Are you ready to start your business in Maryland but unsure where to start? Don’t worry, you’re not on your own. We’ve prepared a checklist to guide you through the early steps, like crafting your business plan and sorting out licenses. It’s designed to give you a clear path forward, covering many of the basics you’ll encounter along the way..
Steps to Starting a Business in Maryland
Step 1: Choose a Business Idea
Starting your own business in Maryland begins with choosing what type of business you want to start. Maybe you’ve already got an idea, or perhaps you’re still figuring it out. Either way, we offer a collection of business ideas where you can find thorough details about different industries, including helpful tips, how much it might cost to get started, and much more.
Step 2: Write a Business Plan
Creating a comprehensive business plan is a step that could be skipped, but I recommend that anyone starting a business should write one.
A business plan outlines the key components of a business, such as refining your idea, setting milestones, creating a marketing strategy, calculating financial projections, and more. Another reason the business plan is important is because it can help spot potential mistakes on paper before they happen in reality, helping avoid expensive mistakes.
Related: How to write a business plan
Step 3: Find the Money
Before we tackle the remaining steps, it’s a good idea to look at whether you have access to enough money to start your business. Underfunding a business is one of the top reasons new businesses fail, so while it’s easy to think it will work out, skipping this step now can set you up for failure. If personal funds aren’t enough, here are some common sources of funding in Maryland.
Bank loans are the most common form of funding for small businesses and can provide access to capital relatively quickly. Banks take several factors into account when considering loan applications, including credit scores, personal investment, available collateral, and other financial criteria. Additionally, if the bank has concerns about funding your project, the Small Business Administration (SBA) offers loan guarantees to reduce a lender’s risk.
Friends and family are another option to fund a new business. While less structured and possibly less expensive than a bank, be sure to put agreements in writing to avoid misunderstandings.
Microloan programs provide smaller loans and are often used to finance startup costs or purchase equipment or inventory. A couple of microloan programs in the state include Maryland Capital Enterprises and FSC First.
Finally, investors can provide a source of funding for small businesses. Not for every type of business, investors typically look for businesses that have a solid business plan and potential for significant growth. They also consider factors such as the management team’s experience and qualifications, market size and potential, competitive landscape, and financial projections.
Step 4: Select a Business Structure
The next step in starting a new business in Maryland is selecting a business structure (also called a business entity). This is how a business is legally structured to conduct business activities. The four most common types of business entities are sole proprietorships, general partnerships, corporations, and Limited Liability Companies (LLCs). Each type of entity has its own advantages and disadvantages for business owners in Maryland.
Sole proprietorships are the most basic and least expensive form of business entity. They provide the owner with complete control over the business but also leave them personally liable for any debts or liabilities incurred by the business.
General partnerships are similar to sole proprietorships but involve two or more people who share ownership and management responsibilities. While easy to set up, the downside is that each partner is personally liable for any debts or liabilities incurred by the partnership.
There is no formal registration to create a sole proprietorship or partnership in Maryland; however, if the business will operate with a business name that is different from the owners, a Trade Name Application will need to be filed with the Maryland State Department of Assessments and Taxation.
Corporations offer limited liability protection to their shareholders (owners), meaning that their personal assets are protected from any debts or liabilities incurred by the corporation. Corporations also have a more complex management structure than other entities, with a board of directors overseeing operations and making major decisions on behalf of the company (which can be a single shareholder). Additionally, corporations can issue stock to raise capital.
Related: How to form a Maryland corporation
Limited Liability Companies (LLC) combine aspects of both sole proprietorships, partnerships and corporations by providing limited liability protection while allowing for flexible management structures. LLCs are relatively easy to set up and maintain compared to other corporations.
Related: How to form a Maryland 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
Once the business structure is set up, the next step is to get the business registered. The registrations will vary depending on what the business does and any local requirements. Some common registrations include:
- Business licenses: The state of Maryland doesn’t have a general business license; however, many cities require a business license to operate.
- Employer Identification Number (EIN): General partnerships, corporations, multi-member LLCs, or businesses with employees need to obtain an EIN from the Internal Revenue Service.
- Trader’s License: Businesses selling physical products will need to obtain a Trader’s License from the Clerk of the Circuit Court.
- Sales & use tax license: Businesses selling products and certain services will need to register for a sales & use tax license with the Comptroller of Maryland.
- Professional Licensing – Some services, such as contractors, accountants, landscapers, and laundry services, require licensing in Maryland. The Maryland Business Express website offers a licensing portal to look up required licenses.
Step 6: Open a Business Bank Account
The next item to take care of when starting a business is setting up a business bank account. While using your personal account is possible, you are much better off keeping your business and personal finances separate. By doing so, you will be able to track the income and expenses of your business more accurately.
When opening a business bank account in Maryland, several important documents must be provided to the bank. These include proof of identity (such as a driver’s license or passport), proof of address (such as a utility bill), and proof of ownership (such as articles of incorporation or Trade Name certificate). Additionally, some banks may require additional business registration documentation such as entity formation documents, operating agreements, bylaws, etc.
Step 7: Hire Employees
If your business will be hiring employees, there are a number of considerations that a new employer needs to consider.
First, the business will need to obtain an Employer Identification Number from the IRS (if not done already) and register as an employer from the Comptroller of Maryland, and get an unemployment insurance tax account number from the Maryland Department of Labor.
Small business owners will also need to understand labor laws and regulations. This includes understanding the minimum wage requirements, overtime regulations, and other labor laws that may apply to their business. Employers are responsible for reporting new hires, verifying employees are eligible to work in the U.S., and determining income tax withholding, unemployment insurance, unemployment taxes, and payroll withholding taxes, including Social Security and Medicare.
Step 8: Obtain Business Insurance
An often overlooked step, but one that is important for safeguarding your business assets, ensuring financial stability, and sometimes fulfilling legal requirements, is obtaining business insurance. Every business will have different levels of risk, but let’s go over a few common types of insurance.
- General liability insurance protects your business from third-party claims of bodily injury or property damage.
- Property insurance covers physical assets such as buildings, equipment, and inventory.
- Workers’ compensation insurance is required for all Maryland employers and helps cover medical expenses and lost wages for employees who are injured on the job.
- Professional liability insurance protects against claims related to professional negligence or errors and omissions.
Step 9: Set Up a Bookkeeping System
Another important step when starting a business is tracking the income and expenses of the business. A good bookkeeping system not only helps businesses ensure accurate recordkeeping and that taxes are filed correctly but also provides valuable insights into the financial health of the business.
Related: Setting up accounting for a business
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Common questions when starting a business in Maryland
What are the steps to starting an LLC in Maryland?
There are three main steps to starting an LLC in Maryland. These include:
There are a few more details to learn when setting up an LLC, so be sure to check out our guide on how to start an LLC in Maryland.
How much does it cost to start an LLC in Maryland?
The cost to file the Articles of Organization with the Maryland Secretary of State to create a Limited Liability Company is $100.
Does a sole proprietor need a business license in Maryland?
Generally, sole proprietorships in Maryland need a business license to operate legally. The specific type of licenses or permits aren’t based on the business structure, but on the business itself, so it can vary based on its location and what services or products it offers.
Maryland Small Business Resources
There are 639,789 small businesses in Maryland, which is 99.5% of all businesses in the state,1 and 1.2 million Maryland employees work for a small business.2 Because of the economic impact of small businesses, there are a number of small business resources to help Maryland businesses start and grow. Some of these include:
- Baltimore County Department of Economic and Workforce Development: Offers guidance on starting a business in Baltimore County.
- Maryland Small Business Development Center: The SBDC supports entrepreneurs and small businesses throughout Maryland.
- Maryland Women’s Business Center: The MWBC provides support to pre-venture, start-up, and existing women-owned businesses.
- Mid-Atlantic Veterans Business Outreach Center: The VBOC center at the University of Maryland offers support and opportunities for entrepreneurial veterans.