Dreaming of launching your business in Hawaii? Let’s make that dream a reality with our guide to take you from start to finish. You don’t need to figure it all out by yourself; we’ll walk you through important steps like picking the business structure, funding, securing the necessary licenses, and more.

Steps To Starting A Business In Hawaii

Step 1: Choose a Business Idea

Choosing the right type of business to start can be challenging, especially in a diverse economic landscape like Hawaii. If you’ve got a business idea in mind, that’s great! If not, no worries at all. We’ve got a bunch of business ideas ready for you to explore. These come with info like what the business is about, how much it might cost to start up, and some handy tips to get you going.

Step 2: Write a Business Plan

Once you’ve picked your business idea, the next move is to put together a business plan. A business plan, while not a required step, is a tool that can make a huge impact for any entrepreneur looking to start a business. It not only provides a roadmap for the company’s future by gaining clarity on its vision and outlining goals and strategies for success, but a business plan is needed when trying to get a loan or investment.

If that wasn’t enough, according to the Small Business Administration (SBA), more than half of small businesses fail within five years due to a lack of planning, and having a comprehensive business plan in place can help entrepreneurs avoid common pitfalls that lead to failure.

Related: How to write a business plan

Step 3: Find the Money

With a clear plan in place, the next step is to assess how much funding is needed to get your business off the ground. There are several funding options available for small businesses in Hawaii, ranging from personal savings to government-backed loan guarantees. Here is an overview of common funding sources and their requirements:

• Personal savings: Many entrepreneurs begin by using their personal savings to fund their business. This self-funding approach allows for complete control over the business and avoids accruing debt or giving away equity.
• Bank loans: This is a very common funding source, and eligibility typically includes having a solid credit history, collateral, and a business plan. Lenders also expect the business owner to have a personal investment in the business, which can range from 15%-25%.
• SBA loan guarantees: The U.S. Small Business Administration (SBA) provides loan guarantee programs for small businesses that may not qualify for conventional bank loans. These guarantees encourage banks and other financial institutions to lend to small businesses by reducing their risk. Popular SBA loan programs include the 7(a) and 504 Loan Program.
• Friends and family: Friends and family may be willing to invest in your business or lend you money at a lower interest rate than banks. However, borrowing from friends and family can strain personal relationships, so it’s essential to put all agreements in writing and treat them as formal business transactions.
• Microloans: If a small amount of funding is needed or if you can’t secure credit through a traditional lender, microloans could be an option. These are smaller loans, often provided by organizations such as Maui Economic Opportunity, Inc. or Pacific Gateway Center.
• Investors: Small businesses in Hawaii can also seek funding from investors, such as angel investors or venture capitalists. These investors provide capital in exchange for equity in the business or convertible debt.

Related: Understanding the different types of business funding.

Step 4: Select a Business Structure

A business structure (also called a business entity) refers to how a business is organized to conduct business. The type of business structure can impact things like how a business is taxed and the legal liability of its owners or shareholders.

Hawaii has four primary types of business structures: sole proprietorship, general partnership, corporation, and Limited Liability Company (LLC). Let’s briefly break down each business type below.

A sole proprietorship is a business owned and operated by one individual with no legal distinction between the owner and the business. This type of entity offers the owner no protection for their personal assets for debts or obligations incurred by the business.

While there is no registration required to start a sole proprietorship (and partnerships, too), it’s common to need to register for a Trade Name (sometimes called a DBA or “Doing Business As.”) If the business will operate under a fictitious business name like John Smith’s Handyman Service, Mr. Handyman, etc., you will have to make sure it is unique and file a Trade Name form with the Hawaii Department of Commerce and Consumer Affairs, Business Registration Division.

Related: How to form a Hawaii sole proprietorship

Conversely, a general partnership is similar to a sole proprietorship in that it has two or more individuals who share ownership, management responsibilities, and profits or losses. Each partner is personally liable for the business’s debts and obligations.

A corporation, on the other hand, is a separate legal entity from its owners (shareholders). It provides limited liability protection, meaning shareholders are not personally liable for the corporation’s debts (in many cases).

Related: How to form a Hawaii corporation

Finally, a Limited Liability Company (LLC) combines elements of both corporations and sole propretorships/partnerships. An LLC offers limited liability protection for its owners (members) and provides the flexibility of choosing to be taxed as either a sole proprietorship, partnership, or corporation, depending on the preferences of its members.

Related: How to form a Hawaii LLC

Step 5: Register the Business

With the business structure out of the way, we can begin registering the business. There isn’t one business license, as businesses in Hawaii are often required to register or obtain business licenses from a variety of agencies before opening their doors. A few of the more common ones include:

• Business licenses: The state of Hawaii doesn’t have a general business license; however, many cities require a business license to operate.
• Employer Identification Number: An EIN is required for most businesses, especially if you have employees or plan to form a partnership, corporation, or LLC. You can obtain an EIN from the Internal Revenue Service (IRS) at no cost.
• Hawaii tax identification number: All businesses operating in Hawaii will need to register for a Hawaii Tax Identification Number with the Hawaii Department of Taxation through the Hawaii Business Express website. The tax ID number registers a business for various tax licenses, with the most common being the General Excise Tax License (GET), which is similar to a sales tax.
• Other licensing: In addition to the General Excise Tax License, businesses may also need to obtain additional permits or licenses depending on their industry and location. For example, businesses that sell food products may need to get a Food Establishment Permit from the Department of Health; those that serve alcohol may need an Alcoholic Beverage Control License; and those that provide regulated services such as auto repair, pest control, legal advice, or medical care may need a permit from the Professional & Vocational Licensing Division (PVL) of the Hawaii Business Registration Division of the Department of Commerce & Consumer Affairs (DCCA).

Related: What business registration is needed in Hawaii?

Step 6: Open a Business Bank Account

When the business is set up and registered, you will want to open a business bank account. Opening a business bank account in Hawaii is relatively straightforward. Generally speaking, the process involves gathering business entity documents such as the Articles of Organization (LLC), Articles of Incorporation (corporation), or a Trade Name certificate for a sole proprietorship or partnership.

Step 7: Hire Employees

The next step, which requires navigating the complex landscape of employment requirements, can be challenging for a new small business owner.

For starters, new employers will need to have their Employer Identification Number from the Internal Revenue Service, in addition to a Withholding Tax Number from the Hawaii Department of Taxation and an Unemployment Insurance Tax Account Number from the Hawaii Department of Labor.

There are a few other requirements when hiring an employee in Hawaii, such as verifying employment eligibility, having employees fill out Form W-4, reporting new hires to the Child Support Enforcement Agency, and registering for unemployment insurance taxes.

Related: Steps to hiring your first employee in Hawaii

Step 8: Obtain Business Insurance

The next step is researching your specific risks and figuring out which insurance policies should be purchased to protect your business from unforeseen events, financial losses, and potential liabilities. A few of the most common ones include:

• Workers’ compensation insurance: Hawaii state law mandates that businesses with one or more employees carry workers’ compensation insurance. This policy provides protection for your business by covering medical expenses, lost wages, and rehabilitation costs for employees who suffer work-related injuries or illnesses.
• General liability insurance: While not legally required, general liability insurance is highly recommended for most small businesses to safeguard from potential lawsuits.
• Commercial property insurance: If your business owns or leases physical property, such as office space, equipment, or inventory, commercial property insurance is essential. This policy covers losses or damages resulting from events like fire, theft, or natural disasters. In Hawaii, it is particularly important to consider additional coverage for natural disasters like hurricanes, volcanic eruptions, and tsunamis, as these events can lead to significant financial losses.
• Professional liability insurance: Also known as errors and omissions (E&O) insurance, professional liability insurance is crucial for businesses that provide professional services, such as consultants, accountants, or attorneys. This coverage protects your business from claims related to negligence, errors, or omissions in the services you provide to clients.
• Commercial auto insurance: Commercial auto insurance is necessary if your business owns or operates vehicles for work purposes. This policy covers liability and physical damage in the event of an accident involving a company or personally owned vehicle.
• Business interruption insurance: Hawaii’s susceptibility to natural disasters makes business interruption insurance a valuable consideration. This coverage compensates for lost income and additional expenses if your business is temporarily unable to operate due to a covered event, such as a hurricane or fire.

Related: Types of insurance your business may need

Step 9: Set Up a Bookkeeping System

Having a reliable and efficient bookkeeping system for your small business’s financial transactions is an important step for various reasons, including accurate financial records, timely tax filings, and informed decision-making.

In Hawaii, businesses are subject to various state and federal taxes, including General Excise Tax (GET), income tax, and payroll taxes. Proper bookkeeping sets you up to accurately calculate, report, and remit these taxes on time, avoiding penalties and interest for late or inaccurate filings. In addition, a good system also helps for a better understanding of the financial health of your business, which helps to identify areas of improvement or growth.

Related: Setting up accounting for a business

This material is property of StartingYourBusiness.com

Common questions when starting a business in Hawaii

Hawaii Small Business Resources

There are 133,993 small businesses in Hawaii, which is 99.2% of all businesses in the state,¹ and there are over 267,000 people employed by these small businesses.² Because of the economic impact of small businesses, there are a number of small business resources to help Hawaii businesses start and grow. Some of these include:

• Hawaii Procurement Technical Assistance Center: The HiPTAC offers assistance to businesses in securing government contracts and subcontracts.
• Hawaii Small Business Development Center: The HISBDC is dedicated to supporting business owners and new entrepreneurs through business advice, research, and training, helping them navigate the complexities of starting and growing their businesses.
• Native Hawaiian Chamber of Commerce: NHCC aims to support Native Hawaiians in business and professional fields, encouraging and promoting their interests to foster economic success and community growth.
• Veterans Business Outreach Center of the Pacific: The VBOC is a program of the University of Hawaiʻi at Hilo, and provides entrepreneurial development services, including business training, counseling, and mentoring, specifically designed to support veterans in their business endeavors.

Sources

1. Small Business Administration ↩︎
2. Census Bureau ↩︎