Our work is reader-supported, meaning that we may earn a commission from the products and services mentioned.

How To Start A Business In Pennsylvania [2023 Guide]

How To Start A Business In Pennsylvania [2023 Guide]

Affiliate Disclosure


How To Start A Business In Pennsylvania [2023 Guide]

If you’re considering launching a business, the location you choose could play an essential role in determining your success. Choosing the perfect site requires careful consideration of several key factors, including ease of doing business, affordability, accessibility, and demand. Pennsylvania has emerged as one of the top locations due to its excellent infrastructure, skilled workforce, supportive government policies, stable economy, diverse markets, and unique competitive advantages.

Pennsylvania Small Business Stats

Steps To Start A Business In Pennsylvania

Learning what steps are required to establish a successful business in Pennsylvania can be overwhelming. From creating a solid business plan to registering your company and obtaining the necessary licenses and permits, there is a lot to do. But fear not, our step-by-step checklist will guide you through the process and ensure you don’t miss any critical elements on your journey to entrepreneurship.

Step 1: Choose a Business Idea

The first step for starting a business in Pennsylvania is having a good business idea.

Here are a few tips to guide you in making the right decision:

Research: Do your research and find out what businesses are successful in your area. Look for gaps or solve problems while being aligned with your interests & strengths. Even if there is already a fair amount of competition involved, a saturated market could mean there are proven opportunities to go after!

Maybe you already have an idea picked out or are still deciding on the kind of business to start. Regardless, you can check out our library of business ideas to get detailed industry information, trends, costs to start, tips, and lots more.

Conduct market research: Thoroughly research the local market to identify current trends, customer needs, and potential gaps in the market. This research will help you validate your business idea, identify your target audience, and determine the right pricing and marketing strategies.

Evaluate competition:
Analyze your competitors to understand their strengths and weaknesses. This will help you differentiate your business and find a unique selling proposition (USP) that sets you apart.

Assess financial feasibility: Estimate the initial investment and ongoing costs required for your business idea. Ensure you have a clear understanding of your financial needs and the potential return on investment (ROI).

Seek advice from industry experts: Connect with experienced entrepreneurs, industry professionals, and local business support organizations to gain insights and guidance on choosing the best business idea for your unique circumstances.

Test your idea: Validate your business idea by testing it on a small scale before fully committing. This will help you identify potential issues and make necessary adjustments to your business model.

Step 2: Write a Business Plan

Once a solid business idea is in place, it’s time to start working on the business plan. A business plan may sound like an academic exercise or a requirement to get funding, but the real benefit of a business plan is that it is a roadmap that outlines where you want your business to go and how you plan to get there.

The business plan will help guide a new business owner through treacherous business terrain, littered with obstacles ready to derail promising projects. It includes mission statements clarifying purposes, target customer profiles and pain points addressed, goals and objectives with quantifiable metrics and deadlines, plus thorough financial projections backed by solid market analysis.

According to multiple studies, a business without a comprehensive business plan is risky and has a higher failure rate.

Related: How to write a business plan

Step 3: Select a Business Structure

The next step in starting a business is forming a business structure (also called a business entity).

A business entity refers to the legal structure under which an organization operates. Choosing the correct entity type is a critical step in setting up a new business because it will impact how you pay taxes, manage liabilities, raise capital, and make decisions about future growth. In Pennsylvania, some popular choices include Sole Proprietorships, General Partnerships, Corporations, and Limited Liability Companies (LLC).

Sole Proprietorships are the most simple and easy to set up, where one individual owns and manages the entire business without separate legal status. However, personal assets are fully exposed in case of debt or lawsuits.

General Partnerships combine two or more individuals who agree to share ownership, management responsibilities, and profits. Partners share profits, losses, and management responsibilities. Like a sole proprietorship, each partner is personally liable for the business’s debts, and the business income is reported on the partners’ personal tax returns. General partnerships are relatively easy to establish but come with the risk of personal liability for all partners.

Corporations represent independent legal entities that exist separately from members (called shareholders). It provides personal asset protection, as shareholders are not personally responsible for the corporation’s debts. Corporations can be subject to double taxation, meaning the corporation pays taxes on its profits, and shareholders pay taxes on dividends received. While offering limited liability and a professional image, corporations have higher setup, annual registration, and maintenance costs.

Related: How to form a Pennsylvania corporation

Limited Liability Company (LLCs): merge elements of sole proprietorships/partnerships and corporations, as it combines the limited liability protection of a corporation with the pass-through taxation benefits of a sole proprietorship or partnership. LLCs also offer more flexibility in management structure compared to corporations. However, they have higher setup and maintenance costs than sole proprietorships or general partnerships.

Related: How to form a Pennsylvania LLC

When selecting a business entity for your Pennsylvania venture, consider factors such as your personal liability, tax implications, setup and maintenance costs, and the level of management flexibility you require. Consulting with a legal or financial professional can provide valuable guidance in choosing the best structure for your unique business needs.

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

Starting a business in Pennsylvania can be a complex process, but obtaining the necessary licenses and permits is a critical step, as there are several federal, state, and local rules and regulations to comply with. Some common registrations include:

Business Licenses: Though no overall statewide permit exists, certain business activities and local city regulations demand separate licensing or certifications.

EIN (Employee Identification Number): An EIN is a unique nine-digit number that identifies your business for tax purposes. You’ll need an EIN if you plan to hire employees or if your business is taxed separately from your personal taxes. You can obtain an EIN for free from the Internal Revenue Service (IRS) website.

Business Name Registration (Sole Proprietorships & General Partnerships): A sole proprietorship or general partnership that wants to operate under a name that is different from the owner(s) full first and last name will need to file for a Fictitious Name, sometimes known as a DBA or Doing Business As with the Pennsylvania Department of State. The name must be distinguishable from other names that are registered.

Sales Tax License: If your business sells goods or services in Pennsylvania or will hire employees, Sales Tax License. This license allows you to collect and remit sales tax to the state. You can apply for a Sales Tax License online through the Pennsylvania Department of Revenue website.

Professional Licensing: Some occupations, such as architects, barbers, and vehicle dealers require licensing in Pennsylvania. While this isn’t a license on the business, licensing is required in order to operate.

Zoning – Before starting to operate a business (even if it’s home-based), be sure to check local zoning regulations before starting to operate out of a location.

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

Step 5: Open a Business Bank Account

Separating business and personal funds is crucial for business owners in Pennsylvania, as well as in any other state, for several reasons:

Clear financial records: Keeping a separate personal and business checking account simplifies bookkeeping and ensures accurate record-keeping. It makes it easier to track income, expenses, and cash flow, enabling you to make informed decisions about your business’s financial health.

Track Expenses: Mixing business spending with personal costs can muddle revenue and expense data. Distinctive accounts help streamline recordkeeping for income and outlays associated with the enterprise. You will quickly identify areas where adjustments could improve profitability, such as cutting unnecessary expenditure categories.

Tax reporting and deductions: Separating finances helps ensure accurate tax reporting for your business. By maintaining clear records of business expenses, you can maximize tax deductions and reduce the risk of over- or under-reporting income or expenses, which could potentially lead to penalties or audits by tax authorities.

Legal protection: In Pennsylvania, businesses structured as corporations or LLCs offer limited liability protection, meaning that the business owner’s personal assets are protected from business debts and legal claims. However, this protection may be compromised if you fail to maintain separate finances, as courts could determine that the business is an extension of your personal finances, a concept known as “piercing the corporate veil.”

Step 6: Find Financing

There’s no one-size-fits-all solution when it comes to raising capital, so understanding the pros, cons, eligibility criteria, and limitations of each option is crucial to making informed choices. Here’s an outline of common sources of funding:

Personal Funds: Bootstrapping or Self-Financing: Starting with contributions from one’s personal savings, investment accounts, retirement plans, or proceeds from selling assets is perhaps the most common way to kickstart a business without incurring additional debt. Self-financing offers complete control over decision-making and eliminates the need to convince external parties of your vision. However, this approach may result in slower growth, self-imposed constraints on scaling, and depletion of life-long savings if the business is unsuccessful.

Conventional Bank Loans
Traditional banks, community development financial institutions (CDFIs), and online lenders offer secured and unsecured term loans, lines of credit, commercial mortgages, equipment financing, or letters of credit to small businesses. To qualify, you must have a personal investment of typically around 15%-25%, collateral, positive credit scores, solid financials, and a business plan.

Keep in mind that traditional bank loans usually come with fixed interest rates, set payment periods, and rigorous underwriting processes. While they offer low borrowing costs compared to alternative lending solutions, securing approval can be challenging, especially for first-time applicants. Nonetheless, building a relationship with a trustworthy lender now can serve you well later as you grow and seek more substantial financing arrangements.

Small Business Administration (SBA) Guaranteed Loans: The United States Small Business Administration has several financial assistance programs designed to encourage small business creation through guaranteed loans offered by authorized lenders throughout the country. Popular SBA programs include the 7(a) and 504.

Working with participating lenders ensures streamlined processing and expedited approval decisions based on favorable credit history, appropriate collateral, stable cash flow projections, and reasonable feasibility assessments. Applicants generally enjoy longer maturity periods than traditional bank loans, enabling more manageable monthly payments.

Local Microloans: Microloans target aspiring or early-stage entrepreneurs who lack collateral but require relatively smaller amounts ($5,000 – $150,000) for establishing or expanding modest-scale projects. Organizations like Community First Fund, Kiva, Accion USA, Pittsburgh Community Reinvestment Group, and Philadelphia Minority Enterprise Development Center operate within Pennsylvania. They specialize in offering non-traditional loans with simplified application requirements, quick turnaround times, and individualized coaching or mentorship services.

Expect slightly higher interest rates than conventional bank loans due to increased default risks in serving underserved populations. Collaborating with microlenders provides affordable working capital infusions without compromising financial stability, as payback durations typically align with project milestones rather than fixed timelines. By choosing microlenders in your region, you can foster community economic development initiatives alongside pursuing sustainable growth objectives.

Venture Capital Firms or Angel Investors: Pennsylvania has many private equity companies and angel investors willing to invest in new businesses in exchange for ownership in high-potential enterprises. While finding venture capitalists or angels often requires developing industry connections, attending networking events, showcasing innovative ideas at accelerators like Ben Franklin Technology Partners, or leveraging crowdfunding platforms, these investors can significantly boost fledgling ventures facing steep expansion hurdles.

When considering funding options for your Pennsylvania business, it’s essential to evaluate each option’s pros and cons, and choose the most appropriate funding sources based on your business’s unique needs and objectives.

Small Business Grants: Although less common for startups, some federal, state, and local government agencies, as well as private organizations, offer grants to small businesses. These grants are usually non-repayable, but they often have strict eligibility requirements and a competitive application process.

Related: Understanding the different types of business funding

Step 7: Hire Employees

Hiring an employee marks a significant step forward for any business, opening up exciting opportunities while introducing fresh responsibilities. To ensure that you’re ready to welcome your first worker, take note of these crucial steps:

Begin by clearly defining the role and responsibilities of the position you’re hiring for, and create a comprehensive job description that outlines the qualifications, skills, and experience required. This will help you attract suitable candidates and set clear expectations.

Before hiring an employee, ensure you’ve obtained the necessary tax and identification numbers, including an Employer Identification Number (EIN) from the IRS and registered with the Pennsylvania Department of Revenue for applicable state taxes.

Familiarize yourself with federal and state labor laws, including minimum wage requirements, overtime regulations, and workplace safety standards, to ensure compliance and avoid potential legal issues.

Create a well-structured onboarding process that helps your new employee integrate into your company culture, understand their role and responsibilities, and become familiar with your business’s policies and procedures.

Ensure that you have the appropriate workers’ compensation insurance, as all employers are required to have this coverage under Pennsylvania state law. This insurance protects both you and your employees in case of work-related injuries or illnesses.

Set up a payroll system to manage employee payments, withholdings, and tax filings. You can choose to handle payroll in-house or outsource it to a payroll service provider.

By taking these steps, you’ll create a solid foundation for hiring your first employee in Pennsylvania, ensuring a positive and successful working relationship that contributes to your business’s growth and success.

Related: Steps to hiring your first employee in Pennsylvania

Step 8: Obtain Business Insurance

Insurance may seem unnecessary until something goes wrong, but it can save small business owners in Pennsylvania valuable resources, financial stability, and even their livelihoods in challenging times. As entrepreneurs invest in building companies, maintaining sufficient protection is vital.

The primary goal of insurance is to manage risks through coverage for unexpected events, such as property destruction due to fires or natural catastrophes, customer slip-and-fall claims, product defect allegations, or data breaches. Without suitable protection, a single claim exceeding policy limits could financially devastate many smaller entities.

Related: Types of insurance your business may need

Step 9: Set up an Accounting System

As a small business owner, managing finances can become overwhelming quickly. Effective bookkeeping not only helps you keep track of where your money is going but also allows you to report taxes accurately and make informed decisions about the future growth and success of your company.

To maintain effective bookkeeping, you’ll need to manage various types of financial records, such as:

Sales receipts: These documents show the revenue generated from sales transactions, including cash, credit card, or online payments.

Accounts payable: This record tracks the money your business owes to suppliers or vendors for goods or services purchased on credit.

Accounts receivable: This record monitors the money owed to your business by customers who have made purchases on credit.

Payroll records: These documents detail employee wages, benefits, deductions, and taxes withheld for each pay period.

Expense records: These records include receipts and invoices for business-related expenses, such as rent, utilities, office supplies, and travel.

Bank and credit card statements: These statements provide a record of all transactions involving your business bank accounts and credit cards.

Tax records: These include records of tax payments, tax returns, and other tax-related documentation.

Related: Setting up accounting for a business

This material is property of StartingYourBusiness.com

Common questions when starting a business in Pennsylvania

Is Pennsylvania a good state to start a business?

Starting a small business can be challenging, and one important factor to consider is the state where you plan to launch your business. Overall, the Keystone State provides an excellent environment for starting a small business. While taxes and permits can be a hurdle, the state makes up for that through a skilled workforce and favorable economic conditions.

A few positive notes about why to choose Pennsylvania as a state to start a business in Pennsylvania include:

Regulations and Economic Stability: Pennsylvania offers a favorable environment for small businesses as it strives to streamline its regulations to make it easier for companies to operate, such as the PA Business One-Stop Shop. However, depending on the specific industry, you may face additional local or federal regulations.

Workforce and Consumer Behaviors: With a population of close to 13 million people, Pennsylvania boasts a diverse and skilled workforce. Furthermore, the state is home to numerous large universities, such as the prestigious Wharton School of the University of Pennsylvania, creating a well-educated talent pool. Consumer behavior in Pennsylvania leans towards supporting local businesses, making it a perfect place to establish a small business.

Taxes, Permits, and Licenses: Pennsylvania has a flat corporate tax rate of 8.99%, which is relatively high compared to other neighboring states. However, the state offers numerous tax incentives, such as the Keystone Opportunity Zone Program and Pennsylvania Research and Development Tax Credit to encourage investment and job creation, along with business assistance programs like the Small Business Development Center.

Business Opportunities: Pennsylvania offers numerous business opportunities across different sectors, including healthcare, energy, and manufacturing. The state has a strong manufacturing base with some of the largest manufacturing firms, like US Steel, making it an ideal location for companies focused on manufacturing. For aspiring entrepreneurs looking to venture into the retail business, Pennsylvania’s consumer-friendly environment also makes it an ideal place to start a local business.

While the cost of living in Pennsylvania is quite high, it is increasingly becoming an alternative to New York due to its lower cost of living and higher business survival rate of 83.3 percent.

What are the steps to starting an LLC in Pennsylvania?

There are three main steps to starting an LLC in Pennsylvania. 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 Pennsylvania.

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

The filing fee to submit the Certificate of Organization with the Pennsylvania Department of State and start an LLC in Pennsylvania is $125.

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

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 Pennsylvania?

How To Start A Business In Pennsylvania [2023 Guide]

How To Start A Business In Pennsylvania [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!

Follow on LinkedIn

Leave a Reply

Your email address will not be published. Required fields are marked *

Many (but not all) of the links on StartingYourBusiness.com are affiliate links. This means that a special tracking code is used and that we may make a small commission on the sale of an item if you purchase through one of these links. The price of the item is the same for you whether it is an affiliate link or not, and using affiliate links helps us to maintain this website.

StartingYourBusiness.com is also a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.

Our mission is to help businesses start and promoting inferior products and services doesn’t serve that mission. We keep the opinions fair and balanced and not let the commissions influence our opinions.