How to Start a Business in Washington State

ome to major tech companies like Microsoft and Amazon, Washington State has much to offer business owners. You'll have access to a highly educated workforce, low energy costs, and a pro-business climate with an advantageous tax structure. Read on to learn how to start a business in Washington State. [Competitive advantages for doing business in Washington State. (choosewashingtonstate.com)]

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Before starting your Washington State business

While you may have an exciting idea you're anxious to introduce to the world, it's essential to take a few brainstorming steps before you open your company's doors.

Identify your business concept

First things first: What is your business idea? What do you plan to sell to your customers? To be successful, you'll need to offer a product or service that people want. If you plan to sell something brand new, it should solve an existing issue or improve upon another solution.

Many times, people recommend starting a business around something you love. While that's good advice, you'll want to ensure it has the potential for profits. For example, you may be good at making pizza, but if there are 15 different pizza restaurants in your neighborhood, you might want to consider another idea with less competition. [How To Start A Business In 11 Steps (2023 Guide) – Forbes Advisor]

Research the market and your competitors

Once you settle on a business idea, it's time to do some market analysis. Thorough market research can help you determine how to position your company and who your competitors are.

There are two types of market research: primary and secondary. Primary analysis focuses on reaching out to potential customers for their opinions on your company's products or services. You can use questionnaires or surveys to get insights or conduct interviews with family and friends who will provide honest feedback.

Secondary research relies on existing sources of information, like census data or information from government agencies. Secondary research can help you learn more about your target market and its characteristics. Consider your competitors, too. Check out their websites or physical storefronts to learn more about their products and how yours will stand out against them. [How To Start A Business In 11 Steps (2023 Guide) – Forbes Advisor]

Write a business plan

Your business plan puts all the moving pieces of your organization into one document. It will outline your business idea, target market, and competitors. Some business plans contain financial forecasts and objectives you hope to reach in the coming years. You can also include administrative aspects of your business, such as where you plan to open it and the type of structure you'll use.

Think of your business plan as a guide for the future. You can continue to add to it as more things fall into place. If you intend to seek outside funding for your business, a bank or investor may ask to see your business plan, so ensure it's realistic and detailed. [How To Start A Business In 11 Steps (2023 Guide) – Forbes Advisor]

Identify funding sources

You'll need some money to get your business up and running, although the costs will vary depending on the complexity of your organization. Some business owners bootstrap their companies using savings, credit cards, or borrowing from family and friends. Others will require additional assistance and turn to external sources like banks or investors.

If you plan to seek outside funding, be prepared to explain your business idea and why investors or banks should provide you with money. External financing sources may be willing to put up their funds for a solid idea, but you may need to meet specific criteria before they provide it. [How To Start A Business In 11 Steps (2023 Guide) – Forbes Advisor]

For more information check out our guide on Business Loans in Washington

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Decide on a business structure

Your company's structure significantly affects your tax liabilities, personal risk, and daily operations.

Various types of business entities

The most common types of business structures include sole proprietorships, limited liability partnerships (LLP), limited liability companies (LLCs), and corporations.  

A sole proprietorship is ideal for a solopreneur who doesn't expect much risk from their business. In a sole proprietorship, the owner assumes all liability for business debts and lawsuits and pays taxes based on their individual tax rate. Sole proprietorships don't require any additional registration with your state government. However, you may find it harder to raise external funding than with other business structures.

Accountants, lawyers, and other professionals often use LLPs. In an LLP, business partners have limited liability for the company's debts. However, they are liable for any malpractice claims against the organization. If you're interested in the LLP structure, you must properly register it in Washington State.

An LLC provides limited liability to owners, and they're relatively easy to set up. To register an LLC, you need to submit registration paperwork and pay any required fees. However, LLCs can't issue stock, so if you plan to sell shares in the business, you might want to consider a corporation instead.

A corporation is the most complex type of business structure, but it offers the most liability protection to business owners. However, corporations incur double taxation, meaning income is taxed at the entity level and then taxed again when dividends are distributed to shareholders. However, you can sell shares in the corporation to outside investors, which can make your company more appealing to them. [How To Start A Business In 11 Steps (2023 Guide) – Forbes Advisor] [https://taxfoundation.org/taxedu/glossary/double-taxation/]

Deciding on the right structure for your business

Determining the proper structure for your organization depends on your risk tolerance, tax concerns, and whether you expect to seek outside funding. Freelancers might be comfortable with a sole proprietorship, while the owner of a high-growth tech company that needs external financing might find the corporation structure a better fit. If you're unsure which structure is best for your company, consider speaking with a trusted accountant or legal advisor. [How To Start A Business In 11 Steps (2023 Guide) – Forbes Advisor]

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Obtain an EIN

Unless you have a sole proprietorship with no employees, you'll need an employer identification number (EIN). The IRS uses EINs to manage company tax filings. Other entities, like government agencies and banks, may also require your EIN. To get one, simply fill out an online application through the IRS website. You should receive your EIN within a few minutes after submitting your request.  [How to Apply for an EIN | Internal Revenue Service (irs.gov)]

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Decide on a business name

Your company's name should be unique and memorable. You'll want to select a name no other company has for maximum impact. Before deciding on a name, check its availability online and through social media. If you find other people using the name or the domain is taken, you might want to look at alternatives. You should also see whether the name is registered as a trademark through the U.S. Patent and Trademark Office (USPTO). If someone has registered the name as a trademark, you can't use it. [How To Start A Business In 11 Steps (2023 Guide) – Forbes Advisor]

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Appoint a registered agent

Any company based in Washington must have a registered agent, which is someone who can receive legal processes or notices on its behalf. You can appoint yourself, someone else, or a commercial company that provides registered agent services. The registered agent must have a mailing address in Washington State. [FAQ - Registered Agent | WA Secretary of State]

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Register your business in Washington State

To open an LLC, LLP, corporation, or limited partnership, you must register your business with the Washington Secretary of State. Each entity structure requires you to complete and submit various forms, which you can find on the Secretary of State website. While you can file your documents personally at your local office, the state allows online filings. You'll need to pay the required fees when you submit your application.

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Register any DBAs

If you plan to conduct business under any name other than your company's registered name, you must notify the Washington State Department of Revenue. Regardless of whether they operate as a sole proprietorship or a more formal structure, all businesses must register any trade names they use. To register your DBA, file a business license application online with My DOR and pay the associated fees. [Register trade names | Washington Department of Revenue]

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Understand Washington's tax obligations

As a business owner, you may incur various taxes associated with running your business.

Washington business and occupation taxes

Washington uses a business and occupation (B&O) tax that applies to all companies, regardless of their entity structure. The tax varies depending on your gross receipts or income or the value of the products you sell. Your tax rate will depend on what type of products or services you offer. [Business Tax Basics Workbook (wa.gov)]

Washington sales and use tax

Washington has a state sales tax rate of 6.5%, and some localities charge an additional amount. You'll need to collect sales tax from your customers and remit it periodically. If you purchase something from another company that doesn't charge you sales tax, you're responsible for paying the tax on your own via a use tax remittance. [Business Tax Basics Workbook (wa.gov)]

Washington employee taxes

Washington State does not have income taxes, so you won't need to worry about withholding part of your employees' pay for state income taxes. However, you’re still responsible for withholding and paying federal employee taxes. [Income tax | Washington Department of Revenue]

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Obtain a business license in Washington State

Most companies must obtain a business license before they make their first sale, regardless of their entity structure. A business license is required for a company that meets any of the following criteria:

• You do business in a name other than your full legal name
• You plan to hire employees
• You sell a product or service that requires you to collect sales tax
• You have a gross income of more than $12,000 annually
• You must pay taxes or fees to the Washington Department of Revenue

You can apply for a business license through the Washington Department of Revenue website. 

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Set up your business finances in Washington State

Once you fully register and license your business, you'll want to open a business bank account. Keeping your company's financial transactions separate from your personal ones is good accounting practice, and it's required if you want to keep the liability protections that some entities offer, such as LLCs and corporations. [How To Start A Business In 11 Steps (2023 Guide) – Forbes Advisor]

Look for a business banking solution that suits your company's needs. Novo offers an attractive business banking account with no minimum balance requirements or monthly fees. Plus, your deposits are fully insured by the FDIC up to $250,000.

If you need external financing for your business, decide whether you'll approach lenders or investors. Keep in mind that both may require you to meet specific criteria before agreeing to provide you with funding. [How To Start A Business In 11 Steps (2023 Guide) – Forbes Advisor]

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Other important considerations

If you plan to hire employees for your business, it's essential to understand the labor laws in Washington State. Employees must receive at least minimum wage, and overtime pay may also apply if they work more than 40 hours per week. [Workers' Rights (wa.gov)]

Another consideration is business insurance. There are multiple types of business insurance, and you may need more than one type of coverage depending on your risks and whether you have employees. Consider speaking with an insurance agent to determine what coverage you need for your organization. [How To Start A Business In 11 Steps (2023 Guide) – Forbes Advisor]

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Starting a business in Washington State requires planning

The dream of owning your own business is entirely attainable, but it's crucial to follow Washington State guidelines when starting a company. Ensure you choose the proper business structure and register it appropriately. Most companies will need a business license, so getting one before making sales is essential. With the proper planning, you'll pave the road for your company's future success.

Novo Platform Inc. strives to provide accurate information but cannot guarantee that this content is correct, complete, or up-to-date. This page is for informational purposes only and is not financial or legal advice nor an endorsement of any third-party products or services. All products and services are presented without warranty. Novo Platform Inc. does not provide any financial or legal advice, and you should consult your own financial, legal, or tax advisors.

Novo is a fintech, not a bank. Banking services provided by Middlesex Federal Savings, F.A.: Member FDIC.

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