Are you ready to turn your business idea into a reality in Ohio? You’re in the right place! From writing a business plan to understanding the legal stuff, we’ve broken down the process with our easy to follow guide..
Steps To Starting A Business In Ohio
Step 1: Choose a Business Idea
The first step for starting a business in Ohio is having a good business idea. But, if you don’t have one yet, how do you find a good business idea? There are a number of factors to consider, but some I recommend thinking about include:
- Personal interests and skills: Align your business idea with your passions, interests, and expertise. Pursuing a venture that you’re genuinely interested in can increase your chances of success, as you’re more likely to stay committed and motivated through challenges.
- Market demand: Research the needs and preferences of people in your area, identifying gaps in the market that your business can fill. Also, check whether there is enough potential demand for your product or service to support your business.
- Industry trends: Consider the industries that are thriving in Ohio and those that are in high demand. Some of the most profitable industries in Ohio include manufacturing, healthcare, tourism, and technology. You can identify some promising business opportunities by looking at trends in these industries.
For more inspiration, check out our business idea library with over 300 types of businesses to get detailed industry information, costs to start, tips, and lots more.
Step 2: Write a Business Plan
Once a solid business idea is in place, it’s time to start working on the business plan.
Many people only consider writing a business plan only because the bank asks for one to be considered for funding. While that’s a valid reason, more importantly, a business plan serves as a strategic roadmap, outlining your business goals, target market, competitive landscape, and operational structure. In the plan, you’ll also calculate startup costs and project profitability, which helps when researching whether your idea is feasible.
Related: How to write a business plan
Step 3: Find the Money
After figuring out how much it will cost to start the business, we will have a good understanding just how much money is needed to launch. This is important to do early on in the process because obtaining the funds to start a small business is often a frustrating process.
If you need to look for funding outside your personal savings, there are several sources to consider. Each option has its advantages and disadvantages, so it’s important to consider which one best suits your needs and circumstances carefully. Here are some of the most common funding options.
- Bank loans: Traditional bank loans are a common financing option for small businesses. These loans typically offer competitive interest rates and can be used for various purposes, such as purchasing equipment or inventory. To qualify for a bank loan, you will need a good credit history, a business plan, collateral, and a 15%-25% personal investment.
- SBA loan guarantee: The Small Business Administration (SBA) offers loan guarantee programs that can help small businesses in Ohio secure financing. The SBA doesn’t provide loans directly but instead guarantees a portion of the loan, reducing the risk for lenders. Some popular SBA loan programs include the 7(a) and 504 Loan Program. To qualify for an SBA loan, you will need to meet specific eligibility criteria and work with an approved lender.
- Microloan programs: Microloan programs offer smaller loans (typically up to $50,000) to start-ups and small businesses. These loans often have more lenient eligibility criteria and can be an excellent option for entrepreneurs who don’t qualify for traditional bank loans. In Ohio, organizations such as the Economic and Community Development Institute (ECDI) and the Ohio Microenterprise Development Program are two popular programs.
- Investors: Attracting investors can be another way to fund your business. This may include angel investors (high-net-worth individuals who invest in start-ups), venture capitalists (firms that invest in high-growth companies), or equity crowdfunding platforms. In exchange for their investment, these investors typically require equity ownership in your business. While this can provide much-needed capital, it may also mean giving up some control over your company.
Step 4: Select a Business Structure
The next step to starting a business in Ohio is selecting a business structure.
The business structure is sometimes referred to as a business entity, which simply refers to how a business is legally organized to operate. There are four primary business entities: sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). A brief description of each is below.
A sole proprietorship is an individual that decides to go into business. This is the easiest and least expensive of the four business entities to set up, as there is no state filing. The ease of startup is a big selling point; however, a major downside is that a sole proprietor is personally responsible for all debts and actions of the company. If the business is sued, the owner’s personal assets are potentially at risk. Another potential downside is that the owner will pay self-employment tax on all business profits, which may be more costly than for some other business structures.
General partnerships consist of two or more people conducting a business together. Like the sole proprietorship, the partnership has unlimited liability. If the partnership were to be sued, the partner’s personal assets would be equally at risk. The partnership itself does not pay tax from business income. Instead, profits and losses are passed through to the owner’s personal tax return. This income is subject to self-employment tax.
While not required in order to conduct business in the state of Ohio, the Statement of Partnership Authority can be filed with the Ohio Secretary of State. Some banks and vendors may require this filing to prove the existence of the partnership.
A corporation is a business structure that is a separate legal entity from the individual. While corporations are more expensive and difficult to form than sole proprietorships and partnerships, the major advantage is that the corporation provides personal asset protection for the owners should the corporation be sued. The downside is the compliance requirements and administrative burdens of having a board of directors, annual meetings for directors and shareholders, taking minutes at the meetings, appointing a registered agent, and more.
There are multiple ways a corporation can elect to be taxed, which include the C-corporation and S-corporation. Deciding on the tax election is complicated, so be sure to talk with your CPA, as there is the potential of double taxation where profits and dividends are both taxed.
Related: How to form an Ohio corporation
The Limited Liability Company (LLC) is a popular business entity choice because it provides the liability protection of a corporation with the sole proprietorship’s ease of operation. The Limited Liability Company does not have many of the same burdens that the corporation has and has the greatest tax flexibility of the four entities.
Related: How to form an Ohio 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 out of the way, the next phase is registering the business. There are several potential federal, state, and local registrations for an Ohio business to research, and will vary depending on where the business operates and does. Some common registrations include:
Business license: The state of Ohio doesn’t have a general business license; however, many cities require a business license to operate.
Business name registration: As a sole proprietorship or general partnership in Ohio that is doing business under a fictitious business name will need to register the business name. For example, if Bob Smith wants to operate his barbershop under the name “The Buckeye Barber” rather than his full name, Bob will need to file a Fictitious or Trade Name Registration, which is sometimes known as a DBA (Doing Business As) with the Secretary of State.
There are two choices for filing on this form: a Fictitious Name or a Trade Name. A fictitious name is a name used in business but does not give the user any exclusive right to use the name. A trade name is like the fictitious name but provides exclusive use in the State of Ohio. A trade name must be distinguishable from other previously registered business names.
Employer Identification Number (EIN): If your business has employees or operates as a corporation, multi-owner LLC, or partnership, an EIN is needed. This unique nine-digit number is issued by the Internal Revenue Service (IRS) and is used for tax reporting purposes.
Ohio Vendor’s License: Businesses selling products and certain services will need to register for an Ohio Vendor’s License and submit sales tax with the Ohio Department of Taxation.
Ohio Commercial Activity Tax: Businesses with over $150,000 annually in taxable gross receipts must register with the Commercial Activity Tax (CAT).
Professional licensing: Some services, such as interior designers, detectives, cosmetologists, barbers, architects, and massage therapists, require licensing in Ohio. The eLicense Ohio website provides a list of professional licenses necessary to do business in Ohio.
Step 6: Open a Business Bank Account
Keeping your business and personal finances in separate bank and credit card accounts makes tracking the business’s income and expenses easier. Every bank is different, but in general, they will request the following:
- Sole proprietorship & partnership: Trade Name Certificate, EIN or SSN, and owner(s) driver’s license.
- Corporation: Articles of Incorporation, bylaws, Certificate of Good Standing, EIN, and owner(s) driver’s license.
- LLC: Articles of Organization, Operating Agreement, Certificate of Good Standing, EIN, and owner(s) driver’s license.
Step 7: Hire Employees
If you plan to hire employees, a new employer in Ohio will need to register with multiple agencies, such as the Ohio Bureau of Workers’ Compensation, the Department of Taxation, and the Internal Revenue Service.
In addition to registering, employers are also 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
Business insurance is never at the top of anyone’s list of things they want to take care of when starting their business; however, business insurance may be needed to protect your business and finances.
Most types of business insurance are optional, except for workers’ compensation insurance, as Ohio requires all employers to obtain this coverage. But, even if insurance isn’t required, and there is a fire, theft, or personal injury lawsuit, the small business owner may have to pay out-of-pocket damages and legal fees. Home-based and side businesses may also want to consider business insurance as personal home and vehicle policies may not cover a business-related loss.
Step 9: Set up an Accounting System
Bookkeeping is the next step in setting up a new small business. This involves the process of tracking your business’s income and expenses, which allows you to not only keep track of taxes but also monitor cash flow, identify areas that need improvement, and make informed decisions about the future of your business.
To organize and record the financial information of your business, consider implementing one or more of the following methods:
- Paper filing system: For businesses that prefer a traditional approach, establish a paper filing system with clearly labeled folders for each type of financial record. Store these documents in a secure location and establish a routine for updating and reviewing them regularly.
- Accounting software: Accounting software, such as QuickBooks, Xero, or FreshBooks, can streamline the bookkeeping process. These programs can help track income and expenses, generate financial reports, and manage invoicing and payroll.
- Outsourced bookkeeping: If you lack the time or expertise to handle bookkeeping yourself, consider outsourcing the task to a professional bookkeeper or accounting firm. This can ensure your financial records are accurate and up-to-date while allowing you to focus on other aspects of your business.
Related: Setting up accounting for a business
This material is property of StartingYourBusiness.com
Common questions when starting a business in Ohio
How hard is it to start an LLC in Ohio?
How much does it cost to set up an LLC in Ohio?
The cost to start an LLC in Ohio is $99 to file the Articles of Organization with the Ohio Secretary of State.
Does a sole proprietor need a business license in Ohio?
In Ohio, whether a sole proprietor needs a business license depends on the type of business they plan to run and where it’s located, not on the business structure.
Ohio doesn’t have a one-size-fits-all business license for all businesses. Instead, the requirements vary based on specific factors such as the nature of the business, the products or services offered, and local regulations.
Ohio Small Business Resources
There are 989,435 small businesses in Ohio, which is 98.6% of all businesses in the state,1 and 43.8% of Ohio 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 Ohio businesses start and grow. Some of these include:
- Minority Business Assistance Centers: The Ohio Department of Development’s Minority Business Development Division (MBDD) provides support to small, minority-owned, and disadvantaged businesses in Ohio.
- Ohio Business Gateway: The Ohio Business Gateway offers a centralized online portal for business-related services and information.
- Ohio Export Assistance and International Engagement: The Ohio Department of Development provides export assistance to businesses exploring selling products and services out of the U.S.
- Ohio SCORE: SCORE provides education and mentorship to small businesses.
- Ohio Small Business Development Center: The Ohio SBDCs assist those starting or expanding their business in the state.
- Veteran Business Outreach Center: Backed by the SBA and led by veterans, the Veteran Business Outreach Center supports Veterans, Active Duty, Guard, and Reserve members in starting and growing their businesses by providing training, workshops, and mentoring.
- Women’s Business Centers of Ohio: The WBC equips women entrepreneurs with resources such as an online library, computer lab, business coaching, and access to small business loans through ECDI.