Starting your own business in Tennessee is a big step, but don’t worry, we’re here to help you through it. Our guide will walk you through the steps, like picking the right business structure, getting registered, and more.

Steps To Starting A Business In Tennessee

Step 1: Choose a Business Idea

Kicking off your business journey in Tennessee starts with deciding on a business idea. Maybe you’ve got one already, or perhaps you’re still searching for that perfect match. Either way, don’t stress – our extensive library of business ideas is here to help. You’ll find information on various types of businesses, start-up costs, handy tips, and more.

Step 2: Write a Business Plan

Once the business idea is in place, it’s time to start working on the business plan. Commonly thought of as a formality if funding is needed, a business plan does much more than that. A business plan takes the thoughts from your head and puts them on paper. This process helps sharpen your concept and lets you really think through the idea and decide whether it’s practical or not.

Related: How to write a business plan

Step 3: Find Financing

The next step, which is often a huge challenge, is securing the funding. Here are some common funding options to consider:

Personal funds: This is a common funding option for entrepreneurs who use their personal savings, retirement accounts, or home equity loans to start or expand their businesses.

Conventional bank loans: Banks and credit unions offer term loans, lines of credit, and equipment financing. To qualify for a small business loan, you’ll typically need a solid credit history, personal investment, business plan, and financial projections. Lenders typically have competitive interest rates but may have more stringent approval criteria than other funding options.

SBA loan guarantees: The Small Business Administration (SBA) offers loan guarantee programs to help small businesses obtain financing. The most popular program is the 7(a) loan, which guarantees loans made by participating lenders.

Microloan programs: Microloans are small loans, often under $50,000, designed to help start-ups and smaller businesses with limited credit history. Organizations like Pathway Lending and Kiva provide microloan options in Tennessee. These loans can be more accessible than traditional bank loans and often come with business training or mentorship opportunities.

Investors: There are various types of investors to consider, including:

Angel investors: These are affluent individuals who provide capital to start-ups in exchange for equity or debt. Angel investors can be found through local networking events or platforms like the Angel Capital Association and the Nashville Capital Network.
Venture capitalists: Venture capital firms invest in start-ups with high growth potential in exchange for equity. While venture capital can provide significant funding, it often requires giving up a considerable amount of control over your business.
Crowdfunding: Platforms like Kickstarter, Indiegogo, and GoFundMe allow you to raise small amounts of money from a large number of people, typically in exchange for a product, service, or equity. Crowdfunding can be a useful way to generate both funds and market interest for your business.

Step 4: Select a Business Structure

The next step to starting a business in Tennessee is selecting a business structure. In simple terms, a business structure refers to how a company is legally organized to operate. Choosing the right type of business entity can make a significant impact on how your company operates, personal liability, taxes, and more, so choosing the right one is important.

There are four primary business structures in Tennessee: sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). A brief description of each is below.

A sole proprietorship is the easiest form of business structure where there is no legal difference between the person who owns the business. The advantages include a low cost to start up and easy operation; however, the drawback is unlimited liability, meaning the owner’s personal assets are at risk if things go wrong.

General partnerships consist of two or more people conducting a business together. Like the sole proprietorship, the owners of a partnership have unlimited liability. Advantages include shared workload and management decisions, but disadvantages may arise from disagreements between partners, leading to stalled decision-making processes or conflicts of interest.

A corporation, unlike the earlier examples, 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 shareholders (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, filing the annual report, appointing a registered agent, and more.

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 corporation’s burdens and has the greatest tax flexibility of the four structures. Income can be taxed as a pass-through entity like the sole proprietor or partnership, or as a corporation. The LLC and corporation are both liable for the state’s franchise tax.

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 registered, it’s time to register for all the necessary business licenses and permits. Every business will have different needs, but here is a brief overview.

State business license: The state of Tennessee doesn’t have a general business license; however, many cities require a business license to operate.

Business tax licenses: Most businesses in Tennessee (even home-based businesses occasionally) need to purchase an annual business tax license with the County Clerk in the county where the business is located and possibly with the Municipal Clerk if the business is located within city limits. The two common licenses are the Standard Business License and the Minimal Activity Business License.

Employer Identification Number (EIN): An EIN is a unique identification number the Internal Revenue Service (IRS) assigns to a business for tax purposes. It is necessary for corporations, multi-member LLCs, and partnerships, as well as sole proprietorships and single-member LLCs with employees. You can apply for an EIN at no cost through the IRS website. The application process is straightforward and usually takes only a few minutes.

Business name registration: Sole proprietors and general partnerships in Tennessee wanting to operate a business with a business name that is different from the owner(s) first and last name will need to register for an Assumed Name, sometimes known as a DBA or Doing Business As with Register of Deeds office in the county where the business operates.

Sales tax permit: Businesses selling products and certain services will need to register for a Sales Tax Permit with the Tennessee Department of Revenue.

Professional licensing: Some occupations, such as appraisers, home inspectors, barbers, and scrap metal companies, require licensing in Tennessee. This isn’t a business license; however, it is a license to provide a licensed service in the state.

Step 6: Open a Business Bank Account

Next, you will want to open a business bank account under the business name. While a sole proprietor or partnership could open a personal account under the name of the owner, mixing personal and business finances can lead to a host of problems.

For business entities such as LLCs and corporations, maintaining separate business and personal finances is necessary to preserve the limited liability protection they provide. Mixing personal and business funds is called “comingling of funds” and could lead to “piercing the corporate veil,” putting your personal assets at risk in case of legal disputes or business debts.

Separating business and personal funds simplifies bookkeeping and helps maintain accurate financial records. This clear distinction makes it easier to track expenses, manage cash flow, and assess your business’s financial health.

Step 7: Hire Employees

So far, you have navigated forming a business structure, getting registered, and financing, which brings us to the next step for many small businesses, which is preparing to hire an employee.

Hiring employees is a complex process for a new business owner to navigate as there are a number of responsibilities and agencies to register with, such as the Tennessee Department of Labor & Workforce Development, Tennessee Department of Human Services, and others.

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

As a small business owner, protecting your business from unforeseen events is commonly the next step in starting a business. Having insurance for your small business is important for several reasons, including:

Protection from potential claims or lawsuits: Accidents happen, and if someone is injured on your property or using your product or service, it could result in a lawsuit. Insurance coverage can help protect your business from any legal claims and cover the cost of your legal defense should you need it.

Mitigating business risks: Small businesses face a wide range of risks, including theft, property damage, and equipment breakdown. With insurance coverage, you can protect your business from unexpected losses that would otherwise be financially devastating.

Meeting legal requirements: Depending on your business, certain types of insurance may be required by law. For example, workers’ compensation insurance is mandatory in Tennessee for businesses that have five or more employees, and failure to comply can result in significant penalties.

Step 9: Track Income and Expenses

Bookkeeping is the backbone of every business, big or small. By properly tracking your income and expenses, a small business owner can not only stay compliant with tax reporting and requirements, but keep their finger on the pulse of the business’s finances.

This material is property of StartingYourBusiness.com

Common questions when starting a business in Tennessee

What are the steps to starting an LLC in Tennessee?

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

1. Making sure the LLC name is available
2. Appointing a Tennessee Registered Agent
3. Filing the Articles of Organization

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

The state fee for filing the Articles of Organization with the Tennessee Secretary of State and forming an LLC will cost at least $300 minimum.

Does a sole proprietor need a Tennessee business license?

The requirements for a business license are the same, regardless of the business structure. The need for a business license (or other business registration) depends on where the business is located and what the business does.

Tennessee Small Business Resources

There are 664,681 small businesses in Tennessee, which is 99.5% of all businesses in the state,¹ and 41.9% of Tennessee employees work for small businesses.² Because of the economic impact of small businesses, the state of Tennessee has invested in several small business programs to help Tennessee businesses start and grow. Some of these resources include:

Business Enterprise Resource Office (BERO): Situated within the Tennessee Department of Economic and Community Development (TNECD), BERO is a champion and voice for economic inclusion, specifically for disadvantaged businesses. They offer advocacy and support to help these businesses.
Launch Tennessee: This private and public organization fosters the Tennessee startup ecosystem through various means, including capital, connections, and commercialization.
SCORE Tennessee: SCORE provides a wide range of services to established and budding business owners.
Tennessee Small Business Development Center: This network of centers provides business consulting, training, and other resources to help businesses of any size start or grow their operations.