Guide to Starting a Business In Montana

Step 1 – Write a Business Plan

The first step in starting a business should be planning.  Just as a home builder won’t start a project without blueprints, starting a business shouldn’t be any different.  Putting together a business plan is something many entrepreneurs dread, but they can be fun to write, especially with the great software that is available today.

While many people only write a business plan because the bank won’t loan them money until a business plan is submitted, the real benefit is getting the ideas out of the entrepreneur's head and creating a roadmap of where they want the business to go.

There are three options to writing a business plan.

1. Write it from scratch - There are a number of free business plan templates that are helpful such as one from the Small Business Administration or our Business Plan Template.

2. Software programs – Software is available to provide guidance in developing a business plan. These programs provide guidance and samples from hundreds of industries to jumpstart the writing process.  A few popular programs:
LivePlan 
BusinessPlanPro

3. Hire a business plan writer - We recommend that the entrepreneur write their own plan as no one will write a business plan as well as the owner, but sometimes there isn't time to get it all done.  Expect to spend $1,200 - $3,000 for a quality plan.  

If you fail to plan, you are planning to fail.

– Benjamin Franklin

This quote is especially relevant when starting a business.  According to the Small Business Administration, about 50% of businesses fail during the first year in business and the top reasons include a lack of planning and insufficient capital (which is also a lack of planning).

To start a business in Montana, you will need to choose a business entity / organizational structure in order to operate.  There are four primary structures and each has their pros and cons.  A brief overview is provided below:

Sole Proprietorship: A sole proprietorship is an individual that decides to go into business.  This is easiest of the four entities to set up as there is no formal filing.  Revenues are considered personal income and are taxed at the owner’s personal tax rate.

While sole proprietorships are the easiest and least expensive entity to form, there is a potentially major downside, which is unlimited liability.  This means if the business were to be sued, the business owner’s personal assets are at risk.    If separating your business and personal assets is important, corporations and LLCs are a better choice.

General Partnership: A general partnership involves two or more people conducting a business together. Like the sole proprietorship, there is no formal filing and just like the sole proprietorship, the partnership has unlimited liability so if the partnership were to be sued, all of the partners personal assets are potentially at risk.

Corporation: A corporation is a legal entity that is separate from the individual.  While corporations are more expensive and complicated than sole proprietorships and partnerships to form, should the corporation be sued (assuming no negligence) the owner’s personal assets are protected.

The cost to form the Articles of Incorporation in Montana is $70.

While you can form a corporation yourself, this is the most complex entity to form as several documents and activities need to take place to keep the liability protection (also known as the corporate veil).  Of major importance, a corporation must hold an annual board of directors meeting, shareholder meeting and record minutes at those meetings.  While a corporation can be owned and run by an individual, those activities must take place in order to keep the liability protection.

There are three options for filing a corporation in Montana:

1 – Do it yourself:
File – Articles of Incorporation
Finalize – Prepare corporate binder, bylaws, issue stock certificates, hold initial meetings, take minutes, etc.

2 – Online Incorporation Companies:  Nice option for most people who don’t want to form by themselves or pay for an attorney.  They help make sure filings are correct and provide the legal direction to ensure everything is in order.  Costs for these services are pretty affordable, typically starting around $50-$100, plus the state filing fee.
IncFile
Legal Zoom
BizFilings

3 – Hire an Attorney:  Hiring an attorney is the most expensive option but provides the most personalized service to best protect your assets (especially important if they are complicated) and ensure everything is filed properly.  Attorney’s fees to file a corporation usually ranges between $500 and $1,000, plus state filing fees.  Here is a link to attorneys in Montana.

Limited Liability Company (LLC): An LLC is a popular entity choice because it provides the liability protection of a corporation with the ease of operation of a sole proprietorship by eliminating the board of directors meeting, shareholders meeting, minutes, paperwork, etc that a corporation has to do.

The initial cost to form a Montana LLC is $70.

There are three options for filing an LLC in Montana:

1 – Do it yourself:
File – Articles of Organization

LLC-Made-Easy.com has a lot of resources and detailed answers to questions about forming an LLC.

2 – Online Formation Companies:  Nice option for most people who don’t want to form by themselves or pay for an attorney.  They help make sure filings are correct and provide the legal direction to ensure everything is in order.  Costs for these services are pretty affordable, typically starting around $50-$100, plus the state filing fee.
IncFile
Legal Zoom
BizFilings

3 – Hire an Attorney:  Hiring an attorney is the most expensive option but provides the most personalized service to best protect your assets (especially important if they are complicated) and ensure everything is filed properly.  Attorney’s fees to file an LLC usually ranges between $500 and $1,000, plus state filing fees.  Here is a link to attorneys in Montana.

Check out our comparison chart of the different business entities.

Step 3 – Choose a Business Name

After deciding on a business entity, the next step is deciding on a business name.  Even with the perfect name there are a number of items to also consider that might keep you from using that name such as registration, trademarks, and domain name availability.

Registering a Business Name in Montana

Sole Proprietors & Partnerships – If you are a sole proprietorship or partnership in Montana and doing business under your first and last name or surname (maybe as a consultant, contractor, etc.) there is no filing, but if the business will operate under a trade name/business name, you will need to file an Assumed Business Name, also known as a DBA (Doing Business As) with the state.  Filing is done here.

The fee to file an Assumed Business Name is $20.

Filing does not stop anyone else from using the name you choose.  To protect a business name, see the next section on registering a trademark.

Corporations & LLCs – Picking a name for a Corporation or LLC can be more difficult than the sole proprietorship or partnership as each corporation/LLC has to be uniquely named and yours may already be registered.

The corporation or LLC name will be chosen at the time of filing for the corporation.  To check and see if your name is available do a free corporation or LLC name search here.

Trademarks

A trademark can protect the business’s name and logo.  The U.S. Patent & Trademark Office (USPTO) manages the registration of trademarks.  Before settling on a name, check the USPTO database to see if your name is registered to another business.  The cost for infringement can be high in both money but also time to rename a business.  If the status is Live, you may need to revisit the name choice, however you may be ok if it’s in a non-related category.  In either instance, you should seek legal review. For some businesses that do business outside their local area, it may make sense to get a trademark. Filing for a Federal trademark starts at $225 and lasts 7 years. Options for filing trademark:

  1. Do it Yourself – It is possible to file for a trademark without the help of an attorney. To review the process, get more information and apply, visit the USPTO website.
  2. Use a Service – Typically less expensive than an attorney and sufficient for most businesses. Registration costs from services like LegalZoom are typically under $200, plus the Federal fee.
  3. Hire an Attorney – For more complicated cases or if more personalized assistance is needed, an attorney may be the best option. Prices for an attorney to file a trademark usually start at $1,000 for simple trademarks. Here is a link to attorneys in Montana.

    Domain Names
    While it’s not a requirement to have or register a domain name, having a domain name that is similar to your business’s name is a good idea to make it easier for customers to find you.  To search possible names, visit a domain registrar such as Namecheap, Hostgator or Bluehost to see if it’s available. If your particular name isn’t available, they also have the ability to search names that are similar.

    The cost for a domain runs $10-$15 per year.

Step 4 – Licenses, Registrations & Permits

Starting a business in Montana typically involves licenses or registration with several agencies.  Some that a business may be involved with include:

Local Business Licenses

Almost every Montana community (both at the town/city and/or county level) have some sort of licensing/registration or rules and regulations that businesses need to be aware of.  Some require a general business license while others have requirements for certain professions, zoning, building/ building improvements, signage requirements, etc.

You will want to make sure that your business meets the requirements before opening the doors instead of having a visit to shut down operations until you are in compliance.   Don’t be intimidated in working with your local governments as they have an interest in new businesses opening in the community and they are there to help you do so, but certain laws and regulations must be followed.

For example, any person or company conducting business in the City of Billings must obtain a business license.  More information for obtaining a business license in Billings, click here.

Be sure to contact your city/town’s City Hall, Economic Developer or Mayor to say you are planning to start a business and need to find out what is needed to register.

State Licenses

There is no state general business license filing in Montana, however there are some industries/occupations that are required to register; such as athletic trainers, barbers, cosmetologists, massage therapists and many more.  More information on professional licenses is available here.

In addition to professional licenses, businesses in a variety of industries such as food establishments, day cares, salvage yards and many others require licensing.

If you need help, a Business License Service can be a massive time-saver. They determine everything required on Federal, State, County and Municipal levels, get the forms, and provide step-by-step filing instructions. IncFile has a package for $99.

EIN

The EIN, also known as the Federal Employee Identification Number or FEIN, is essentially the social security number for a business.  Sole Proprietorships with employees, Partnerships, Corporations and LLCs are required to apply for this number.  As a sole proprietorship with no employees, you can get this number but it isn’t required.  Instead of a FEIN, you would simply use your social security number, which would be used to open a business checking account.

The number takes just a few minutes to get and is free. Visit the IRS to apply for an EIN.

Check out our video and step-by-step guide to learn how to get an EIN for FREE in less than 5 minutes.

Step 5 Banking & Financing

Now that your business plan is in order, entity chosen and business registered it’s time to set up a business checking account and raise the money needed to start your business.

Checking Account
After forming your entity, registering a business name in most cases and a FEIN (or Social Security Number for some Sole Proprietorships) a separate business checking account is recommended.  While you don't have to get one for a Sole Proprietorship, it's a good idea to keep your business and personal funds separate.  Most banks have free accounts anyway, but some don't so be sure to ask!

Credit Score
Before stepping into a bank for financing, it is a good idea to know your credit score.  A major factor in getting start-up business loan approval is the owner’s credit score.  Typically scores above 650 are considered viable so if you aren’t sure, get a copy of your credit report.  If there is anything incorrect on your report, take care of those issues before going to the bank.  Higher scores not only have a greater approval rate, they also get lower interest rates, saving money over the course of the loan.

You can request a free credit report once a year from AnnualCreditReport.com.  This report won’t have your score, but it will show all of the credit activity under your name from the three credit reporting companies; Equifax, Experian and TransUnion.  This information can be used to fix incorrect information.

Financing
As a rule of thumb, banks will want to see the owner invest 15%-25% of their money (equity) into a start-up business.  That can include cash but also any buildings, tools, vehicles, inventory and equipment that will be used in the business.  It is likely that the bank will want a lien on those items.

There are a number of small business loan options, but the primary ones that are used by small businesses include:

Conventional Bank Loans - These are available at most local banks and are where most entrepreneurs start when looking for a loan.  Banks are typically very conservative and place a lot of weight on the owner’s personal credit, equity and collateral.  After reviewing the business plan and personal financial information, they will respond with a yes, no or maybe.  Yes is great but we recommend talking with at least three banks to get the best rates and terms for your business.  No isn’t necessarily bad, as a bank may have many loans with other businesses in your industry or they don’t make loans for your type of business (restaurants are a typical example).   If your loan looks a little risky or if you don’t have sufficient credit, equity or collateral they may answer with a maybe and want a loan guarantee.

Loan Guarantee – When a loan is riskier than the bank wants to take on, many have the option to use the Small Business Administration (SBA).  This is a federal program that provides a guarantee to the bank that will pay a percentage back to them if the loan isn’t paid by the business owner.  The percentage depends on the program, but typically ranges from 50%-85%.  Contrary to popular belief the SBA doesn’t provide business loans but they do help in getting money to small businesses by taking a majority of risk and encouraging the bank to make loans.  Another thing to note is that SBA guaranteed loans will cost the owner more in closing costs, fees and interest.

Alternative Lenders – A newer type of lender has emerged to make it more convenient to borrow money for businesses.  These lenders tend to be online, more efficient than conventional lenders and sometimes lower rates. 

Revolving Loan Funds – Several communities, economic development agencies, etc. offer revolving loan funds to businesses as a way to encourage investment and job creation.  They are often low interest and approval is typically not as strict as a bank since job creation in the community is a priority.  BusinessLoanFunds.com has a directory of these programs.

Expect the loan approval process to take anywhere from 2 weeks to 6 months (and possibly more) depending on the amount being borrowed, complexity of the project and owner's personal financial condition.

Step 6 – Accounting & Taxes

Accounting

Accounting is an essential, but often underestimated part of starting a business.  Keeping complete, accurate records is important to the financial health of a business regardless of whether it’s a one-person operation or multinational corporation.

Having a clear picture of sales trends and the business’s financial position gives the business owner data for making decisions about financing, expansion, or other strategic steps.

The decision to handle accounting on your own versus hiring a bookkeeper or accountant is an important one that should be considered carefully. There will certainly be differences in cost and expertise but you should also consider how much additional time you will spend doing your accounting that could be better invested in growing your business.

While a bookkeeper may not be in the budget or even needed in the early stages, there are a number of ways to keep track of your businesses finances.

No Cost:
BasicAccountingHelp.com has a free spreadsheets and educational resources.

Low Cost: There are a number of popular, low-cost software programs to help manage bookkeeping duties.
Quickbooks
Xero
Freshbooks

Depending on the type of business, there are a variety of taxes a business in Montana to be aware of with the two of the most common being sales and self-employment.

Sales Tax

Montana has no sales tax, so there is no sales tax for the business to collect.

Self-Employment Taxes

Self-employed business owners are required to pay state and federal income taxes, Social Security, and Medicare based on the profits generated by the business. Profits in a proprietorship are determined before you draw compensation from the business (i.e. your draw or wages are not considered an expense of the business.) Once your liability for federal income tax and self- employment FICA exceeds $500, you will need to deposit the tax payments to the IRS (whether this happens in any one quarter or combination of quarters.)

More information and filing information is at the IRS website and Montana Department of Revenue.

Step 7 – Hiring Employees

Hiring employees is a big step for a business which comes with many requirements and obligations for employers such as employee verification, payroll taxes and labor laws.

Initial Hiring Paperwork

As an employer, you are responsible for verifying the legal employment eligibility of each new hire. New employees should complete the Form I-9, Employment Eligibility Verification and file in the employee's records.

Employers are also required to file a W-2 form with the Social Security Administration for each employee and furnish a W-2 to each employee in order to report wages earned.

Last, employers need to know how much income tax to withhold from employees wages, which is done through the Form W-4.

For additional information and online forms, visit IRS.gov.

Federal Payroll Taxes

Federal Income Taxes - The employer typically withholds federal income taxes from each employee’s wages and must follow guidelines regarding the amount to be withheld from each employee’s pay.

Federal Insurance Contributions Act (FICA) - Employers withhold part of social security and Medicare taxes from employees' wages and pay a matching amount.

Federal Unemployment Tax (FUTA) - Employers are responsible for paying taxes to compensate workers when they are fired.

More information on Federal payroll taxes is available here.

Be sure to keep all employee records for 4 years in the case of an audit.

State Payroll Taxes

State Income Taxes – The Montana Department of Revenue outlines state income tax withholding requirements here.

State Unemployment Taxes – Unemployment insurance must also be paid by employers to the state of Montana. Information on state unemployment insurance can be found on the Montana Department of Labor & Industry website.

Employment Laws

Employers should understand the various regulations and laws pertaining to employees. If you plan to hire employees, learn the rules that apply to your business. Federal laws, depending on your sales volume and number of employees, may supersede state laws. Consult with the state and federal Departments of Labor to learn more. If you are unsure of your obligations, an attorney’s guidance can be useful in assisting you to meet legal requirements.

U.S. Department of Labor
Montana Department of Labor & Industry

Workers’ Compensation Insurance

All employers, regardless of the number of employees, should contact the Montana Department of Labor & Industry to determine if they are legally obligated to provide workers’ compensation insurance coverage for their employees.

Workers compensation insurance is purchased by the employer from an insurance provider. Employers must also comply with workplace posting requirements and must comply with procedural and documentation requirements in the event of an accident in the workplace.