How To Start A Business In Vermont
Vermont, known for its picturesque landscapes and a strong sense of community, offers a unique and supportive environment for small businesses. With a stable and diverse economy, the state boasts a well-educated workforce and a commitment to sustainability, which creates opportunities for businesses that resonate with local values.
By aligning your business with the state’s ethos and catering to the local market’s preferences, you can capitalize on Vermont’s business-friendly atmosphere and find success in this charming New England state.
Vermont Small Business Stats
- There are 78,883 small businesses in Vermont, which is 99% of all businesses in the state. (2022 SBA Small Business Profile)
- 60.2% of Vermont employees work for small businesses, which is well above the national average. (Statistics of US Businesses)
- Exports by small Vermont companies reached $475 million. (2022 SBA Small Business Profile)
- Even though Vermont was ranked as the 31st best state for business by CNBC, life, health, & inclusion was #1, education was #8, and business friendliness was #14.
Steps To Start A Business In Vermont
Starting a small business can be both exciting and overwhelming, especially if you’re doing so for the first time. But fear not! Our comprehensive, step-by-step checklist is here to make your journey as smooth and successful as possible. From choosing a legal structure and registering your business, to obtaining funding, we’ve got you covered.
Step 1: Choose a Business Idea
The first step in starting a business is finding a business profitable business idea. While that may sound obvious, how do you figure this out before starting, and what other factors should you take into account? Here is a list of factors that I recommend to help you get started:
1. Identify your passions and strengths: Align your business idea with your personal interests and strengths. Profits can come and go in business, but doing something that plays on your strengths helps to stay committed for the long haul.
2. Know what you are getting into: Really spend some time researching your industry. We have a library of business ideas to get detailed industry information, trends, costs to start, tips, and lots more, but I also recommend talking with other business owners and going to industry events to learn tips and mistakes to avoid from others who have already been through it.
3. Understand the local market: If you plan to open a physical store, be sure to research the unique economic landscape and demographics of Vermont. Identify gaps in the market or unmet needs within your target industry. This will help you tailor your offerings to meet the demands of the local community, and ensure your business will be around for a long time.
4. Focus on sustainability: Vermont is known for its eco-friendly mindset and emphasis on sustainability. Incorporate sustainable practices into your business idea, as this will not only appeal to environmentally-conscious consumers but also contribute positively to the local economy.
5. Leverage local resources: Take advantage of the various resources and support networks available for entrepreneurs in Vermont, such as the state Small Business Development Centers, networking events, and mentorship programs. These resources can provide valuable guidance and connections to help grow your business.
6. Test your idea: Before fully committing to your business idea, conduct market testing to gather feedback and validate its viability. This could include creating a minimum viable product, conducting surveys, or hosting focus groups. Fine-tune your idea based on the insights you gain from this testing phase.
Step 2: Write a Business Plan
Once a solid business idea is in place, it’s time to start working on the business plan. Writing a business plan helps entrepreneurs organize their ideas, define clear objectives and goals, analyze market opportunities, develop strategies for growth and success, project future cash flows, secure financing, and more.
Many people only consider writing a business plan because the bank asks for one in order 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
Step 3: Select a Business Entity
The next step to starting a business in Vermont is selecting a business entity. A business entity is the legal structure of a company, and it’s important to choose the right one for your business. Each form offers varying levels of control, flexibility, personal liability protection, and tax obligations.
There are four common types of business entities in Vermont: sole proprietorship, general partnership, corporation, and Limited Liability Company (LLC).
Sole Proprietorship: This is the simplest business structure, where an individual operates the business without a separate legal entity. Profits and losses are reported on the owner’s personal tax return, and the owner has unlimited personal liability for business debts.
Pros: Easy to set up, low start-up costs, and minimal paperwork.
Cons: Unlimited personal liability, difficulty raising capital, and limited growth potential.
General Partnership: This is an arrangement where two or more people own and operate a business together. Profits and losses are divided among the partners and reported on their personal tax returns. Each partner has unlimited personal liability for business debts.
Pros: Easy to set up, shared responsibility, and pooled resources.
Cons: Unlimited personal liability for each partner, potential conflicts, and difficulty dissolving the partnership.
Corporation: A corporation is a separate legal entity owned by shareholders. It provides limited liability protection to its owners, meaning shareholders are not personally liable for corporate debts. Profits and losses are taxed at the corporate level, and dividends paid to shareholders are taxed again at the individual level, resulting in double taxation.
Pros: Limited liability protection, easier access to capital, and transferable ownership.
Cons: Potential for double taxation, more complex paperwork, and higher administrative costs.
Related: How to form a Vermont corporation
Limited Liability Company (LLC): An LLC is a hybrid structure that combines the limited liability protection of a corporation with the tax flexibility of a partnership. Profits and losses can be passed through to the owners’ personal tax returns, avoiding double taxation.
Pros: Limited liability protection, tax flexibility, and fewer regulations than a corporation.
Cons: More complex and costly to set up than a sole proprietorship or general partnership, and potential difficulty raising capital.
Related: How to form a Vermont 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
To operate a business legally in Vermont, there are several federal, state, and local registrations and licenses that may be needed. Some common registrations include:
Business Licenses: The state of Vermont doesn’t have a general business license however depending on your business type and location, you may need specific licenses or permits to operate legally. Some common licenses and permits in Vermont include professional licenses, health permits, zoning permits, and others.
Employer Identification Number (EIN): An EIN, also known as a Federal Tax ID Number, is issued by the IRS to identify your business for tax purposes. You’ll need an EIN if you have employees or operate as a partnership, corporation, or multi-member LLC. Learn how to register for an EIN.
Business Name Registration: If you are starting a sole proprietorship or general partnership in Vermont and doing business under your full first and last name, like John Smith, for example, there is no filing, but if the business will operate under a fictitious business name or DBA (Doing Business As) like John Smith’s Handyman Service, Mr. Handyman, etc., you will need to file for a Trade Name with the Vermont Secretary of State.
Business Tax Registration: Most businesses will need to register for a Business Tax Account with the Vermont Department of Taxes. This allows for the registration of several accounts with the state, such as the Sales and Use Tax for businesses selling products and certain services and the Employer Withholding Tax for businesses with employees.
Professional Licensing: Some occupations, such as barbers, athletic trainers, and tattoo artists require licensing and will register with the Vermont Office of Professional Regulation. While this isn’t a license on the business, licensing is required in order to operate.
Step 5: Open a Business Bank Account
The next important step for small business owners is to keep their business finances separate from their personal ones. Not only does doing so make things easier come tax time, but it helps ensure that everything stays organized and streamlined. When everything is mixed together, it can get confusing quickly; plus, it makes tracking income and expenses more difficult. If owners don’t separate these two pots of money, they may run into trouble down the line because they won’t have an accurate picture of how much they’re actually bringing in or spending each month and may miss deductions, resulting in paying higher taxes.
In the case of an LLC or corporation, keeping your business and personal finances separate is essential to maintain the limited liability protection provided by these structures. Mixing funds can potentially expose your personal assets to legal and financial risks in case of business debts or lawsuits.
Step 6: Find Financing
When starting up a new business in Vermont, one of the biggest challenges entrepreneurs face is raising enough capital to turn their idea into a viable enterprise. Fortunately, there are many financing options available to help support small business growth. Here are just a few:
Personal Funds: One of the most common ways to fund a business is through personal funds. This could include using savings, investments, or other assets that you may have access to. It is important to remember that if you are using your own money, it should be done with caution as there is no guarantee of return on investment and to keep some cash on hand in case sales are slower than you initially project.
Pros: Full control, no interest payments, and no credit checks.
Cons: Limited resources, potential loss of personal assets, and no outside input.
Conventional Bank Loans: Traditional bank loans are a popular funding option for small businesses. These loans require a personal investment, solid credit history, collateral, and a detailed business plan.
Pros: Competitive interest rates and long repayment terms.
Cons: Requires collateral, credit checks, and a detailed application process.
SBA Loan Guarantees: The Small Business Administration (SBA) offers loan guarantee programs to support small businesses. These programs provide a government-backed guarantee to lenders, making it easier for small businesses to secure financing.
Pros: Low interest rates, long repayment terms, and increased chances of approval.
Cons: Lengthy application process, stringent eligibility requirements, and potential fees.
Microloan Programs: Microloans are small, short-term loans offered by nonprofit organizations, community development financial institutions (CDFIs), and other specialized lenders. These loans are designed for small businesses with limited credit history or collateral.
Pros: Accessible to underserved entrepreneurs, manageable loan amounts, and potential for business training and support.
Cons: Typically higher interest rates compared to traditional loans, and limited loan amounts.
Investors: Attracting investors, such as angel investors or venture capitalists, can provide your business with the necessary capital in exchange for equity or a share of future profits.
Pros: Access to larger amounts of capital, valuable guidance and mentorship, and potential connections to industry networks.
Cons: Giving up partial ownership, potential loss of control, and investor involvement in decision-making.
Step 7: Hire Employees
Hiring your first employee is a major milestone for any small business owner and requires careful preparation as there are multiple agencies to register with and labor laws to understand.
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.
Step 8: Obtain Business Insurance
Small business owners in Vermont have a lot to consider when starting their business. One important step is to make sure that their business is properly insured. There are several key policies that every small business owner must consider when establishing their operations in Vermont. I’ll explain some of the most common ones.
General Liability Insurance: This policy covers claims arising from third-party bodily injury, property damage, and personal or advertising injury. It’s essential for businesses that interact with customers, clients, or vendors.
Professional Liability Insurance (Errors & Omissions): This policy protects businesses that provide professional services or advice, covering claims of negligence, misrepresentation, or failure to perform professional duties.
Commercial Property Insurance: This coverage protects your business property, including buildings, equipment, furniture, and inventory, against damage or loss due to fire, theft, or natural disasters.
Workers’ Compensation Insurance: Required by law in Vermont for all businesses with employees, this policy provides coverage for medical expenses and lost wages for employees who suffer work-related injuries or illnesses.
Commercial Auto Insurance: If your business uses vehicles for transportation or deliveries, commercial auto insurance covers damages and liability resulting from accidents involving your company-owned vehicles.
By investing in the right type of insurance for your small business, you can ensure that your business is protected against potential risks and liabilities that may arise during the course of doing business.
Step 9: Set up an Accounting System
Setting up an accounting system for your business is one of the most important things you can do for your company to ensure long-term success.
There are various types of records one needs to maintain for effective bookkeeping:
Sales receipts: Keep track of all sales transactions, including cash, credit card, and online payments, to ensure accurate revenue reporting.
Purchase invoices: Maintain records of all business-related expenses, such as purchases of inventory, equipment, or services, to monitor costs and claim tax deductions.
Accounts payable: Track all outstanding bills and debts owed by your business to suppliers, lenders, or other creditors.
Accounts receivable: Monitor the amounts owed to your business by customers or clients for goods or services provided on credit.
Payroll records: Document employee wages, salaries, and tax withholdings to comply with labor laws and tax requirements.
Bank statements: Reconcile your bank statements with your financial records to ensure accuracy and detect discrepancies or fraud.
Tax filings and receipts: Retain copies of all tax filings and supporting documentation to ensure compliance and prepare for potential audits.
Organizing all this information isn’t a simple tax, but there are several ways to make it easier. One option is to use accounting software such as QuickBooks or Xero to automate the bookkeeping process. This makes it easy to store data securely and access it quickly when needed. Another option is to set up a paper filing system that allows you to easily find the documents you need when needed. Finally, if you don’t have the time or expertise to manage your own bookkeeping needs, you can outsource the process by hiring an accountant or bookkeeper who can handle everything for you.
Related: Setting up accounting for a business
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Common questions when starting a business in Vermont
Is Vermont a good state to start a business?
Overall, Vermont is an excellent place for entrepreneurs looking for an affordable place with supportive regulations and plenty of potential customers. A few specifics include:
State Regulations: Vermont is generally known for its business-friendly environment. However, it does have some strict environmental and land use regulations that may impact certain industries. Make sure to familiarize yourself with these regulations and assess their impact on your specific business idea.
Economic Stability: Vermont has a stable economy, with a diverse mix of industries contributing to its GDP, including agriculture, manufacturing, tourism, and the service sector. The state has experienced steady growth in recent years, which is a positive sign for potential small business owners.
Available Workforce: Vermont has a well-educated workforce with a high percentage of college graduates. However, the state’s aging population and labor force participation rate are lower than the national average. This could make it challenging to find skilled workers, particularly in rural areas. You may need to consider offering competitive wages and benefits to attract and retain talent.
Taxes, Permits, and Licenses: Vermont’s corporate income tax rates are relatively high compared to other states, and it also levies a sales tax. These factors could impact your overall business costs. However, the state offers a variety of incentives for small businesses, such as tax credits, grants, low-interest loans, and assistance programs like the Small Business Development Center, which could help offset some of these costs.
What are the steps to starting an LLC in Vermont?
How much does it cost to start an LLC in Vermont?
The filing fee to form an LLC with the Vermont Secretary of State is $125.
What licenses do I need to start a business in Vermont?
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.