financial projections, and analysis of risks associated with the business.
A comprehensive business plan is essential for setting the foundation for success and establishing a clear vision for the future, but most people haven’t written a business plan before and aren’t sure where to start. With our guide on how to write a business plan, you will be able to get a jump start on the process!
Step 3: Select a Business Entity
Next on our list is setting up the business entity, which refers to the legal structure under which a company operates, determining the extent of personal liability, tax implications, and management structure for its owners. Choosing the right business entity is a crucial decision.
In Massachusetts, some common business entities include sole proprietorships, general partnerships, corporations, and limited liability companies (LLCs).
A sole proprietorship is an unincorporated business that is owned by one individual who has full control over all aspects of the business. With this entity, the business and owner are legally indistinguishable, which means the owner bears unlimited personal liability for the debts and obligations of the business.
The advantages of being a sole proprietor include ease of formation and minimal regulation, while the disadvantages involve personal liability and limited growth potential.
A general partnership is similar to a sole proprietorship in that two or more individuals own and manage the business together. However, unlike a sole proprietorship, each partner has unlimited personal liability for debts and obligations incurred by the partnership.
Partnerships offer simplicity in formation and shared decision-making, but partners may face unlimited liability and potential disagreements in management.
A corporation is a more complex business structure and is a separate legal entity from its owners (shareholders). The corporation provides limited liability protection to shareholders and offers greater flexibility in terms of ownership and management structures than other entities.
The advantages of a corporation include limited liability, easier access to capital by selling shares of stock, and a more structured management system, while the disadvantages are increased regulation and double taxation. The downside of forming a corporation is that it requires more paperwork and can be more expensive to set up than other entities.
Related: How to form a corporation in Massachusetts
A Limited Liability Company is a hybrid structure that combines the limited liability protection of a corporation with the pass-through taxation of a sole proprietorship or partnership. Owners (known as members) of an LLC are not personally liable for the company’s debts and obligations (unless they sign a personal guarantee to get a business loan), and can choose multiple ways for the business to be taxed.
LLCs offer flexibility in management structure and provide the benefits of limited liability and pass-through taxation. However, they face more requirements than sole proprietorships or partnerships. Most commonly they are more complex to form (though typically easier than a corporation) and there are ongoing requirements such as filing an annual report.
Related: How to form an LLC in Massachusetts
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
In Massachusetts, various business licenses and permits may be required, depending on the nature of your business, its location, and the industry you operate in. Some businesses may need licenses at the local, state, and even federal levels. It’s crucial to research and obtain the necessary licenses and permits to operate legally and avoid penalties.
Business Licenses – The state of Massachusetts doesn’t have a general business license; however, many cities require a business license to operate.
Local Licenses and Permits: Depending on the city or town where your business operates, you may need specific local licenses and permits. These can include zoning permits, building permits, health department permits, and sign permits. It’s essential to check with your local city or town clerk’s office to determine the specific requirements for your business.
Employer Identification Number (EIN): If your business has employees or operates as a corporation, partnership, or multi-member LLC, you’ll need to obtain an EIN from the Internal Revenue Service (IRS). This number is used for tax identification purposes for the business.
Sales Tax Vendor Registration: Businesses selling products and certain services will need to register for a Sales Tax Permit with the Massachusetts Department of Revenue through their MassTaxConnect.
Professional Licensing: Some services, such as plumbers, cosmetologists, electricians, and home inspectors, require licensing in Massachusetts. While this isn’t a license on the business, licensing is required to operate.
Related: What business licenses and permits are needed in Massachusetts?
Step 5: Open a Business Bank Account
As a small business owner, keeping your personal and business finances separate is important. Not doing so can lead to serious tax issues and legal implications. It is also important for the success of your business, as having a separate bank account will help you track expenses and income more effectively.
To open a business bank account in Massachusetts, follow these simple steps:
Choose a Bank: Research local and national banks that offer business banking services in Massachusetts. Consider factors such as fees, minimum balance requirements, available services, and convenience when selecting a bank that meets your business needs.
Gather Required Documents: To open a business bank account, you’ll need to provide various documents, such as:
Employer Identification Number (EIN) or Social Security Number: (for sole proprietorships or single-member LLCs without employees)
Business formation documents: (e.g., Articles of Incorporation for corporations or Articles of Organization for LLCs)
Business name registration or DBA certificate (if applicable)
Ownership agreements: (for partnerships, corporations, or LLCs)
Personal identification: (e.g., driver’s license or passport) for all account signatories
Step 6: Find Financing
Even with a great idea, without funding, it can be very difficult to start a business. There are a variety of funding options available, from conventional bank loans and SBA loan guarantees to microloan programs and investors.
Bank loans are the most popular form of financing for small businesses, but they often require a personal investment, a business plan, and a good credit score. The Small Business Administration (SBA) offers loan guarantees for small businesses that may not qualify for traditional bank financing. While the SBA doesn’t loan directly to small businesses, they provide a guarantee to the bank, which makes it easier for them to make a loan. Microloan programs are another option that can provide smaller amounts of capital to start-up businesses or those with limited access to other forms of financing. Finally, venture capitalists and angel investors can be great sources of funding for those with high-growth potential businesses.
Related: Understanding the different types of business funding
Step 7: Hire Employees
As a small business owner in Massachusetts, hiring your first employee can be an intimidating process. It’s important to understand the legal considerations that come with hiring an employee, such as wage and hour laws, worker’s compensation, and employee benefits.
Additionally, employers are responsible for reporting new hires, verifying employees are eligible to work in the U.S., income tax withholding, unemployment insurance, unemployment taxes, and payroll withholding taxes, including Social Security and Medicare.
Related: Steps to hiring your first employee in Massachusetts
Step 8: Obtain Business Insurance
Insurance plays a crucial role in protecting your business from potential risks and liabilities. When starting a small business, it is essential to consider the importance of insurance. Insurance can help protect against potential losses and legal claims that could otherwise be financially devastating.
There are various types of insurance available, including general liability, workers’ compensation (required for all employers), property, and professional liability, which can protect against different types of risks faced by small businesses in the state. By carefully researching different providers and policies and working with an experienced agent when selecting a policy, small business owners can ensure they get adequate coverage at an affordable rate so their business is protected if something unexpected were to happen.
Step 9: Set up an Accounting System
Businesses are required to maintain accurate financial records for tax reasons. This includes keeping track of income and expenses, invoices, payrolls, and much more. Businesses must also ensure that their records are up-to-date and accurate in order to avoid any potential issues with the IRS or other regulatory bodies.
Having a good accounting system can provide many benefits for business owners. It can help them make better decisions by providing them with an accurate picture of their finances. It can also help them plan for the future by providing insights into their cash flow and budgeting needs. Additionally, it can reduce the risk of financial irregularities by ensuring that all transactions are properly recorded and accounted for.
There are several different types of accounting systems that businesses can use to maintain proper records and stay tax compliant.
Related: Setting up accounting for a business
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Common questions when starting a business in Massachusetts
Is Massachusetts a good state to start a business?
With its strong economy, diverse workforce, and excellent educational opportunities, Massachusetts is an ideal location for entrepreneurs and investors alike.
The workforce in Massachusetts is incredibly diverse and highly educated. The state has some of the country’s best universities, including Harvard University, Massachusetts Institute of Technology (MIT), and many others, which means employers can find talented employees with specialized skill sets ready to contribute to their businesses right away.
Massachusetts also boasts a high quality of life, with excellent healthcare, education, and cultural amenities. These factors can help attract and retain talented employees.
Geographically speaking, Massachusetts is well-positioned for success. Its close proximity to major cities like Boston and Cambridge makes it easy for businesses to access the resources they need while still being able to maintain a competitive edge over their competitors. Additionally, its proximity to major ports allows businesses easy access to global markets without investing heavily in transportation infrastructure or logistics costs.
The state government offers various programs and initiatives designed to support small businesses and entrepreneurs, such as the Massachusetts Growth Capital Corporation (MGCC) and the Small Business Development Center (SBDC).
What are the steps to starting an LLC in Massachusetts?
There are three main steps to starting an LLC in Massachusetts. 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 learn about, so be sure to check out how to start an LLC in Massachusetts.
How much does it cost to start an LLC in Massachusetts?
The filing fee to submit the Certificate of Organization with the Massachusetts Secretary of the Commonwealth, which forms an LLC in Massachusetts is $500.
What licenses do I need to start a business in Massachusetts?
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 Massachusetts?