How To Start A Business In Massachusetts

Are you thinking about creating your own business in Massachusetts but find yourself a little lost on the first step? Here’s the good news: you don’t have to figure it out alone. Our guide is tailor-made for first-time business owners, offering a step-by-step approach to the major tasks you’ll need to tackle.

Steps To Start A Business In Massachusetts

Step 1: Choose a Business Idea

The first step in starting a new business is coming up with a good business idea, but what constitutes a good business idea?

While the answer is going to be different depending on the goals of the person being asked, when evaluating a potential business idea, I believe that it is important to consider multiple factors, a few of which include:

Owner interest: One often overlooked factor of what makes a good business idea is the owner’s interest. It’s easy to get caught up in the potential money-making aspect of a business, but if the owner doesn’t like the product or service being sold or the customers, it can be hard to stay motivated during the ups and downs of entrepreneurship.
Market demand: A good business idea should cater to an existing market demand or create a new demand by solving a pressing problem.
Growth potential: A good business idea should have the potential to grow and scale over time. Entrepreneurs should consider how their business can expand beyond its initial stages, whether by adding new products or services, entering new markets, or reaching a broader customer base. A scalable business model allows for increased revenue and profitability.

To learn more about over 300 types of businesses, check out our business idea library for detailed industry information, costs to start, tips, and more.

Step 2: Write a Business Plan

With the idea out of the way, the next step is putting together a plan of action, and one way to do this is by creating a business plan. A business plan is not only going to be needed by investors or lenders, but it’s also a tool to establish a clear vision, determine whether the idea is feasible, and provide a roadmap from idea to launch.

The core parts of a business plan include an executive summary, company description, market analysis, organization and management structure, products or services, marketing strategy, financial projections, and analysis of risks associated with the business.

While most people haven’t written a business plan before and aren’t sure where to start, with our guide on how to write a business plan, you will be able to get a jump start on the process!

Step 3: Find the Money

Even with a great idea, it can be very difficult to start a business without funding. This brings us to our next step, which is making sure the money is available so we can move forward. If personal savings aren’t enough, there are a variety of funding options available, which I’ll explain further:

Bank loans: Loans from private banks and credit unions are a common funding source for businesses. Requirements vary but generally entail a business plan, good personal credit, 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 (SBA) and their 7(a) and 504 loan guarantee programs. These programs guarantee that a percentage of the loan will be repaid, so lenders will make loans to small businesses.
Investors: Money may be available to fund your business through investors, venture capital firms, or personal connections. There are a few groups in Massachusetts, such as the Boston Harbor Angels, Beacon Angels, and the LaunchPad Venture Group.
Microloan programs: Microloans are small short-term loans that have more flexible eligibility standards than what banks require. A few business microloan programs in Massachusetts include Kiva, Massachusetts Growth Capital Corporation, and the FastTrack program from the North Central Massachusetts Chamber of Commerce.

Step 4: Select a Business Structure

Next on our list is setting up the business structure (also called a business entity), which refers to how a business is legally structured to operate. This is an important decision as it impacts the extent of personal liability, tax implications, and management structure.

In Massachusetts, some common business entities include sole proprietorships, general partnerships, corporations, and Limited Liability Companies (LLCs).

A sole proprietorship is an unincorporated business that is owned by one individual who has full control over all aspects of the business. With this structure, the business and owner are legally indistinguishable, which means the owner bears unlimited personal liability for the debts and obligations of the business.

The advantages of being a sole proprietor include ease of formation and minimal regulation, while the disadvantages involve personal liability and limited growth potential.

A general partnership is an informal business structure where two or more individuals own and manage the business together. Like a sole proprietorship, each partner has unlimited personal liability for debts and obligations incurred by the partnership.

Partnerships offer simplicity in formation and shared decision-making, but partners may face unlimited liability and potential disagreements in management.

A corporation is a more complex business structure and is a separate legal entity from its owners (shareholders). The corporation provides limited liability protection to shareholders and offers greater flexibility in terms of ownership and management structures than other entities.

The advantages of a corporation include limited liability, access to capital by selling shares of stock, and a more structured management system, while the disadvantages are increased regulation and double taxation. The downside of forming a corporation is that it requires more paperwork and can be more expensive to set up than other entities.

A Limited Liability Company is a hybrid structure that combines the limited liability protection of a corporation with the pass-through taxation of a sole proprietorship or partnership. Owners (known as members) of an LLC are not personally liable for the company’s debts and obligations (unless they sign a personal guarantee to get a business loan) and can choose multiple ways for the business to be taxed.

LLCs are more complex to form than sole proprietorships and partnerships, though typically easier than a corporation. In addition, there are ongoing fees and requirements, such as filing an annual report.

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 setting up the business structure, it’s time to turn toward registering the business. In Massachusetts, various business licenses and permits may be required, depending on what your business does and where it’s located. Some businesses may need licenses at the local, state, and even federal levels, so it’s necessary to research and obtain the necessary licenses and permits. Some common registrations include:

Business licenses: The state of Massachusetts doesn’t have a general business license; however, many cities require a business license to operate.
Local licenses: Depending on the city or town where your business operates in Massachusetts, you may need specific local licenses and permits. These can include zoning permits, building permits, health department permits, and sign permits. Be sure to check with your local city or town clerk’s office to determine the specific requirements for your business.
Employer Identification Number (EIN): If your business has employees or operates as a corporation, partnership, or multi-member LLC, you’ll need to obtain an EIN from the Internal Revenue Service (IRS).
Sales tax vendor registration: Businesses selling products and certain services will need to register for a sales tax permit with the Massachusetts Department of Revenue through the MassTaxConnect website.
Business Certificate: In order for a sole proprietor or partnership to operate under a specific name, a Business Certificate, commonly known as a “Doing Business As,” DBA, Trade Name, Assumed Name, or Fictitious Name, will need to be registered with the Town Clerk or City Clerk in the community where the business is located.
Professional licensing: Some services, such as plumbers, cosmetologists, electricians, and home inspectors, require licensing in Massachusetts.

Step 6: Open a Business Bank Account

As a small business owner, keeping your personal and business finances separate is important. Not doing so can lead to tax issues, which leads us to the next step of opening a business bank account.

To open a business bank account, you’ll need to provide various documents, such as:

Employer Identification Number (EIN) or Social Security Number for sole proprietorships or single-member LLCs without employees
Business formation documents, like the Articles of Incorporation for corporations or Articles of Organization for LLCs
Business name registration or DBA certificate (if applicable)
Ownership agreements (for partnerships, corporations, or LLCs)
Personal identification (e.g., driver’s license or passport) for anyone with account access

Step 7: Hire Employees

Next, businesses hiring employees will need to register as an employer. To get set up, new employers must register with the Internal Revenue Service for an EIN, the Massachusetts Department of Revenue, and the Massachusetts Department of Unemployment Assistance.

Additionally, employers are responsible for reporting new hires, verifying employees are eligible to work in the U.S., income tax withholding, unemployment insurance, unemployment taxes, and payroll withholding taxes, including Social Security and Medicare.

Step 8: Obtain Business Insurance

The next step is to consider what types of insurance your business may need. Businesses face a number of risks, and insurance can help protect against potential losses and legal claims that could otherwise be financially devastating.

There are various types of insurance available, including general liability, workers’ compensation (required for all employers in Massachusetts), property, and professional liability. By carefully researching different providers and policies and working with an experienced agent when selecting a policy, small business owners can ensure they get adequate coverage at an affordable rate so their business is protected if something unexpected were to happen.

Step 9: Set up a Bookkeeping System

Another important step in starting a business is setting up a system to keep track of income and expenses, invoices, and payroll to avoid any potential issues with the Department of Revenue, IRS, or other regulatory bodies.

In addition to staying on top of taxes, having a good bookkeeping system can provide other benefits for business owners. It can help them make better decisions by giving them an accurate picture of their finances. It can also help them plan for the future by providing insights into their cash flow and budgeting needs. Additionally, it can reduce the risk of financial irregularities by ensuring that all transactions are properly recorded and accounted for.

This material is property of StartingYourBusiness.com

Common questions when starting a business in Massachusetts

What are the steps to starting an LLC in Massachusetts?

There are three main steps to starting an LLC in Massachusetts. These include:

1. Making sure the LLC name is available
2. Appointing a Massachusetts Resident Agent
3. Filing the Certificate of Organization

To learn more about the process, check out our guide on how to start an LLC in Massachusetts.

How much does it cost to start an LLC in Massachusetts?

The filing fee to submit the Certificate of Organization with the Massachusetts Secretary of the Commonwealth, which is the paperwork that create an LLC, is $500.

Does a sole proprietor need a business license in Massachusetts?

In Massachusetts, whether a sole proprietor needs a business license doesn’t depend on the type of business structure, but instead on the type of business they plan to operate and where it will be operating.

The state doesn’t issue a general business license, but many cities and towns require local business licenses or permits for specific types of businesses. Certain professions and activities may also require state-issued licenses, permits, or certifications.

Massachusetts Small Business Resources

There are 697,585 small businesses in Massachusetts, which is 99.5% of all businesses in the state,¹ and 44,7% of Massachusetts 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 Massachusetts businesses start and grow. Some of these include:

Massachusetts Export Resource Center: Offers assistance with exporting through counseling, international market analysis, and training programs, guiding businesses in expanding their reach to global markets.
Massachusetts Office of Business Development: The MOBD is the state’s economic development agency and provides resources for businesses looking to start, expand, or relocate within Massachusetts.
Massachusetts Small Business Development Center: The SBDC provides programs and training to small business owners.
SCORE: This is a non-profit organization that offers mentorship, workshops, and resources to small businesses.