How To Start A Business In Washington
With its diverse economy, strong infrastructure, and supportive business environment, the state of Washington offers entrepreneurs the perfect opportunity to launch their businesses. From Seattle’s booming tech industry to Spokane’s agricultural roots, Washington has something for everyone.
Home to major global companies such as Microsoft, Amazon, and Boeing, the state provides economic stability and a supportive ecosystem for innovation and growth. With a well-educated population and a strong preference for local and sustainable products, business owners can tap into unique market opportunities across various industries. Additionally, the state’s streamlined permit and licensing processes and favorable tax structure make it an attractive destination for small business owners. In essence, Washington State serves as an ideal launchpad for small businesses seeking to capitalize on its prosperous economic landscape and vibrant, diverse consumer base.
Washington Small Business Stats
- There are 657,529 small businesses in Washington, which is 99.5% of all businesses in the state. (2022 SBA Small Business Profile)
- 49.8% of Washington employees work for small businesses, which is above the national average. (Statistics of US Businesses)
- Exports by small Washington companies reached $12.3 billion. (2022 SBA Small Business Profile)
- Washington was ranked as the 2nd best state for business by CNBC, with technology & innovation, economy, and workforce being the highest ranking factors.
- Washington State has the highest year-to-year business survival rate across the nation at 89%.
Steps To Start A Business In Washington
Starting a small business in Washington can be an intimidating prospect, but with the right guidance and resources, it doesn’t have to be. Our step-by-step checklist will help guide you through the process of starting your small business. From choosing a business idea to registering the business to finding financing, our checklist will provide you with the information and resources needed to get your business up and running.
Step 1: Choose a Business Idea
The first step for starting a business in Washington is having a good business idea. Maybe you already have an idea picked out, or maybe you are still deciding on one. To get started or find inspiration, check out our library of business ideas to get detailed industry information, trends, costs to start, tips, and lots more.
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 is essential for any new business because it serves as a roadmap for how to structure, run, and grow the company. It outlines the company’s objectives and how it plans to achieve its goals. A strong, detailed plan also communicates who you are, what you plan to do, and how you will succeed.
According to several sources, having a well-thought-out business plan can help increase the success rate of businesses. Creating a comprehensive business plan can be time-consuming, but it is worth the effort in the long run.
Related: How to write a business plan
Step 3: Select a Business Entity
The next step to starting a business in Washington State is selecting a business entity.
A business entity is a legal structure under which your business operates. It determines your legal and financial responsibilities, tax liabilities, and the extent of personal asset protection. Choosing the right business entity is crucial, as it significantly impacts the overall success and sustainability of your business. In Washington, there are four common types of business entities: sole proprietorship, general partnership, corporation, and Limited Liability Company (LLC).
Sole Proprietorship: This is the simplest business structure, in which the owner and the business are considered one and the same. The owner has unlimited personal liability for the business’s debts and obligations. The advantages of a sole proprietorship include ease of formation, low start-up costs, and direct control over business decisions. However, the major drawback is the lack of personal asset protection, as the owner’s personal assets can be seized to cover business debts.
General Partnership: In this business structure, two or more individuals share ownership, management responsibilities, and financial liabilities. Each partner has unlimited personal liability for the business’s debts and obligations. The benefits of a general partnership include shared risk, combined expertise, and minimal start-up costs. However, the partners’ personal assets can be at risk, and disagreements among partners may arise, impacting business operations.
Corporation: A corporation is a separate legal entity from its owners (shareholders). It provides limited liability protection, as, unlike a sole proprietor or partnership, the shareholders’ personal assets are protected from the business’s debts and obligations. The corporation is taxed separately from its owners and can raise capital by issuing shares. The drawbacks of a corporation include higher start-up costs, more complex regulations, and potential double taxation (taxes on both corporate income and shareholder dividends).
Related: How to form a Washington corporation
Limited Liability Company (LLC): An LLC is a hybrid business structure that combines the limited liability protection of a corporation with the tax benefits and flexibility of a partnership or sole proprietorship. The owners, referred to as members, are protected from personal liability from the business’s debts and obligations. LLCs can be taxed as a sole proprietorship, partnership, or corporation, depending on the number of members and their preferences. The main advantages of an LLC include personal asset protection, flexible management, and pass-through taxation. However, LLCs may face higher start-up costs and more administrative requirements compared to sole proprietorships and general partnerships (though is less than the corporation).
Related: How to form a Washington 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
When setting up shop in Washington, there are certain licensing requirements to adhere to before opening. These licenses vary depending on the nature of the business and where exactly in Washington state they intend to conduct operations. Some common registrations include:
Business License Application: The state of Washington’s Business Licensing Service requires a business license for most businesses. Additionally, many cities also require a local business license, as well.
Business Name Registration: Sole proprietorships and partnerships operating under an assumed name or fictitious business name will need to file for a Trade Name, sometimes known as a DBA (Doing Business As), with the Office of the Secretary of State. In Washington, the right to use a trade name belongs to the one who first uses it in connection with their business.
Washington State Unified Business Identifier (UBI): The Unified Business Identifier is a unique nine-digit number, which is different from the EIN, to identify your business. This number is assigned when registering with the Washington State Department of Labor and Industries, Secretary of State, Department of Revenue, Employment Security, or when a Business License Application is submitted through the Business Licensing Service (BLS).
Employer Identification Number: An EIN, also known as a Federal Tax ID Number, is issued by the IRS to identify a business for tax purposes. Most businesses, except for sole proprietorships without employees, are required to have an EIN.
Sales & Use Tax Permit: Businesses making retail sales and providing certain services will need to register for a Sales Tax Number with the Washington Department of Revenue. Most businesses in the state will also need to pay a Business and Occupation Tax. B&O taxes are calculated according to gross income from business activities.
Professional License: Some occupations, such as appraisers, cosmetologists, home inspectors, limousine services, and tattoo studios, require licensing in Washington. While this isn’t a license on the business, licensing is required to operate.
Step 5: Open a Business Bank Account
Opening a dedicated business account and maintaining clear records of all business transactions is important for several reasons:
Simplified financial management: By keeping your personal and business finances separate, you can more easily track your business income and expenses. This simplifies managing your company’s cash flow and monitoring its financial health.
Clear tax records: Separating business and personal funds simplifies the process of preparing and filing taxes, as it allows for more accurate records of deductible business expenses. Properly documenting your business transactions can help you avoid potential tax issues and penalties.
Personal liability protection: If your business is structured as a Limited Liability Company (LLC) or a corporation, maintaining separate finances is essential to protect your personal assets. Commingling funds can jeopardize the legal separation between you and your business, potentially exposing you to personal liability for business debts and legal issues.
Professional image: Having a dedicated business account and using it for all business transactions helps establish credibility with your customers, vendors, and financial institutions. It demonstrates that your business is organized and legitimate.
Step 6: Find Financing
I’m often asked about the various funding options available to new businesses. It’s important to understand that there are many ways to fund a business, and the right option for you will depend on your individual situation.
One of the most common methods of funding a business is using personal funds. This could include using savings, selling personal assets, or tapping into retirement accounts. While this method can be quick and easy, it can also be risky if you don’t have enough money saved up to cover all of your expenses.
Another option is applying for a conventional bank loan. These loans typically require good credit, a personal investment of 15%-25% of startup costs, and collateral, but they can provide larger amounts of capital than other sources. However, interest rates can be high and repayment terms may not be ideal for some businesses.
The Small Business Administration (SBA) offers loan guarantee programs, such as the 7(a) Loan Program and the 504 Loan Program, to help small businesses secure financing from approved lenders. The SBA guarantees a portion of the loan, reducing the risk for lenders and making it easier for small businesses to obtain financing.
Microloans are small loans designed to help entrepreneurs and small businesses that may not qualify for traditional bank loans. In Washington, organizations like Business Impact NW, Craft3, and Mercy Corps Northwest offer microloan programs. These loans typically have lower borrowing limits and more flexible eligibility criteria but may come with higher interest rates.
Finally, some businesses may choose to seek investors who are willing to provide capital in exchange for equity in the company. This is an attractive option for those who don’t want to take on debt or use their own money but still need access to capital.
No matter which funding option you choose, it’s important to do your research and understand all of the risks involved before making any decisions.
Step 7: Hire Employees
Hiring your first employee is an exciting milestone, but before taking any further steps, it’s essential to ensure you have prepared properly. Hiring employees is a complex and often overwhelming process for a new small business owner, 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
Starting and running a successful business requires careful attention to many different aspects of its operation. Obtaining insurance coverage is an important step for small business owners as insurance can provide financial protection and peace of mind in the event of accidents, natural disasters, or other unforeseen events.
There are several types of business insurance policies a small business owner should consider purchasing, depending on their specific needs, a few of which are listed below:
General Liability Insurance: This policy covers your business from claims arising from bodily injury, property damage, and personal or advertising injury caused by your business operations, products, or services. General liability insurance is crucial for most businesses, as accidents can happen even in the safest environments.
Professional Liability Insurance: Also known as Errors and Omissions (E&O) insurance, this policy protects your business from claims of negligence, misrepresentation, or inadequate services provided by your company. This coverage is especially relevant for businesses that provide professional services, such as consultants, accountants, or lawyers.
Workers’ Compensation Insurance: Required by law in Washington for businesses with employees, workers’ compensation insurance provides medical and wage benefits to employees who suffer work-related injuries or illnesses. This coverage not only protects your employees but also shields your business from potential lawsuits.
Commercial Property Insurance: This policy covers damage or loss to your business’s physical assets, such as buildings, equipment, inventory, and furniture, due to events like fire, theft, or natural disasters. If you own or lease commercial property or have valuable business assets, commercial property insurance is essential.
Commercial Auto Insurance: If your business owns or uses vehicles for work purposes, commercial auto insurance is necessary to cover damage, injuries, or liability resulting from accidents involving those vehicles. This policy is especially important for businesses that rely on transportation or delivery services.
Step 9: Track Income & Expenses
Proper accounting and bookkeeping practices are crucial for maintaining accurate financial records, ensuring tax compliance, and making informed financial decisions. Here are some key reasons why accounting and bookkeeping are essential for businesses:
Accurate Financial Records: Maintaining accurate financial records allows businesses to track their income, expenses, assets, and liabilities. This information is vital for assessing the financial health of a business, identifying trends, and making informed decisions about growth and investment opportunities.
Tax Compliance: Proper accounting ensures that businesses comply with federal, state, and local tax laws. Accurate records of income, expenses, and other financial transactions help businesses calculate their tax liabilities correctly, file timely returns, and avoid potential penalties or audits.
Cash Flow Management: Cash flow is the lifeblood of any business. Accounting and bookkeeping help businesses monitor and manage their cash flow by tracking income, expenses, accounts receivable, and accounts payable. This allows businesses to identify cash shortfalls, address potential issues, and maintain financial stability.
Budgeting and Financial Planning: Accounting and bookkeeping provide the foundation for effective budgeting and financial planning. With accurate financial records, businesses can develop realistic budgets, set financial goals, and measure their progress toward achieving those goals. This helps businesses allocate resources efficiently and plan for future growth.
Decision Making: Accurate financial data is essential for making informed business decisions. Accounting and bookkeeping practices provide businesses with the necessary financial information to evaluate the profitability of their products or services, assess the performance of their marketing efforts, and identify areas for improvement or investment.
Related: Setting up accounting for a business
This material is property of StartingYourBusiness.com
Common questions when starting a business in Washington
Is Washington a good state to start a business?
Starting a business in Washington State can be a great way to tap into the state’s strong economy and large consumer base. With its vibrant cities, diverse population, and thriving tech industry, Washington is attractive for entrepreneurs looking to start their own business. A few factors to consider include:
State Regulations: Washington State has a relatively business-friendly regulatory environment. The state government has streamlined many processes and requirements for starting a business, making it simpler and more efficient for entrepreneurs to get started.
Economic Stability: Washington State boasts a strong and stable economy, largely driven by major industries such as aerospace, software development, and agriculture. Additionally, the presence of global companies like Microsoft, Amazon, and Boeing provides a stable economic foundation for the region.
Workforce: The state has a well-educated and skilled workforce, with a high percentage of residents holding a bachelor’s degree or higher. The presence of top-notch educational institutions, such as the University of Washington, further contributes to the pool of skilled talent available to small businesses.
Taxes: Washington State has a relatively favorable tax environment for small businesses. The state does not impose a personal income tax or a corporate income tax. Instead, businesses are subject to the Business and Occupation (B&O) tax, which is based on gross receipts.
Permits and Licenses: Washington State has streamlined the process for obtaining permits and licenses, making it easier for small businesses to comply with regulatory requirements. The state’s Department of Revenue operates a one-stop portal called ‘My DOR’ for businesses to manage their tax accounts, licenses, and permits online.
Demographics and Consumer Behavior: Washington has a diverse population, with a mix of urban, suburban, and rural communities. The state’s residents have relatively high disposable incomes and a strong preference for local and sustainable products, creating opportunities for small businesses to cater to these preferences.
What are the steps to starting an LLC in Washington?
How much does it cost to start an LLC in Washington?
The Washington Secretary of State filing fee to start an LLC is $200.
What licenses do I need to start a business in Washington?
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.