The state of Utah is ranked third in the nation for ease of conducting business.
In addition, small businesses are booming in the Utah area - specifically Salt Lake City (now known as the new Silicon Valley).
There are plenty of benefits that come with starting a business in Utah, but first, it's critical that you have all the pieces in place prior to starting your business.
We've put together a step-by-step guide on how to start your business in Utah:
Step 1: Determine Your Business Idea
The first step in starting a business is coming up with the right idea.
Finding a "good idea" is not only hard, but it's a really big decision. Once you pick something, you might be stuck with it for a while - so it's important to make sure you do your due diligence.
Here are some important factors to think about when choosing your idea:
Starting a business can be really fun and motivating, but what about once you're months deep into starting and the novelty has worn off?
It's important to pick something that you're passionate about because it will help you stay motivated when times get tough.
Identify your biggest day to day challenge in your life
Solving your own problem is the most common way businesses are born - whether that’s something at work, in your home, or on your computer.
Odds are, if you're experiencing a problem, the rest of the world probably is too!
Write down the criteria for your dream business
When you get to the point of mapping out your business and plan, it's important to identify your requirements for a business.
This could be anything from the number of founders you want, time you will dedicate to the business, capital and investment criteria etc.
To learn more ways (& real world examples) of how to come up with the perfect business idea, check out our full guide here.
Popular Business Ideas for Utah
If you're struggling to come up with a business idea, we went through our database and found the most popular business ideas to start in Utah.
We also link to case studies on how others started these businesses + their estimated revenue amounts:
- Start an online ski shop $35K/mo in revenue
- Start a clothing boutique business: $10K/mo in revenue
- Start an RV rental business: $125K/mo in revenue
Step 2: Create a Plan For Your Business
Prior to making your business official, it's important that you have the basic structure in place for your business. You can also get all the critical pieces figured out by creating a business plan.
Each of these items can be an iterative process, however, you'll want to have the below in mind prior to forming your business:
Naming Your Business
It's important to find a great name for your business so that you can stand out in your space.
Here are some general tips to consider when naming your business:
- Avoid hard to spell names! You want something easy to remember and easy to spell for your customers
- Conduct a search to see if others in the space have the same name
- Try not to pick a name that limits growth opportunities for your business (ie. if you decide to expand into other product lines)
- As soon as you have an idea (or ideas) of a few names that you love, register the domain name(s) as soon as possible!
Validate Your Idea
Before investing months and years into your business idea, it's critical that you first validate the idea, see if people actually want your product, and if they will pay for it.
Here are a few ways you can do this:
- See if people are searching Google for your product
- Talk to potential customers (whether this is friends/family or strangers on the street)
- Build a landing page and start building your email list
Before making your business official, you'll want to have a financial plan (or at least an idea) of what the following will look like:
- How much your business needs to get started
- What do your costs look like + what will you price your product/service?
- What will it take to breakeven + eventually be profitable?
A very critical piece before building your product is to identify your ideal target customer.
What specific need are you solving and who are you solving this for?
It's important to have an idea of the structure and hierarchy of your business. Ask yourself questions like:
- How many founders will the business have and how will ownership be split up?
- How will roles and responsibilities be delegated throughout the team?
- What will the company culture be like? Will the team be remote or working in offices?
- What will payroll, HR and the hiring process look like?
Step 3: Decide on a Legal Structure
There are benefits associated with organizing your business with any of these corporations. Choosing one depends on what is right for you and your operation.
These three options are found to be the most common when starting a small business, and all serve to protect your personal assets and also provide you with certain tax benefits.
- LLC: All income and expenses from the business are reported on the LLC personal income tax return.
- S corp: Owners pay themselves salaries + receive dividends from profits.
- C Corp: C Corps are separately taxable entities that file a corporate tax return (Form 1120). No income tax is paid at the corporate level and any tax due is paid at the owners individual expense.
We also want to outline a few pros and cons of each to support your research:
LLC Pros and Cons
- Easy and quick set up: The application is only a few pages long and there aren't as many rules & regulations as there are in an S-corp
- Tax return benefits: Owner of LLC technically does not have to file a tax return for the LLC specifically (need to declare on personal taxes)
- Economical: Not nearly as expensive as an S Corp. Only costs a couple hundred dollars
- Risk associated with not separating business transactions with personal transactions - otherwise known as piercing the corporate veil.
- Self Employment Tax: Members of the LLC may be responsible for paying self employment tax based on the business net earnings.
S Corp Pros and Cons
- Major benefits when business is profitable: Tax benefits are offered when the business has distributions, and any remaining profits from the company are distributed and taxed at a lower rate.
- Expensive set up: The cost to form the S Corp is much higher than an LLC
- Lengthy and strict application process: you can check out some of the application requirements here.
- Risk associated with not following strict guidelines: Must follow stringent rules at all times.
C Corp Pros and Cons
- Unlimited number of shareholders
- Lower max tax rate
- Ownership Flexibility: Anyone can own shares, including business entities and non- U.S. citizens
- Double Taxation: Tax is paid on its earnings and shareholders pay tax on dividends - so the business earnings are actually paid twice
Source: Mbo Partners
What is the most common and favorable business entity to form in Utah?
For most small businesses in Utah, registering an LLC is the easiest and most affordable option.
Step 4: Form Your Business Entity
To form an LLC in Utah, you will need to file Certificate of Organization and appoint a registered agent in Utah. It is not required by law to create an operating agreement, but it is highly suggested to avoid any risk or legal issues down the road.
Learn more about forming an LLC In Utah here.
To create a corporation in Utah, you are required to file Articles of Incorporation with the DCCC. You will also need to appoint a UT registered agent. It is not required by law to create an operating agreement, but it is highly suggested to avoid any risk or legal issues down the road.
S Corporations must also file IRS Form 2553, Election by a Small Business Corporation, with the IRS.
Learn how to form a corporation in Utah here.
To form a sole proprietorship in Utah, you don’t need to file with the state.
To learn more about forming a sole proprietorship, read this article.
Step 5: Register For Taxes
When registering for taxes in Utah, there are a few different factors to consider:
- Getting An EIN
- Registering for Utah taxes (sales and employer depending on your business)
- Federal taxes and reporting income to the IRS
Obtain an EIN
In the state of Utah, you are required to get an Employer Identification Number (EIN) to hire employees and open a bank account. This is a 9 digit number that is used to identify a business for federal tax filings.
It's very easy (and free) to apply for an EIN. You can apply through the IRS a few different ways:
Apply for an EIN from the IRS online
Apply for an EIN via mail or fax
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Fax: (855) 641-6935
Do I need a social security number to get an EIN?
No, you do not need a social security number to get an EIN. Here are the steps to follow when filling out the form (if you do not have a SSN):
- Fill out IRS Form SS-4
- Leave section 7b blank
- Call the IRS at (267) 941-1099 to complete your application
Why do I need an EIN?
An EIN is essential for your business to operate. Here's what this 9 digit number allows you to do:
- Open a business bank account
- Hire employees
- File and manage Federal and State Taxes
Here is a video that explains everything you need to know about getting an EIN:
How much does it cost to get an EIN?
It is free to get an EIN with the IRS! The process is easy, quick and can be done online or by mail/fax.
Register For Taxes In Utah
Depending on the scope of your business, you may be required to register for the following taxes:
1. Utah Sales Tax
Register for Utah Sales Tax and Seller's Permit
2. Utah Employer Tax
Register for Utah Employer Tax and Unemployment Insurance Tax
Utah Sales Tax
If you are selling a physical product (digital goods/services or traditional goods/services) you will need to register for a Utah seller's permit.
What is a seller permit?
A seller's permit is a certificate that allows a business to collect sales tax on taxable sales.
The application for a seller's permit is FREE and will never expire. You will need the following information to register:
- Date of first sale in Utah
- Personal identification info (SSN, address)
- Business identification info (EIN, address)
- Specifics about the items you plan to sell
Utah Employer Tax
If you have one or more employees in Utah, you are required to register for unemployment insurance tax through the UT Department of Workforce Services.
You are also required to register for Employee Withholding Tax through Utah’s Taxpayer Access Point.
Why do I need to register for unemployment insurance tax?
In order to provide unemployment insurance to those that qualify for benefits, the state is responsible for collecting unemployment tax from employers.
Federal LLC Taxes: Reporting Income to the IRS
There are two different forms for reporting your income to the IRS each year.
- Form 1065 Partnership Return: Typically, Multi-member LLCs use this form
- Form 1040 Schedule C: Typically, single-member LLCs use this form
All businesses are different when it comes to tax structures, so we recommend that you speak with a tax expert to ensure you are complying with all neccessary rules and regulations for your business.
Step 6: Obtain Licenses and Permits
Depending on your industry, there are certain licenses and permits you may need in order to comply with state and federal regulations.
To understand the type of licenses and permits you need for your small business, please refer to the below resources:
- Utah Business Permitting and Licenses
- Contact your local office for business permiting and license requirements
- Federal Business Permitting and Licenses
Step 7: Get Small Business Insurance
There are three main types of business insurance that you may want to consider getting to manage risks for your Utah LLC:
- General Liability Insurance (required in Utah): this insurance protects your business from lawsuits.
- Professional Liability Insurance: covers claims of malpractice and other business errors (typically used for providers such as consultants or accountants.
- Workers Compensation Insurance (required in Utah if you have 1+ employees): provides coverage for employee's job-related illnesses, injuries, or deaths.
How Much Does Business Insurance Cost?
The cost of small business insurance depends on the type of insurance your business needs, but typically ranges between $700 and $3,800 a year.
You can get a free quote for your business insurance here.
Step 8: Open A Business Bank Account
By opening a bank account specifically for your business, you are protecting yourself (and your personal assets) from any potential risk.
Basically, try and avoid mixing your personal and business accounts at all costs.
1. Choose a bank
There are hundreds of banks out there, and it can be overwhelming to find one that's right for your business.
Here are some factors you may want to consider when determining which business bank account you need:
- Location - Is your bank close enough that you can easily make deposits or get cash?
- Low Fees - Make sure to understand any and all fees associated with setting up and maintaining your bank account. Ask for a list - banks usually try to keep this hidden and in the fine print.
- Online Banking Services - Make sure you can easily navigate through your online portal and you have easy access to everything you need.
- Line of Credit - What do your options look like (even if you don't need this now, you may need this down the road).
- Every bank has something that differentiates them from the rest, so make sure whatever that is applied to your needs and values.
Learn more about the 13 Best Banks for Small Business in 2020 and what makes each of them unique.
2. Gather the proper documents
The next step to opening your business bank account is preparing the documents you need to get everything set up.
- Social Security Number or EIN (Employer Identification Number)
- A copy of your LLC’s articles of organization, certificate of formation or an equivalent document
- LLC operating agreement or an equivelent document which states the individuals authorized to sign on behalf of your LLC
3. Open your account & verify all information is correct
For most banks and industries, you have the option to open your account online or in person.
Once your account is set up, verify that deposits are going through properly and funds going in and out are being tracked and accounted for.
Step 9: Get Your Accounting Process In Place
Accounting and reporting are key pieces to measuring your business's financial status and simplifying your tax filings.
It's important to get your accounting process right the first time, or else you may find yourself spending an overwhelming amount of time trying to put the pieces back together.
There are tons of different ways you can find an accountant to set you up for success, for now, and for the long run. Here's a step by step guide on how to find a good accountant for your small business.
Looking for a quality accounting software tool? We discovered the top 3 accounting tools small businesses use every day: