Dreaming of launching your own business in Illinois? There are a lot of steps, and it’s not always easy to know what to do. To point you in the right direction, this step-by-step guide provides what you need to know to launch a business in Illinois..
Guide For Starting a Business in Illinois
Step 1: Choose a Business Idea
The first step is deciding what type of business you would like to run. You may already know what business you want to start, or maybe you haven’t gotten that far yet. Regardless, check out our business library to learn more about hundreds of different types of businesses.
Step 2: Write a Business Plan
With the idea solidified, the next step in starting a business is writing a business plan. Maybe not the most fun exercise for some, but the business plan is a roadmap that helps entrepreneurs plan each stage of their business so they don’t miss anything. By outlining a company’s goals, target market, competitive landscape, and financial projections, a business plan also helps to identify potential challenges and opportunities.
If you need another reason to write a business plan – according to the Small Business Administration (SBA), businesses with a formal plan are more likely to be successful, and the likelihood of receiving funding is greater than compared to those without one.
Related: How to write a business plan
Step 3: Find the Money
The next step in starting a business is to make sure the money needed to launch is available. This is a hard stage for many people when starting a business, but there are various funding options available for small businesses in Illinois, each with its advantages and requirements. A few of these include:
- Conventional bank loans: Loans from private banks and credit unions are a common funding source for businesses. Requirements vary but generally entail good credit, business plans, and collateral.
- Loan guarantees: In some cases, the bank may need an additional guarantee before making the loan. The most popular is from the Small Business Administration and their 7(a) and 504 loan guarantee programs. The Illinois Department of Economic Opportunity also offers the Advantage Illinois Loan Guarantee Program, which guarantees a percentage of loans to help high-risk businesses access capital from private lenders.
- Investors: Money may be available to fund your business through investors, venture capital firms, or personal connections. There are a few groups in Illinois, such as the Hyde Park Angels, Central Illinois Angels, and Illinois Ventures.
- Microloan programs: Microloans are small short-term loans that have more flexible eligibility standards than what banks require. For example, the Urbana Small Business Microloan Fund serves the Champaign County area.
- Grants: Eligibility is typically limited for new businesses, but they do exist. Two examples are the West Side United Small Business Grant and the Neighborhood Opportunity Fund for Chicago businesses.
Step 4: Select a Business Structure
The next step in starting a business in Illinois is selecting a business structure (also called a business entity). Understanding the differences between business structures and choosing the right one is important, as this choice will impact things like how the business is taxed, personal liability, and the overall management of the business.
In Illinois, there are four common types of business entities: sole proprietorship, general partnership, corporation, and Limited Liability Company (LLC).
A sole proprietorship is the simplest form of business organization in which an individual operates the business as an extension of themselves. The owner has full control over the business and reports profits and losses on their personal income tax return. However, they are also personally liable for any debts or legal obligations.
There is no filing to create a sole proprietorship (or partnership); however, if the business will operate under a specific business name, an Assumed Business Name Registration, commonly known as a DBA (Doing Business As), will need to be filed with the local county clerk’s office where the business is located.
A general partnership involves two or more individuals who agree to operate a business together. Each partner shares in the profits and losses and is jointly and severally liable for the partnership’s debts and obligations. Partnerships do not pay income tax; the profits and losses flow through to the individual tax returns of each general partner.
A corporation is more complex than the first two entities as it requires filing Articles of Incorporation with the state, which creates a separate legal entity that is distinct from its owners (shareholders). It provides limited liability protection, which means that the shareholders are not personally responsible for the corporation’s debts or legal liabilities.
Related: How to form an Illinois Corporation
An LLC is a hybrid business structure that combines the limited liability protection of a corporation with the ease of operation like a sole proprietorship or partnership. LLC owners, known as members, are not personally liable for the company’s debts and obligations.
Illinois also has a special type of LLC called the Series LLC, which allows several businesses to operate under the protection of one LLC.
Related: How to form an Illinois 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.
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Step 5: Register the Business
While most new entrepreneurs figure that a business license is needed, they often don’t know that there isn’t a catch-all business license. Depending on where the business is located in the state and what it does, a business may need to register with multiple agencies before opening its doors. The most common ones include:
Business licenses: The state of Illinois doesn’t have a general business license; however, many cities and some counties 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 most businesses will need to get an EIN, some do not.
Illinois Business Registration Application (Form REG-1): Businesses selling products and certain services will need to register for a Sales Tax Permit and payroll withholding taxes with the Illinois Department of Revenue. In addition, if a business is selling goods, they will want to download their Resale Certificate from the Mytax Illinois portal after registering for the Sales Tax Permit in order to not pay sales tax to their wholesaler.
Local licensing: In addition to general registrations, businesses may need additional local licenses or permits depending on their industry and location. For example, food service establishments must obtain a Food Sanitation Certification from the Illinois Department of Public Health. Businesses that sell alcohol must also obtain a liquor license from their local municipality.
Professional licensing: Some professions, such as physical therapists, interior designers, detectives, cosmetologists, barbers, architects, and massage therapists, require licensing in Illinois. While this isn’t a license on the business, licensing is required in order to operate. The Illinois Department of Financial and Professional Regulation (IDFPR) oversees the licensing for many professions and industries in the state of Illinois.
Step 6: Open a Business Bank Account
After getting the business structure set up and the business registered, the next stage is to open a business bank account.
Keeping your business finances separate from your personal account makes filing taxes and tracking your company’s income easier, so it’s worth doing even if you run your business as a sole proprietorship. Opening a business bank account is pretty easy and is similar to opening a personal one. Most banks will require some form of identification from the owners, such as a driver’s license or passport and proof of address, before opening an account. In addition, you will also need to provide entity documents such as the Articles of Incorporation (corporation) or Articles of Organization (LLC).
Step 7: Hire Employees
There are several important steps to take when hiring your first employee, as there are a number of laws and regulations that apply to employers in the state of Illinois.
Not only are employers responsible for registering with the Illinois Department of Revenue and the Illinois Department of Employment Security, but they will also need to report new hires, verify that employees are eligible to work in the U.S., and calculate and report income tax withholding, unemployment insurance, unemployment taxes, and payroll withholding taxes, including Social Security and Medicare.
Step 8: Obtain Business Insurance
Business insurance is an area that often gets overlooked yet provides financial protection against unexpected events that could otherwise lead to significant losses or even business failure. The right insurance coverage helps small business owners manage risks, safeguard their investments, and maintain business stability.
Here are some of the key reasons why insurance is essential:
Risk management: Businesses face various risks, such as property damage, liability claims, or employee injuries. Insurance helps mitigate these risks by providing financial resources to recover from adverse events, allowing the business to continue operations with minimal disruption.
Legal compliance: Certain types of insurance are mandated by federal or state laws. For example, businesses with employees in Illinois are required to carry workers’ compensation insurance to cover work-related injuries or illnesses.
Contractual requirements: Clients, vendors, or lenders may require businesses to carry specific insurance coverage such as general liability insurance, professional liability insurance, or bonding as a condition of doing business or securing financing.
Financial stability: Insurance enables businesses to manage unexpected expenses, ensuring financial stability in the face of unforeseen events.
Step 9: Set up an Accounting System
A good accounting system is an important function for small businesses, allowing better financial transaction tracking, making informed decisions based on the financial health of the business, and meeting tax reporting requirements.
Related: Setting up accounting for a business
This material is property of StartingYourBusiness.com
Common questions when starting a business in Illinois
Why is Illinois a good state to start a business?
Illinois is a great place to start a business for several reasons, including its diverse economy, strategic location, and supportive business environment.
Here are some key factors:
Diverse economy: Illinois has a diverse economy, which allows businesses to tap into various industries such as agriculture, manufacturing, and technology. This diverse economic base creates opportunities for businesses to thrive.
Importance of small business: There are 1.3 million small businesses in Illinois, which is 99.6% of all businesses in the state.1 Small businesses in Illinois also employ 2.4 million employees, which is 44.1 percent of the total employees in the state.2
Strategic location: Illinois is centrally located in the United States, providing businesses with easy access to major markets and transportation hubs. The state’s well-developed infrastructure includes highways, railways, and airports, facilitating efficient transportation of goods and services.
Skilled workforce: Illinois has a highly educated and skilled workforce, with a higher percentage of residents holding a bachelor’s degree or higher than the national average. This provides businesses with a strong talent pool to draw from.
Innovation and research: Illinois is home to several renowned research institutions, such as the University of Illinois and Northwestern University. These institutions foster innovation and collaboration, providing businesses with access to cutting-edge research and technology.
What are the steps to starting an LLC in Illinois?
There are three main steps to starting an LLC in Illinois. These include:
There are a few more details to consider depending on the business. Learn more about starting an LLC in Illinois.
How much does it cost to start an LLC in Illinois?
The cost to start an LLC in Illinois is $150 to file the Articles of Organization with the Illinois Secretary of State.
Illinois Small Business Resources
- Illinois Secretary of State: Registering corporations and LLCs
- Illinois Department of Commerce & Economic Opportunity: State incentives, business assistance programs, and more.
- Illinois First Stop Business Information Center: State of Illinois business knowledgebase.
- Illinois Office of Minority Economic Empowerment: Resources for minorities, women, persons with disabilities, and veteran-owned small businesses.
- My Tax Illinois: Illinois Department of Revenue website to register and pay taxes.
- Illinois Small Business Development Center: An organization dedicated to educating and assisting small business owners in the state of Illinois.