Starting your own business in Washington might seem scary at first, but don’t worry. We’ve got a straightforward guide to turning your dream into a real business.
Steps To Start A Business In Washington
Step 1: Choose a Business Idea
The first step for starting a business in Washington is having a good business idea. Maybe you already have an idea picked out, or maybe you are still deciding on one. To learn more or find inspiration, check out our library of business ideas to get detailed industry information, trends, 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. A business plan should be at the core of any new business because it serves as a roadmap that outlines the company’s objectives and how it plans to achieve its goals.
According to several sources, having a well-thought-out business plan can help increase a business’s success rate. Creating a business plan can be time-consuming, but it is worth the effort in the long run.
Related: How to write a business plan
Step 3: Find the Money
I’m often asked about the various funding options available to new businesses. It’s important to understand that there are many ways to fund a business, and the right option for you will depend on your individual situation.
One of the most common methods of funding a business is using personal funds. This could include using savings, selling personal assets, or tapping into retirement accounts. While this method can be quick and easy, it can also be risky if you don’t have enough money saved up to cover all of your expenses.
Another option is applying for a conventional bank loan. These loans typically require good credit, a personal investment of 15%-25% of startup costs, and collateral, but they can provide larger amounts of capital than other sources. However, interest rates can be high, and repayment terms may not be ideal for some businesses.
The Small Business Administration (SBA) offers loan guarantee programs, such as the 7(a) and 504 loan programs, to help small businesses secure financing from approved lenders. The SBA guarantees a portion of the loan, reducing the risk for lenders. to make it easier for small businesses to obtain financing.
Microloans are small loans designed to help entrepreneurs and small businesses that may not qualify for traditional bank loans. In Washington, organizations like Business Impact NW, Craft3, and Mercy Corps Northwest offer microloan programs. These loans typically have lower borrowing limits and more flexible eligibility criteria but may come with higher interest rates.
Finally, some businesses may choose to seek investors who are willing to provide capital in exchange for equity in the company. This is an attractive option for those who don’t want to, or are unable to, take on debt but still need access to capital. A couple of active investment groups in the state include the Alliance of Angels and New Tech Northwest.
No matter which funding option you choose, it’s important to do your research and understand all of the risks involved before making any decisions.
Step 4: Select a Business Structure
The next step to starting a business in Washington State is selecting a business structure.
A business structure, also called a business entity, is a legal structure under which your business operates. It determines your legal and financial responsibilities, tax liabilities, and the extent of personal asset protection. In Washington, there are four common types of business entities: sole proprietorship, general partnership, corporation, and Limited Liability Company (LLC).
Sole proprietorship: This is the simplest business structure in which the owner and the business are considered one and the same, legally. The advantages of a sole proprietorship include ease of formation, low start-up costs, and direct control over business decisions. However, the major drawback is the lack of personal asset protection, as the owner’s personal assets can be seized to cover business debts.
General partnership: In this business structure, two or more individuals share ownership, management responsibilities, and financial liabilities. Like a sole proprietor, each partner has unlimited personal liability for the business’s debts and obligations. The benefits of a general partnership include shared risk, combined expertise, and minimal start-up costs. However, the partners’ personal assets can be at risk, and without a partnership agreement, disagreements among partners may impact business operations.
Corporation: A corporation is a separate legal entity from its owners (shareholders). It provides limited liability protection, and unlike a sole proprietor or partnership, the shareholders’ personal assets are protected from the business’s debts and obligations. The corporation is taxed separately from its owners and can raise capital by issuing shares. The drawbacks of a corporation include higher start-up costs, more complex regulations, and potential double taxation (taxes on both corporate income and shareholder dividends).
Related: How to form a Washington 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 partnership or sole proprietorship. The owners, referred to as members, are protected from personal liability from the business’s debts and obligations. LLCs can be taxed as a sole proprietorship, partnership, or corporation, depending on the number of members and their preferences. The main advantages of an LLC include personal asset protection, flexible management, and pass-through taxation. However, LLCs may face higher start-up costs and more administrative requirements compared to sole proprietorships and general partnerships (though it is less than the corporation).
Related: How to form a Washington 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
When setting up shop in Washington, there are certain licensing requirements to take cae of before opening. These licenses vary depending on the nature of the business and operations will take place. Some common registrations include:
Business license: The state of Washington’s Business Licensing Service requires a business license for most businesses. Additionally, many cities also require a local business license, as well.
Business name registration: Sole proprietorships and partnerships operating under an assumed name or fictitious business name will need to file for a Trade Name, sometimes known as a DBA (Doing Business As), with the Office of the Secretary of State. In Washington, the right to use a trade name belongs to the one who first uses it in connection with their business.
Washington State Unified Business Identifier (UBI): The Unified Business Identifier is a unique nine-digit number that is different from an EIN to identify a business. This number is assigned when registering with the Washington State Department of Labor and Industries, Secretary of State, Department of Revenue, Employment Security, or when a Business License Application is submitted through the Business Licensing Service (BLS).
Employer Identification Number: An EIN, also known as a Federal Employer Identification Number, FEIN, or Federal Tax ID Number, is issued by the Internal Revenue Service (IRS) to identify a business for tax purposes. Most businesses, except for sole proprietorships without employees, must have an EIN.
Sales Tax Registration Number: Businesses making retail sales and providing certain services will need to register for a Sales Tax Registration Number with the Washington Department of Revenue. Most businesses in the state will also need to pay a Business and Occupation Tax. B&O taxes are calculated according to gross income from business activities.
Professional license: Some occupations, such as appraisers, cosmetologists, home inspectors, limousine services, and tattoo studios, require licensing in Washington. While this isn’t a license on the business, licensing is required to provide these services. Registration details can be found through the Washington State Department of Licensing.
Step 6: Open a Business Bank Account
After registering the business structure and taking care of the business registrations, the next step is to open a dedicated business account. This is important for several reasons:
Simplified financial management: By keeping your personal and business finances separate, you can more easily track your business income and expenses. This simplifies managing your company’s cash flow and monitoring its financial health.
Easier tax reporting: Separating business and personal funds simplifies the process of preparing and filing taxes. Properly documenting your business transactions can help avoid tax issues and penalties.
Personal liability protection: If your business is structured as a Limited Liability Company (LLC) or a corporation, maintaining separate finances is essential to protect your personal assets. Commingling funds can jeopardize the legal separation between you and your business, potentially exposing you to personal liability for business debts and legal issues.
Professional image: Having a dedicated business account and using it for all business transactions helps establish credibility with your customers, vendors, and financial institutions. It demonstrates that your business is organized and legitimate.
Step 7: Hire Employees
Hiring your first employee is an exciting step, but before placing a help wanted ad, there are multiple agencies to register with and labor laws to understand.
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
Starting and running a successful business requires careful attention to many different aspects of its operation, and one of those aspects is obtaining insurance coverage. Insurance can provide financial protection and peace of mind if accidents, natural disasters, or other unforeseen events occur.
There are several types of business insurance policies a small business owner should consider purchasing, depending on their specific needs, a few of which are listed below:
General liability insurance: This policy covers your business from claims arising from bodily injury, property damage, and personal or advertising injury caused by your business operations, products, or services. General liability insurance is needed by most businesses.
Professional liability insurance: Also known as Errors and Omissions (E&O) insurance, this policy protects your business from claims of negligence, misrepresentation, or inadequate services provided by your company. This coverage is especially relevant for businesses that provide professional services, such as consultants, accountants, or lawyers.
Workers’ compensation insurance: Required by law in Washington for businesses with employees, workers’ compensation insurance provides medical and wage benefits to employees who suffer work-related injuries or illnesses. This coverage protects your employees and shields your business from potential lawsuits from injured employees.
Commercial property insurance: This policy covers damage or loss to your business’s physical assets, such as buildings, equipment, inventory, and furniture, due to fire, theft, or natural disasters. Commercial property insurance is essential if you own or lease commercial property or have valuable business assets.
Commercial auto insurance: If your business owns or uses vehicles for work purposes, commercial auto insurance is necessary to cover damage, injuries, or liability resulting from accidents involving those vehicles. This policy is especially important for businesses that rely on transportation or delivery services.
Step 9: Track Income & Expenses
Setting up an accounting system is a foundational step for every business. Careful recordkeeping and financial management is not only for doing taxes, but is also used to provide information that guides decisions and future growth plans.
Whether you utilize basic spreadsheets, accounting software, or hire a CPA, if your financial records aren’t accurate, you might face penalties, fines, or extra attention (that you don’t want) from tax authorities.
Related: Setting up accounting for a business
This material is property of StartingYourBusiness.com
Common questions when starting a business in Washington
What are the steps to starting an LLC in Washington?
How much does it cost to start an LLC in Washington?
The Washington Secretary of State filing fee to start an LLC is $200.
How do businesses in Washington purchase inventory without paying sales tax?
If you’re thinking of selling retail products in Washington, you need to know about two important things: the Sales Tax ID and the Reseller Permit.
Sales Tax Registration Number: The Sales Tax Registration Number from the Washington Department of Revenue is a must-have before you start selling products or certain services in the state. It’s sometimes called a seller’s permit or sales tax license. With this number, you can legally sell items and services, and you need to collect sales tax from your customers on those sales.
Reseller Permit: After getting the Sales Tax Registration Number, you can get a Reseller Permit, also from the Washington State Department of Revenue. It lets you buy goods that you will resell from wholesalers without paying sales tax.
Washington State Small Business Resources
There are 644,868 small businesses in Washington, which is 99.5% of all businesses in the state,,1 and 49% of Washington employees work for small businesses.2 Because of the economic impact of small businesses, the state of Washington has invested in business support programs to help Washington businesses start, grow, and succeed in the state. Some of these resources include:
- StartUp Washington: This state-sponsored organization is dedicated to strengthening Washington’s business community by offering education, tools, and help in accessing funding for your business.
- Washington Secretary of State: If you’re planning to incorporate your business in Washington, the Secretary of State’s Office is where you will register.
- Washington Small Business Development Center: The SBDC is a statewide network that supports entrepreneurs through no-cost consultation and a range of services to help start and grow businesses.
- Washington State Department of Licensing: The Department of Licensing offers a business resource guide to help you understand these obligations.
- Washington State Department of Revenue: The place where businesses will register and pay taxes.