Are you thinking about starting a business in Virginia but not sure of where to start? Lucky for you, you’re in the right place! Our guide is here to lay out the steps to help clear up any confusion so you can confidently start your business journey!
Steps To Start A Business In Virginia
Step 1: Choose a Business Idea
When selecting a business idea, it’s not only important to think about making money, though making money is nice. It is also important to consider your skills and resources, along with whether you have the necessary experience and knowledge to operate a successful business. Aligning your business idea with your strengths and passions will often make the entrepreneurial journey more fulfilling and increase your chances of success.
To learn more about the different types of businesses, check out our business library for detailed industry information, trends, costs to start, tips, and more.
Step 2: Write a Business Plan
Starting a business without a plan is like going on a trip without a map. You will eventually reach your destination, but it’s likely to take longer, cost more money and effort, and leave room for missteps along the way.
Writing a business plan, while not required, is useful because it clarifies the many aspects that come with starting a business, from registration and funding to marketing, and more. It also helps entrepreneurs identify weaknesses and uncertainties on paper to address them before they develop into bigger problems.
While statistics vary slightly depending on sources, studies indicate that creating a formal written plan significantly increases the odds of success compared to those who don’t bother to put pen to paper.
Related: How to write a business plan
Step 3: Find the Money
As we get through the steps of setting up a business, we now take a look at getting the money needed to launch. This is an area where many people get stuck, but there are a number of sources, each with its pros and cons, and the best choice will depend on your specific business needs, the amount being requested, your financial situation, and your goals. Here are some funding options to consider:
Personal funds: If the startup costs are low enough, many entrepreneurs choose to self-fund by using their personal savings, retirement funds, or tapping into home equity. This option allows you to maintain control of your business but could put your personal finances at risk. It’s crucial to weigh the potential risks, as not having enough of a cash cushion is risky should it take longer to generate a profit than expected.
Conventional bank loans: Traditional banks and credit unions provide small business loans to borrowers with a solid credit history, collateral, and a strong business plan. These loans usually have competitive interest rates and terms but can be challenging to qualify for, especially for borrowers without a positive credit history.
SBA loan guarantees: The U.S. Small Business Administration (SBA) offers loan guarantee programs to help small businesses secure funding from participating lenders. The most popular program is the 7(a) loan program, which guarantees up to 85% of loans up to $150,000 and 75% of loans over $150,000. These loans can be used for working capital, equipment purchases, real estate, and more. Keep in mind that you’ll still need to meet the lender’s requirements to qualify.
Microloan programs: Microloans are smaller loans, usually up to $50,000, though some go higher, and are designed to help businesses with limited credit history or collateral. These loans can be obtained through local nonprofit organizations and community development financial institutions (CDFIs), such as the Virginia Small Business Financing Authority, Bridging Virginia, and the Community Investment Collaborative.
Microloans typically have higher interest rates compared to conventional loans but offer more flexibility, are easier to qualify for, and often have business advising resources.
Investors: Raising capital from investors is another option for startups. This can be done through equity financing, where you sell shares of your company to investors. Some common types of investors include angel investors, venture capitalists, and crowdfunding platforms. Seeking investments can be time-consuming, and you’ll likely need to give up some ownership and control of your business.
Some investor programs operating in Virginia include the Virginia Active Angel Network and 757 Angels.
Step 4: Select a Business Structure
With the idea solidified and a plan in place, the next step to starting a business in Virginia is selecting a business structure.
A business structure (which is also called a business entity) is a legal structure that defines how a company operates, its ownership, taxation, and liability. Selecting the right structure impacts the way your business is taxed, the owner’s personal liability, and the ability to raise capital.
In Virginia, there are four common types of business entities: sole proprietorship, general partnership, corporation, and Limited Liability Company (LLC). Let’s examine their unique characteristics, along with their pros and cons.
Sole proprietorship: This is the simplest business structure, where the owner and the business are considered a single legal entity. It’s easy to establish and requires minimal paperwork.
- Pros: Easy to set up, low start-up costs, and complete control over the business.
- Cons: Unlimited personal liability for the small business owner, difficulty raising capital, and higher self-employment taxes.
General partnership: A partnership is formed when two or more individuals agree to share the ownership, management, and profits of a business. Each partner is personally responsible for the company’s debts and obligations.
- Pros: Easy to set up, shared responsibilities, and pooled resources.
- Cons: Unlimited personal liability for all partners, potential disagreements, and difficulty raising capital.
Corporation: A corporation is a separate legal entity from its owners (shareholders) that is registered through the Virginia State Corporations Commission. It provides limited liability protection and can also issue shares of stock to raise capital. There are two types of corporations: C Corporations and S Corporations, each with different tax implications.
- Pros: Limited liability protection, additional access to capital, and increased credibility.
- Cons: More complex and costly to set up, double taxation for C Corporations, and increased regulatory requirements.
Related: How to form a Virginia corporation
Limited Liability Company (LLC): An LLC is a hybrid business structure that combines the limited liability protection of a corporation with the tax benefits and flexibility of a sole proprietorship and partnership. Owners, referred to as members, are not personally liable for the company’s debts or liabilities.
- Pros: Limited liability protection, pass-through taxation, and flexibility in management.
- Cons: More complex and costly to set up than sole proprietorship or partnership, and potential challenges when raising capital.
Related: How to form a Virginia LLC
Understanding the unique characteristics of each business entity is essential for making an informed decision when starting your new business in Virginia.
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
Starting a business in Virginia requires registering with the state and obtaining the necessary licenses and permits. Depending on the type of business, you may need to register with multiple agencies. Some common registrations include:
Business licenses: The state of Virginia doesn’t have a general business license; however, many cities in Virginia have their own licensing requirements that must be met before operating a business within their jurisdiction.
Employer Identification Number (EIN): An Employer Identification Number (EIN) is used for many types of businesses for identification purposes, similar to how Social Security Numbers (SSNs) would be used for individuals. Most businesses, including partnerships, corporations and multi-member LLCs, or any entity with employees, are required to obtain an EIN. You can apply for an EIN online for free with the Internal Revenue Service (IRS).
Business name registration: Sole proprietors and general partnerships in Virginia that operate under a fictitious business name or DBA (Doing Business As) will need to file a Fictitious Trade Name, sometimes known as a DBA (Doing Business As), with the office of the Clerk of the Circuit Court in each county or city where business is to be conducted.
Sales tax certificate: The most common license is a sales tax certificate, also known as a seller’s permit. The Virginia Department of Taxation requires this for businesses that sell goods or services in Virginia and collect sales tax from customers.
Professional licensing: Some occupations, such as home inspectors, landscapers, nail technicians, and tattooists, require licensing through the Virginia Department of Professional and Occupational Regulation. While this isn’t a license on the business, licensing is required in order to operate.
Zoning: Before starting to operate a business (even if it’s home-based), be sure to check local zoning regulations before starting to operate out of a location.
Step 6: Open a Business Bank Account
After getting the business structure set up and the business registered, it’s recommended to open a business bank account next. While it’s not required for sole proprietors or partnerships, having separate personal and business accounts is recommended because it simplifies bookkeeping and makes monitoring your business’s financial health easier.
Step 7: Hire Employees
Hiring employees is a complex and often overwhelming process as, in addition to finding the right employees, there are labor laws to follow and multiple agencies to register with, such as the Internal Revenue Service, Virginia Employment Commission, and Virginia Department of Taxation.
Employers are also 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
Business insurance is never at the top of anyone’s list of things they want to do when starting their business; however, insurance provides a safety net that can help your business recover from unforeseen events such as accidents, lawsuits, and natural disasters.
Each business has different needs, but several types of insurance policies are commonly recommended. These include general liability insurance, workers’ compensation insurance (required by the state for businesses with two or more employees), professional liability/errors & omissions (E&O) insurance, business owner’s policy (BOP) insurance, and commercial property insurance.
Even if insurance isn’t required, and there is a fire, theft, or personal injury lawsuit, the business owner may have to pay out-of-pocket damages and legal fees. Home-based businesses and side businesses may want to consider business insurance, too, as personal home and vehicle policies may not cover a business-related loss.
Step 9: Keep Track of Income and Expenses
Properly tracking the income and expenses of a business is an important step, as it provides an accurate record of financial transactions and helps ensure that the business complies with tax regulations.
To maintain and organize your financial records efficiently, it’s crucial to keep track of various types of records, including:
- Sales receipts: Keep records of all sales transactions, including invoices, cash register tapes, and credit card transaction slips.
- Accounts payable: Maintain a record of all bills and expenses you need to pay, such as rent, utilities, and supplier invoices.
- Accounts receivable: Keep track of all amounts owed to your business by customers for goods and services provided.
- Payroll records: Record all payroll-related expenses, including employee wages, taxes, and benefits.
- Bank statements: Regularly reconcile your bank statements with your bookkeeping records to ensure accuracy and identify any discrepancies.
- Tax records: Store all tax-related documents, including tax returns, W-9 forms, and 1099 forms, for the required retention period.
Related: Setting up accounting for a business
This material is property of StartingYourBusiness.com
Common questions when starting a business in Virginia
What are the steps to starting an LLC in Virginia?
How much does it cost to start an LLC in Virginia?
The Virginia State Corporation Commission filing fee to start an LLC in Virginia is $100.
How do I purchase inventory without paying sales tax?
To buy inventory for your business in Virginia without paying sales tax, you need to apply for a Sales Tax Certificate of Exemption from the Virginia Department of Taxation. This certificate, sometimes called a Resale Certificate in other states, allows your business to make tax-free purchases of items and services that you plan to resell.
Before you can get this exemption, you will need to register for the Sales Tax Certificate from the Virginia Department of Taxation. The Sales Tax Certificate is sometimes referred to as a seller’s permit, sales tax number, or sales tax license.
Virginia Small Business Resources
There are 818,450 small businesses in Virginia, which is 99.5% of all businesses in the state,1 and 45.4% of Virginia employees work for small businesses.2 Because of the economic impact of small businesses, the state of Virginia has invested in a number of business resources to help Virginia businesses start and grow. Some of these resources include:
- Startup Virginia: This organization is a hub for new businesses in Virginia, offering various incubation and educational programs for startups.
- Veteran Business Outreach Center: A dedicated resource for veteran business owners, providing specialized support and guidance.
- Virginia Small Business Development Center: The SBDC offers business consultation and a variety of services and training tailored to assist entrepreneurs in the state.
- Women’s Business Center: A resource dedicated to supporting women entrepreneurs.