How to start a business in Alabama: a step-by-step guide

With a history of small business opportunities and a diverse community of entrepreneurs, Alabama is one of the most business-friendly states in the country.

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As the birthplace of the civil rights movement, Alabama has a history of opening doors for new business owners. Even today, with over 30% of small businesses in the state owned by women, the people of Alabama continue to make progress and achieve success no matter the hurdles they face.

You can turn a solid business idea into Alabama’s next big success story. All you have to do is follow this guide to start an Alabama business in 12 steps.

How to start a business in Alabama

  1. Create your Alabama business plan
  2. Name your business in Alabama
  3. Check Alabama zoning requirements
  4. Choose an Alabama business entity
  5. Register your business in Alabama
  6. Set up business bank accounts
  7. Get funded
  8. Research Alabama licenses and permits
  9. Purchase Alabama business insurance
  10. Set up business software
  11. Understand your Alabama tax obligations
  12. Grow your team

1. Create your Alabama business plan

Successful Alabama-based businesses start out as well-crafted business plans. Although you may be tempted to skip this step, a business plan will force you to get clear on your business’s startup costs, growth trajectory, and more. A business plan is also a must-have tool when you seek funding or investment.

A detailed business can help you define:

  • Startup costs and ongoing business expenses
  • Short-term and long-term business goals
  • The strengths and weaknesses of your competitors
  • Your target market and ideal customer
  • A first-year marketing plan
  • Business processes and procedures
  • Additional revenue streams
  • Investment and funding opportunities

You can download a handy business plan template from Atlas Alabama, which is a project created by the Alabama Department of Revenue to help small business owners. You can also consult the federal Small Business Administration (SBA) for additional information on business plans.

2. Name your business in Alabama

Like in many states, in Alabama if you are registered as a sole proprietor or general partnership you can use your legal name(s) as your business name. Other business entities, such as LLCs, must name their organizations according to the requirements laid out by the Alabama Secretary of State in the Business Entities guide.

If you would like to operate under a different name than your registered business name, you can file for an Alabama trade name. More information on trade names is available in the Alabama Trademarks guide—where, unfortunately, it has been blended with trademark and service mark info, which are different from trade names. This makes the process a little confusing, so be sure to read everything before applying.

How to name a business in Alabama

  1. Use the Business Entity Records search to determine if your preferred name is available.
  2. If no one else is using it, you can claim it while registering your business.

How to reserve a business name in Alabama

You can reserve a business name in Alabama by submitting a Name Reservation Filing and paying a $25 filing fee to Alabama’s Secretary of State.

3. Check Alabama zoning regulations

Zoning laws keep disruptive or unsightly industries from impacting property values and the quality of life of residents in cities around the state. In Alabama, zoning is handled by individual counties and cities rather than the state government. For example, zoning in Huntsville is administered by the municipal government.

Before registering your business, consult the zoning department that is responsible for your future business address and make sure that you completely understand how zoning could affect your enterprise.

4. Choose an Alabama business entity

In some states, it’s called a business structure, legal structure, or legal entity, but in Alabama, it’s called a business entity. A business entity influences how your service business is formed, taxed, and organized, how big it can grow, and the level of personal asset and liability protection afforded to you (if any).

Hire a CPA, a business lawyer, or a business formation service to help you choose the right business structure type for your business goals and business model.

In Alabama, you can register:

  • Domestic corporations
  • Foreign corporations
  • Limited liability company (LLC)
  • Limited partnerships (LP)
  • Limited liability partnerships (LLP)
  • Limited liability limited partnerships (LLLP)
  • General partnerships
  • Sole proprietorships
  • Professional associations

For more information, check out the Alabama Secretary of State’s Business Entities guide.

5. Register your Alabama business

Registering your business in Alabama varies depending on the business entity that you have chosen. Arranging the proper paperwork, filing formation documents, and understanding every legal document in the business registration process in Alabama is not completely intuitive. It’s best to have a CPA or business formation service handle it all for you.

Expect to complete some or all of these key steps:

  • Elect or hire a registered agent. A registered agent is an individual or corporation with a physical address in Alabama who is responsible for receiving and distributing legal communications on behalf of your business. The Secretary of State conveniently supplies a list of all registered agents in Alabama.
  • File forms. Depending on your chosen business entity, you will need to file several forms online via Secretary of State Online Services.
  • Set up a Federal Employer Identification Number (FEIN or EIN). This is a federal tax registration requirement administered by the IRS. Your EIN allows you to pay taxes, set up business bank accounts, and hire employees.

How much does it cost to register a business in Alabama?

Corporate business registration in Alabama starts at $208 through the state’s online registration system, though there may be other fees associated with setting up your business. For a complete list of business and filing fees, see the Secretary of State Fee Schedule.

6. Set up business bank accounts

Keeping your personal and professional finances separate is essential to staying organized and understanding the flow of funds through your business. A business bank account also provides an extra layer of protection in the case of liabilities incurred by your enterprise. Plus, it makes accounting and tax filing easier.

In order to open a business account, a financial institution will ask you for your EIN, which works like a social security number for your business.

Start by opening a checking account to handle everyday business transactions, and consider opening a savings account so you can set aside profits or save to pay your taxes. It’s also a good idea to get a business credit card that will allow you to build a positive credit rating for your organization.

7. Get funded

If you have access to money that will allow you to start your business, you can skip this section. But if you need to find some financial help to get your business off the ground, there are plenty of sources to consider.

Check out these small business loans and funding options in Alabama:

The Alabama Secretary of State also provides a list of financing sources where you may be able to find funding for your operation. Before looking for funding and reaching out to a lending institution, be sure you have calculated your startup costs while writing your business plan.

8. Research Alabama licenses and permits

You may need to acquire permits and licenses from federal, state, and local governments in order to conduct business in Alabama.

Use these sources to determine your business's licensing requirements:

9. Purchase Alabama business insurance

While your business entity type may provide some personal liability and personal asset protection, if you want to be as safe as possible, you need business insurance. The Secretary of State supplies a list of insurance types that might apply to your business.

In Alabama, most companies will need some or all of these insurance types:

  • Worker’s compensation coverage. Applicable if you intend to hire employees.
  • Property insurance. Applies if you own the building where you operate.
  • Automobile insurance. If you travel in a commercial vehicle for work, you need to be insured correctly.
  • Professional liability insurance. Protect your personal and business assets in the case of a liability resulting from claims of negligence, copyright infringement, personal injury, malpractice, and more.

You can dig deeper into the details of keeping yourself protected in our guide: What type of small business insurance do I need? 

10. Set up business software

Before you’re ready to cut the ribbon on your new business, it’s a good idea to add software to your operation. Software can automate some of your processes, keeping you organized and freeing up more of your time for other things.

Use software to streamline the following tasks:

  • Invoicing. Automate your invoicing and accept credit card payments to save time and make payments easier for your clients.
  • Review management. A great reputation doesn’t just appear—it needs to be built. Durable provides a review management tool to help you source great reviews and deal with customer issues long before they give you a headache.
  • Customer relation management. A customer relationship management (CRM) tool tracks the interactions you have with your clients, allowing you to adjust your service to meet and exceed their expectations. Durable’s CRM automates many of these types of interactions, helps you stay organized, and it’s free.
  • Scheduling. If you will book appointments with clients as part of your business, you’ll soon find out that it is both critical to your operation and prone to human error. Take the guesswork out of scheduling with an automated tool like Calendly or MeetFox.

There are hundreds or even thousands of business tools available today, so don’t hesitate to do some research online to find the ones that fit your specific processes.

11. Understand your Alabama tax obligations

If you’re an accountant, this section should be no problem for you. If not, we recommend hiring a CPA so that you can be absolutely sure you’re paying the right taxes, in the right amounts, at the right times.

Taxes usually have to be paid at federal, state, and local levels, and it can get complicated, so professional help is always a good idea. Knowing how to leverage each available tax exemption and read your business’s financial statements is also highly recommended.

Here are some key business tax obligations in Alabama:

  • Business privilege tax. All businesses in the state must pay this tax to be allowed to operate.
  • Income tax. Alabama levies a 6.5% corporate income tax on businesses separately from the income tax you will pay to the federal government.
  • Sales tax. The state collects a 4% sales tax from many types of transactions.
  • Withholding tax. If you have employees, you will need to withhold income tax from them.
  • Local tax. Some local sales tax is collected on behalf of counties and municipalities by the state, but not in every case, so make sure you check with your local government tax office.
  • Product tax. Some specific products require additional taxes, such as liquor, which is taxed at the state level by the Alabama Alcoholic Beverage Control Board and, in some cases, taxed locally as well.

For a more detailed discussion of tax obligations in Alabama, read the Guide to Business Taxes.

12. Grow your team

As a service business owner, expanding your operation is an essential step. Because hiring employees comes with additional administrative overhead, many owners find it easier to work with independent contractors when they’re just starting out.

If you do decide to hire full- or part-time employees, be sure that your operation is compliant with all relevant state and federal labor laws before you bring anyone onto the team.

Here are some key employer tasks:

  • Obtain an EIN. You must have an EIN from the federal government to hire employees. Fortunately, most businesses apply for an EIN as part of their startup process.
  • Understand your role. Familiarize yourself with the Alabama Department of Labor employers guide.
  • Verify employee eligibility. When you start meeting with potential employees and get close to hiring, you’ll need to verify that candidates are eligible to work in the United States by having them fill out this form.
  • Register with Alabama New Hire. This is a required program run by the Department of Labor.

Ready to start a business in Alabama?

Alabama is one of the most business-friendly states in the nation, with a low cost of doing business and even lower property taxes at just 0.33%. Starting a new service business in Alabama might be your ideal way to build a career without breaking the bank. Just follow the steps in this guide to learn how to start a business in Alabama. And once your business is set up, stick around and give Durable a try.

Durable is a free platform with everything you need to start and grow a service business. Build your business website in minutes, and make invoicing, customer management, and review management a breeze.

Try Durable today—it’s free!

This guide is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult their own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Durable assumes no liability for actions taken in reliance upon the information contained herein.
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