Ready to turn your business dream into reality? It might seem like there’s a mountain of tasks to start a business in Delaware, from figuring out the paperwork to sorting out how to fund your idea. The good news is that you don’t have to figure it all out by yourself. Our step-by-step guide is here to show you what needs to be done.
Steps To Start A Business In Delaware
Step 1: Choose a Business Idea
The first step of starting a business is, not surprisingly, the idea.
If you are still searching for that spark of inspiration, here are a few tips that may help.
- Assess your interests and passions: Consider the activities, industries, or hobbies that genuinely excite and motivate you. Starting a business around something you are passionate about increases the likelihood of long-term success and personal satisfaction.
- Evaluate your skills and strengths: Reflect on your talents, skills, and experiences that can be applied to a business. Think about how your background can be leveraged to create unique value.
- Conduct market research: Research your market, its demographics, and the needs of the community. Look for gaps in the market or areas where demand outpaces supply, offering potential opportunities for new businesses.
- Consider the competition: Analyze the competitive landscape in your preferred industry or area. Determine if there is room for a new player and how you can differentiate your business from existing competitors.
- Network with local entrepreneurs: Connect with other business owners in Delaware, attend local networking events, and join business organizations to gather insights, ideas, and advice from individuals who have already navigated the process of starting a business.
- Test your idea: Before fully committing to a business idea, consider testing it on a small scale or creating a minimum viable product (MVP) to gauge market interest and validate your concept.
You can also check out our library of business ideas to get detailed industry information on hundreds of types of businesses, 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.
Writing a business plan forces you to think about every aspect of your business, from marketing and sales to operations and finances. A business plan also allows you to evaluate the feasibility of your business idea by analyzing market demand, competition, and running financial projections. This assessment can help you determine whether your idea has the potential to be profitable and sustainable.
While writing your first business plan may be intimidating, we have a guide to writing a business plan to help you get started!
Step 3: Find the Money
A great idea and a plan are sometimes not enough, as getting the funds to start a small business can be a challenging process. There are several different sources of funding for small businesses, which include conventional banks, Small Business Administration (SBA) loan guarantees, investors, grants, and many others.
Let’s explore some of the most common funding options:
Personal funds: Many entrepreneurs start by using their personal savings, credit cards, or borrowing from friends and family. This is often the most accessible and straightforward funding source, as it doesn’t require a lengthy approval process or collateral.
- Fast and easy access to funds.
- No need for external approval or credit checks.
- Maintains full control and ownership of the business.
- If you use all of your personal funds (or credit card debt) to start your business, you may have difficulty obtaining bank financing in the future.
Conventional bank loans: Various financial institutions in the state, like banks and credit unions, offer loan products for small businesses, such as term loans, lines of credit, and equipment financing. These loans typically require a solid credit history, collateral, and a detailed business plan.
- Potentially lower interest rates compared to other funding sources.
- Builds credit history for future borrowing.
- Often requires collateral and a strong credit history.
- Lengthy approval process.
SBA loan guarantees: The U.S. Small Business Administration (SBA) provides loan guarantee programs, such as the 7(a) and 504 Loan Program, which can help small businesses secure loans from participating lenders. These programs reduce the risk for lenders, making it more likely for small businesses to receive funding.
- Increased likelihood of loan approval, even with mediocre personal credit.
- Lower down payments and longer repayment terms.
- Access to larger loan amounts.
- Lengthy and complex application process.
- Strict eligibility requirements.
Microloan programs: Microloan programs, such as True Access Capital, Grow Wilmington Fund, or the Delaware County Business Microloan Program, provide small, short-term loans to small businesses that may not qualify for traditional bank loans. These loans are typically used for working capital, inventory, or equipment purchases.
- Easier qualification process compared to traditional bank loans.
- May offer training and technical assistance.
- Limited funding potential.
- Higher interest rates compared to conventional loans.
Investors: Small businesses can also seek funding from investors, such as angel investors or venture capitalists. These investors typically provide capital in exchange for equity in the company or a percentage of future profits. Some investor groups in the state include the Delaware Crossing Investor Group, First State Angels, and many others.
- Access to large amounts of capital.
- Valuable mentorship and industry connections.
- No repayment obligations like loans.
- Loss of control and ownership in the business.
- Pressure to deliver high returns on investment.
- Lengthy and competitive process to secure funding.
Step 4: Select a Business Structure
As a new entrepreneur, researching the different types of business structures (also called a business entity) and deciding which one is best for you in Delaware can be difficult. To help better understand your options, there are four primary business entities in the state, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). A brief description of each is below.
A sole proprietorship is a type of business structure with a single owner and is the least complicated and least expensive form of business to start up. The main consideration is that if the business is going to be operated under a business name, you will need to register a trade name with the Prothonotary’s Office in all of the counties where you plan to transact business.
A general partnership is a business entity formed by two or more individuals or entities who agree to share ownership, profits, and losses. Each partner contributes to the business by providing capital, property, labor, or skills. The partners share in the management and decision-making process, and each partner has the authority to bind the partnership in contracts and other legal obligations.
Related: What is a partnership?
A corporation is a business structure that is a separate entity from the individual. While corporations are more expensive and difficult to form than sole proprietorships and partnerships, the major advantage is that the corporation provides personal asset protection for the owners should the corporation be sued. The downside is the business formation requirements and administrative burdens of having a board of directors (which can be just one person), annual meetings for directors and shareholders, taking minutes at the meetings, issuing stock certificates, and more.
Related: How to form a Delaware corporation
The Limited Liability Company (LLC) is a popular business entity choice because it provides the liability protection of a corporation with the sole proprietorship’s ease of operation.
People choose to make an LLC because it helps protect the owners, called “members,” from losing their personal assets (like their homes, vehicles, etc.) if the business can’t pay its bills or gets sued.
Related: How to form a Delaware 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 5: Register the Business
After getting the business structure in order, the next step is to register the business. Every business will have different requirements, but certain licenses and permits will be needed to operate a business in Delaware, and the ones needed will vary depending on the business’s activities and location. Some common registrations include:
- State of Delaware business license: All Delaware businesses must obtain a business license from the Delaware Division of Revenue. Additionally, many Cities may also require a business license in order to operate.
- Employer Identification Number: The Employer Identification Number or EIN (sometimes referred to as the Federal Employer Identification Number or FEIN) is a nine-digit tax identification number issued by the Internal Revenue Service (IRS). This number identifies a business operating in the U.S. and is used for paying payroll taxes, filing tax returns, and more. Much like what a social security number is to a person, the EIN is similar to a social security number for a business. While many businesses will need to get an EIN, some do not.
- Professional licensing: Some services, such as accountants, cosmetologists, gun dealers, and appraisers, require licensing in Delaware.
Step 6: Open a Business Bank Account
With the structure and licensing out of the way, getting your business banking account set up is next. Every bank is different, but in general, they will request:
- Sole proprietorship & partnership: Trade Name Certificate, EIN or SSN, and owner(s) state ID
- Corporation: Certificate of Formation, bylaws, Certificate of Good Standing, EIN, and owner(s) state ID
- LLC: Certificate of Formation, Operating Agreement, Certificate of Good Standing, EIN, and owner(s) state ID
Step 7: Hire Employees
For businesses that will be hiring employees, the next phase is taking care of the paperwork to become an employer.
This is a complex process as there are multiple agencies to register with and labor laws to understand. If not already set up, an EIN will be needed, in addition to a Withholding Account Number from the Delaware Division of Revenue and an Unemployment Number from the Delaware Department of Labor.
Employers are also responsible for reporting each new hire, verifying employees are eligible to work in the U.S., income tax withholding, unemployment insurance, and payroll withholding taxes, including Social Security and Medicare.
Step 8: Obtain Business Insurance
Next, we need to research what, if any, insurance should be purchased for the business. Insurance policies can help cover the costs of accidents, property damage, legal fees, and other expenses that may arise.
Most types of business insurance are optional, except for workers’ compensation insurance which is required for any business in Delaware with employees. This type of insurance helps cover medical costs and lost wages if an employee is injured while on the job.
Even if insurance isn’t required, and there is a fire, theft, or personal injury lawsuit, the business owner may have to pay out-of-pocket for damages and legal fees. Home-based businesses and side businesses may want to consider business insurance, too, as personal home and vehicle policies may not cover a business loss.
Step 9: Set up a Bookkeeping System
Taking care of bookkeeping is another major step when starting a business in Delaware. Not only do you need to stay in compliance with tax reporting, but maintaining accurate financial records helps businesses monitor their financial health, manage cash flow, and make informed decisions.
Related: Setting up accounting for a business
This material is property of StartingYourBusiness.com
Common Questions When Starting A Business In Delaware
What are the steps to starting an LLC in Delaware?
How much does it cost to start an LLC in Delaware?
The cost to file the Certificate of Formation with the Delaware Secretary of State, which is the paperwork to start an LLC in Delaware is $90.
Delaware Small Business Resources
There are 98,356 small businesses in Delaware, which is 98.6% of all businesses in the state,1 and over 205,000 people are employed by these small businesses.2 Because of the economic impact of small businesses, there are a number of small business resources to help Delaware businesses start and grow. Some of these include:
- Delaware Division of Small Business: The state of Delaware helps businesses at the start-up and growth stages by connecting them with technical assistance providers in the state, including government, non-profits, and more, to get the support they need.
- Delaware Small Business Development Center: The SBDC offers training and guidance for innovators, startups, and existing businesses.
- Women’s Business Center: The WBC provides comprehensive services to entrepreneurs, including training on business planning, financing, and marketing strategies.
- Stand By Me Minority Small Business Program: This program supports minority entrepreneurs with business coaching, development of processes and systems, and financial performance improvement.