If you’re thinking about opening your own business in Maine, you might be wondering what the first step should be. A clear plan can make a world of difference, and we’ve put together a checklist just for you. This guide is designed to help you lay the foundation for your small business in Maine, step by step..
Steps for Starting a Business in Maine
Step 1: Choose a Business Idea
Without stating the obvious, starting your own business in Maine begins with making a decision on the kind of business you want to run.
Perhaps you’ve already got a great idea, or maybe you’re still thinking about what suits you best. Either way, we’ve got a collection of business ideas ready for you to explore. Here, you can find out more about hundreds of different industries, learn what it might cost to get started, pick up some helpful tips, and much more.
Step 2: Write a Business Plan
Once you’ve settled on a business idea, the next step is to put together a business plan.
Creating a business plan can be thought of like drawing a map for your entrepreneurial journey. It helps you see the path ahead, prepare for bumps in the road, and spot chances to grow. This plan is not just important for showing to banks or investors to get the money you need to start; it’s much more than that.
Think of it this way: you wouldn’t start building a house without a set of plans, right? In the same way, it’s not a good idea to start a business without a business plan. Writing down your ideas makes them clearer and gives you a guide to follow, making sure you know where your business is heading so the business is being built on a solid foundation.
Related: How to write a business plan
Step 3: Find the Money
The next step, which is the most difficult for many small business owners, is to secure the funding to start their business. It’s not uncommon to put the step off until later, but if you aren’t able to get the funding, the remaining steps aren’t going to be of much use. If personal savings fall short of what is needed to start the business, there are a number of sources for businesses in Maine. These include:
Friends and family: One potential source of funding for a new business is friends and family who believe in you and the idea. While this source is more flexible than a bank loan, be sure to treat it professionally and put everything on paper to avoid any miscommunication.
Bank loans: The most common outside source of funding for small businesses comes with a number of hoops to jump through to get approved. Banks and other lenders typically look at your credit score, amount of personal investment (15%-25% of the total project is common), collateral, and the business plan.
If the bank feels the loan is too risky, they can take advantage of the Small Business Administration (SBA) loan guarantee programs. These programs provide a government-backed guarantee to banks and other lending institutions, which helps reduce the lenders’ risk and makes it easier for small businesses to access financing.
If the business owner isn’t able to secure traditional financing, there are microloan programs that are available. Microloans are small, short-term loans designed to help entrepreneurs and small businesses obtain funding to start or grow their businesses. These programs typically have more flexible eligibility requirements than conventional loans and may offer business training. Some active microloan programs in Maine include the Androscoggin Valley Council of Governments, Coastal Enterprises, and the Northern Maine Development Commission.
Another funding option for small businesses is to seek investment from investors, who can provide capital in exchange for equity (ownership) in the company. To attract investors, you will typically need a compelling business plan, a scalable business model, and a strong management team.
Step 4: Select a Business Structure
The next step in starting a business in Maine is selecting a business structure (also called a business entity), which refers to how a business is legally set up to operate. This choice impacts how your business operates, its ownership structure, taxation, and the personal liability of the owners. Let’s look at the options:
Sole proprietorship: This is the simplest type of business structure, where the owner is the sole decision-maker and is personally responsible for all business debts and liabilities. In Maine, a sole proprietorship doesn’t require formal registration (except for an Assumed Business Name if operating under a business name), and the profits are taxed as personal income.
- Pros: Easy to establish, low startup costs, and complete control over business decisions.
- Cons: Unlimited personal liability, challenging to raise capital, and limited growth potential.
General partnership: In this structure, two or more individuals share ownership, management, profits, and liabilities. Although registration is not necessary, you should create a partnership agreement outlining the partners’ roles and responsibilities. Profits are taxed as personal income for each partner.
- Pros: Easy to establish, pooled resources, and shared decision-making.
- Cons: Unlimited personal liability for each partner, potential for disagreements, and challenges in raising capital.
Corporation: A corporation is a separate legal entity owned by shareholders, offering limited liability protection. In Maine, corporations must register with the Maine Secretary of State and adhere to specific legal and reporting requirements.
- Pros: Limited liability for shareholders, ability to raise capital by selling shares, and increased credibility.
- Cons: Complex and costly to establish, potential for double taxation, and extensive legal and reporting requirements.
Related: How to form a Maine Corporation
Limited Liability Company (LLC): An LLC is a business structure combining the limited liability protection of a corporation with the tax flexibility of a sole proprietorship or partnership. In Maine, you need to register your LLC with the Maine Secretary of State.
- Pros: Limited liability for owners, flexible taxation options, and simpler management structure than a corporation.
- Cons: More complex and costly to establish than a sole proprietorship or partnership, and potential challenges in raising capital.
Related: How to form a Maine 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
With the business structure in place, the next step is to get the business registered. Depending on the type of business you are operating and where it’s going to operate, there are several business licenses and permits from the state or local government that may be required. Common types of business licenses include:
- Business licenses: The state of Maine doesn’t have a general business license; however, many cities require a business license to operate.
- Employer Identification Number: The 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.
- Business tax registration: Businesses selling products and certain services will need to apply with Maine Revenue Services to get a sales tax license or to register for the service provider tax or withholding taxes.
- Professional licensing: Some services, such as electricians, door-to-door home repair sellers, and landscape architects, require licensing in Maine.
- Additional registrations: Depending on your business type, there may be other requirements to ensure legal compliance. For example, food establishments may require food handler permits, while bars may need to register to sell alcohol.
Step 6: Open a Business Bank Account
Once the business has been formed and registered, the next step is to open a business bank account. Separating business and personal funds can provide the following benefits:
- Simplified accounting: Keeping separate accounts allows for more straightforward and organized bookkeeping, making it easier to track income, expenses, and cash flow for your business.
- Professionalism: Having a dedicated business account adds a level of professionalism when dealing with clients, vendors, and partners.
- Legal protection: If your business is structured as an LLC or corporation, keeping personal finances separate from your business is necessary to preserve the limited liability protection these structures offer.
- Accurate tax reporting: Separate accounts ensure that you correctly report your business income and expenses, helping you avoid tax issues and potential penalties.
Step 7: Hire Employees
As we wind down the checklist of starting a business in Maine, one box that may need to be checked is registering as an employer.
There is quite a bit to take care of at this stage. Starting with registrations, new employers will need an Employer Identification Number from the IRS in addition to the Employer Registration & Unemployment Account Number from the Maine Department of Labor.
Once registered, there are some legal requirements to be aware of when hiring an employee, such as minimum wage laws, overtime pay laws, anti-discrimination laws, etc. Employers are also responsible for paying payroll taxes and holding worker’s compensation insurance.
Step 8: Obtain Business Insurance
Business insurance is never at the top of anyone’s list of things they want to do when starting their business, but it shouldn’t be ignored. Insurance can not only protect a small business from unforeseen risks and potential financial losses but is sometimes legally required. Here’s an overview of a handful of types of coverage a small business owner should consider when starting their business in Maine:
- General liability insurance: This coverage protects your business against third-party claims for bodily injury, property damage, and personal injury, such as libel or slander. It is essential for most businesses, regardless of their size or industry.
- Property insurance: Property insurance covers damage or loss to your business property, including buildings, equipment, and inventory, due to events such as fire, theft, or natural disasters. This coverage is important, especially if you own or lease a physical location for your business.
- Workers’ compensation insurance: In Maine, businesses with employees are required to carry workers’ compensation insurance, which covers medical expenses and lost wages for employees who suffer work-related injuries or illnesses.
- Commercial auto insurance: If your business owns, leases, or uses vehicles for work purposes, personal auto insurance may not cover damages and liabilities resulting from accidents or other incidents while being used for the business.
- Professional liability insurance: Also known as errors and omissions (E&O) insurance, this coverage protects businesses that provide professional services or advice, such as consultants or financial advisors, against claims of negligence or errors in their work.
Step 9: Set up a Bookkeeping System
The next step in starting a business is to get your financial tracking in order. Setting up a good system and maintaining accurate records for income, deductions, payroll, etc., will not only help you comply with tax regulations but also contribute to the long-term success and growth of your business.
Related: Setting up accounting for a business
This material is property of StartingYourBusiness.com
Common questions when starting a business in Maine
What are the steps to starting an LLC in Maine?
How much does it cost to start an LLC in Maine?
The cost to file the Certificate of Formation with the Maine Secretary of State, which is the paperwork to create an LLC in Maine, is $175.
Does a sole proprietor need a business license in Maine?
In Maine, whether a sole proprietor needs a business license depends on the type of business they are running and where it’s located, not on the business structure itself.
There isn’t a state-level business license, but many need local permits or licenses based on the city or county regulations. Additionally, certain professions and trades require specific licenses or certifications to operate legally in the state.
Maine Small Business Resources
There are 149,493 small businesses in Maine, which is 99.2% of all businesses in the state,1 and almost 300,000 Maine residents work for a small business.2 Because of the economic impact of small businesses, there are a number of small business resources to help Maine businesses start and grow. Some of these include:
- CEI Women’s Business Center: Focused on empowering women, particularly those who are socially and economically disadvantaged, the Women’s Business Center offers assistance to help women succeed in their entrepreneurial endeavors.
- Maine Department of Economic and Community Development: Through its Business Answers program, this state department helps businesses navigate the maze of specific licenses, permits, rules, and regulations
- Maine Small Business Advocate: Acting as an independent voice for Maine’s small businesses within the state’s regulatory system, the Maine Small Business Advocate assists small businesses with 50 employees or fewer that encounter specific issues with the enforcement actions of one or more regulatory agencies.
- Maine Small Business Development Center: SBDCs offer assistance to entrepreneurs who are starting or expanding their businesses in Maine.
- SCORE Maine: The SCORE volunteer network helps entrepreneurs start businesses, grow companies, and create jobs in Maine.