How to start a business in Alabama
In this guide, we present Alabama as a potential location for starting a small business.
If you’ve already chosen Alabama as your business location, this guide will inform you about what it takes to register your business and legalize it.
If you still haven’t decided on your business location, we may help you make Alabama your choice.
So, read on, and you’ll learn how to start your Alabama business in 16 steps.
Among other things, this guide explains how to:
- Develop your business idea,
- Name your business,
- Register your business,
- Open your business bank account,
- Obtain necessary licenses and permits, and so much more.
We will also provide answers to some frequently asked questions regarding Alabama businesses.
In addition, we will give you some tips on how to make the most of your Alabama business.
And finally, we’ve included links to important Alabama government websites that you should refer to for obtaining the necessary business documentation.
Is Alabama a good state to start a business? Key takeaways
For several reasons, Alabama is one of the best American states for starting a business:
- The cost of living index in the US for 2023 shows that Alabama is one of the least expensive states to live in.
- Its cost of living index of 87.9 is the 3rd lowest in the country. (The same source mentions Hawaii as the state with the highest cost of living index — 193.3, if you’re looking to compare).
- Its housing cost is the second lowest in the US, as the average cost of a house for a family is $170,184. (Hawaii is the state with the highest housing cost — $730,511).
- The health and transportation costs in Alabama are among the lowest when compared to other states.
The table below offers additional information about Alabama’s cost of living, measured against the average score of 100.0 — information that will likely help you decide whether you want to start a business in Alabama.
|Alabama’s cost of living score and USA ranking*|
|Cost of living index||87.9||3rd|
|*Scores above 100.0 indicate cost above the average|
When it comes to taxes, according to the Tax Foundation’s 2023 State Business Tax Climate Index, Alabama’s tax system ranks 41st, with a score of 4.56 — making it the 10th lowest (i.e. worst) ranking state, in terms of taxes. For comparison, the best-ranked state on this list is Wyoming, with an overall score of 7.77.
In the table below, you can find information about all the taxes that citizens of Alabama have to pay, measured against a maximum score of 10.0 — the lower the score, the higher the taxes, the worse the ranking.
Also, you can see how Alabama ranks for each tax type, individually, compared to other states.
|Alabama’s tax score and USA ranking|
|Unemployment insurance taxes||5.15||19th|
In a study comparing the tax-friendliness of the US states, MoneyGeek estimated the state taxes paid by a married couple with a median national income of $82,852, one child, and a $349,400 home.
They ranked Alabama as the 16th tax-friendliest state, giving it a B on the scale from A (the friendliest states) to E (the least friendly states).
How to start a business in Alabama in 16 steps
If you are thinking about starting a business in Alabama, there are a number of points to consider.
To make this process less stressful and time-consuming, we’ve created a guide to help you deal with all the red tape.
Step #1: Develop your business idea in detail
The first step toward starting your Alabama business should be a good business idea.
When deciding on the type of business to start, here are some questions you need to consider:
- Will your business deal with products, services, or both?
- Will your customers be other businesses (B2B) or consumers (B2C)?
- Will your business operate remotely? Or will you need an office space?
- Will you need employees? If yes, what kind of employees will you need?
Another thing you should have in mind while developing your business idea is the business climate in Alabama.
Alabama business idea suggestions
Alabama is well-known for its steel industry and coal mining. In 2016, The Alabama metals industry exported $1.5 billion worth of primary metal.
Due to the fact that metals are among the major products in Alabama, starting a welding business could be an idea to think about.
Nowadays, Alabama is home to many types of businesses in various industries, such as tourism and the chemical industry. It enables you to start a profitable business without investing enormous sums of money.
For instance, you can consider the following low-cost suggestions:
- Adventure tourism — Alabama abounds in natural beauty, so this type of business could be a real success.
- Catering — food business can be a profitable option anywhere, and it doesn’t require a lot of investment. Moreover, the Alabama Cottage Food Law allows you to prepare certain types of food at home, which is your chance to earn money at minimal expense.
- Cleaning — just like catering, the cleaning business is easy to start, and this service is in demand everywhere.
- Lawn care — between 2017 and 2022, the US landscaping service market size growth was 5.3 percent. This means that the lawn care business is quite popular in the US, making it a great opportunity for those who are considering opening a small business.
- Graphic design — with the rise of digital media, graphic design has become a popular business option. The profession of a graphic designer has been ranked 8th on the list of Best Creative and Media Jobs in the US.
So, do some research on profitable options for small businesses in Alabama, brainstorm ideas, and make your decision!
Step #2: Research the business value potential of your idea
After coming up with a business idea, you should decide if it is worth investing in.
The first step here is to consider the market and provide answers to these questions:
- Is there a demand for your product/service?
- Do you have competitors? How strong are they? What makes them strong (or weak)?
- What is it that makes your product/service stand out from those offered by competitors?
For example, you wish to start a lawn care company in Alabama.
For such a business, your target market will be companies and houses with gardens and lawns.
But, keep in mind the demand for that service.
For instance, if there aren’t many houses with lawns in the vicinity, chances are that the existing companies that provide the same service meet the needs of all the clients.
Hence, there may not be room for you on the market.
Alternatively, if you decide to pursue the idea, you will have to work hard and offer some unique benefits to take over a portion of their customers.
Step #3: Choose your legal business entity
When deciding what type of business to start in Alabama, you should consider your personal goals and needs. You can also consult with an attorney to help you with legal matters.
Depending on the personal liability protection — i.e. the protection of your property — there are several forms of business entities that you can choose from:
- Sole proprietorship,
- Limited liability company (LLC), and
Here is a brief description of each of them:
Entity type #1: Sole proprietorship
This is the simplest way to run your Alabama business.
The sole proprietorship type of business is owned by a single person — and all the profit goes to the owner.
Also, spouses that form a joint venture are treated as sole proprietors for federal tax purposes.
In addition, the accompanying paperwork is minimal compared to other types of businesses. So, if you are not planning on hiring any workers, this business entity may be the right one for you.
Also, in Alabama, you don’t have to register a sole proprietorship with the Alabama Secretary of State.
If you decide to run your sole proprietorship in Alabama under a name that’s not your own, you will have to register a DBA (“Doing Business As”). This is known as a trade name.
However, bear in mind that your personal assets are not protected. The owner is personally liable for any debts that the business incurs and is held responsible if sued by a client.
Entity type #2: Partnership
This business entity is similar to a sole proprietorship, except that it includes 2 or more owners.
Although the paperwork for opening this type of business is minimal, the partners do not enjoy personal liability protection.
Also, you will have to file a DBA if you want to run a business under a name that’s not your or your partner’s legal name.
There are several types of partnerships. Besides general partnership, which is the most common option, there are also the following types:
- Limited partnership,
- Limited liability partnership, and
- Limited liability limited partnership.
However, these 3 are specialized forms of partnership that are not as common in Alabama.
Entity type #3: Corporation
This type of business is owned by shareholders, and it offers a chance to raise capital through stocks.
Its owners enjoy complete liability protection.
There are two forms of corporations:
- C corporations — i.e. standard forms of corporations, and
- S corporations — i.e. forms of corporations that offer some tax advantages but are more limited regarding the shares that they can issue.
Although corporations are attractive to investors because they strictly follow certain formal regulations, they are pretty complex to start and run.
The domestic business filing in Alabama for those who decide to start a corporation in this state requires paying a fee of $200.
If you own a foreign corporation and you want to do business in Alabama, you can register your business with the Alabama Secretary of State.
Prior to that, you have to obtain a certificate of authority. This certificate is a document issued by a state that authorizes a foreign business entity to do business in that state.
Entity type #4: Limited liability company (LLC)
This entity combines some characteristics of both sole proprietorships and corporations:
- It’s relatively easy to form, like sole proprietorships, and
- It offers liability protection that is typical of a corporation.
Small business owners in Alabama often decide to start this type of business, as there is not much paperwork needed.
The LLC filing fee in Alabama is $200 for domestic LLCs and $150 for foreign LLCs.
Entity type #5: Nonprofit
This type of business is created to promote a social cause and is funded by donations.
In Alabama, some nonprofits do not pay taxes, and they are given certain benefits regarding their foundation.
Step #4: Name your business
Once you know what type of business you want to start, it’s the right time to name it.
You should try to come up with a name that possesses these characteristics:
- It is unique and resonates with your target customers.
- It is easy to pronounce and memorize.
- It is representative of your product/service.
However, bear in mind that the state of Alabama mandates certain business naming rules that your company name has to comply with.
One such rule is that a business entity name must not contain phrases that imply that the entity is engaged in a type of business it’s not authorized to pursue.
For instance, your business name must not include the word ‘insurance’ if your business is not an insurance company.
Besides that, you have to choose a name that no other business in Alabama possesses.
Therefore, before taking your pick, check out the Alabama business entity records and see if your desired name has already been taken.
Your business name must contain the words that show its entity type:
- LLCs must contain “Limited Liability Company” or the abbreviation “LLC” or “L.L.C.”, (e.g. Marble, LLC)
- Corporations must contain “Corporation”, “Incorporation”, “Co.”, or “Inc.”, (e.g. Grey Electric, Inc, Velvet Solutions Co.)
- Sole proprietorships must contain the proprietor’s name (e.g. James Marshall Bakery), and
- Partnerships must contain the partners’ surnames, and either “General Partnership” or “Not For Profit General Partnership”, or their abbreviations. (e.g. Smith J. and Miles R. G.P.)
Step #5: Reserve and register the name of your business
Once you’ve chosen a unique name that complies with all the naming rules, it’s time to reserve your business name so that no one takes it before you register it. You can do that by filing a Name Reservation Request Form and sending it either online or by mail to the Alabama Secretary of State.
After doing so, you will obtain a Certificate of Name Reservation, and then you can register your business with the government.
Registering your business means making it a legal entity. This will make it easier for you to receive loans and will give you some tax benefits, among other things.
Bonus step: Consider the URL domain for your business
Another thing you should consider is the URL domain for your business.
After all, to be competitive and easy to discover, you should have a business website.
Even if you don’t plan to have a website right away, it’s a good idea to buy your domain as soon as you start your business. This way, you will secure it for the future — if you wait, another business may acquire it in the meantime.
You can register your domain using some of the providers like Bluehost, Domain.com, Namecheap.com, etc.
However, before you buy your URL domain, check the base of available domain names to see if the domain with your business name is occupied.
Step #6: Make a clear business plan
After securing your business name, it’s time to craft a business plan.
Writing a good business plan is essential to help you attract investors to finance your Alabama business.
Apart from that, a business plan offers an overview of your entire business, so that you know what steps to take in the future.
When writing a business plan, these are the main substeps to take:
Substep #1: Pick an appropriate business plan format
First, you should decide what your business plan will look like.
It will depend on what you need to achieve with the plan.
It can be a simple plan, including only the details the management should know. On the other hand, you can create a plan that contains specific information for your legal business entity type.
Also, business plans may differ depending on the tax status of a business.
There is also an option to use a ready-made template for your plan and customize it, or you can write it from scratch.
Substep #2: Draft an executive summary
This section should contain a brief overview of your Alabama business.
You should try to explain what your business is about and what its goals are.
It should not be longer than one page, and it needs to briefly summarize all the sections that come after it.
Substep #3: Describe your business
It’s best to describe your business idea in detail.
You should use this space to explain the purpose behind your business and mention its potential for solving certain problems.
Here is your chance to expand on the goals and advantages of your business and present it in the best light.
For example, you’ve decided to start a lawn care business in Alabama. In this section, you should talk about various aspects of your business.
You should mention the type of entity that you’ve chosen — a sole proprietorship, a partnership, or some other type of business entity.
In the case of a lawn care business, you may decide to make your business an LLC, as the majority of similar businesses have chosen that legal structure.
Also, you should talk about the equipment you will need to use, the startup expenses for purchasing the equipment, etc.
Substep #4: Describe your products and/or services
This is where you should talk about the products and/or services that you will offer and their usefulness.
Mention your target market and explain how you plan to make the target audience your customers.
In the case of a lawn care business, the services you provide may include lawn mowing, trimming, landscaping, gardening, fertilization, etc.
Your target market will probably be households or companies with lawns and gardens or both.
Substep #5: Make conclusions, based on market analysis
After analyzing your potential marketplace, you should draw some conclusions and present them in this section.
These are some observations regarding your current competitors.
Also, you should include some information about the type of customers you will focus on.
If we stick to the example of a lawn care company, your competitors will be companies offering similar services. Your customers will be, for instance, households and companies that possess a garden or a lawn.
Substep #6: Outline your management and organization structure
In this section, you should describe the organization of your Alabama business.
Explain how it will be structured and what roles it will encompass. Also, mention who will run the business and who will be your potential business associates.
In the case of a lawn care business, you may want to start working alone or hire employees.
Substep #7: Carry out customer segmentation
Customer segmentation is the division of customers into several groups based on common characteristics.
In this section, you should describe your customer groups, paying special attention to the specific needs of every group.
Also, you should mention the ways in which you plan to approach each group.
As we mentioned earlier, the customers for an Alabama lawn care company will be other households or companies.
Also, you can group your future customers according to how often they need your service.
Some of them, like big companies, may want regular service, for example once a week, while others may need your service at a particular time of the year.
Substep #8: Make a marketing plan
This is the point where you should outline your strategic marketing plan for attracting customers.
You should also explain how you will promote your Alabama business on the market.
Additionally, you should mention the sum you are prepared to spend on marketing activities.
For instance, when starting a lawn care business, you may want to conquer the market by offering lower prices than your competitors.
Let’s say that you’ve decided to start your lawn care business in Birmingham. Since the average mowing price in Birmingham is $53.60, you can attract your customers by offering a price lower than this.
Substep #9: Make a logistics and operations plan
This is the place to describe the process through which a product goes from production to delivery.
You should also describe how you will obtain raw materials and store finished products.
This is also the space where you should write about the operations that make up the production process and outline the tasks that it requires.
In our example of a lawn care business, this section should include, among other things, the description of the roles and responsibilities of all the employees.
Additionally, you can describe the procedure for getting in touch with your company and requesting your services.
For example, your clients can visit your website, choose a service, send a request, and pay online. Afterward, they will receive an email or a call from your company to agree on all the necessary details.
Substep #10: Make a financial plan
Finally, you should assess the expenses related to your Alabama business and make a financial forecast.
Explain the financial details — for instance, how you will fund your business and how much revenue you’ll need to generate to profit or at the very least break even.
If you open a lawn care company in Alabama, this plan should include the money for buying equipment, overhead expenses, etc.
The cost of starting a lawn care business is usually between $5,000 and $8,000. Assess your needs and see where your costs fall on this spectrum.
Step #7: Secure the necessary funding
Before you start your Alabama business, it is necessary to secure its funding.
The most popular forms of funding in Alabama are the following:
- Friends and family loans,
- Small business grants,
- Small business loans,
- Angel investors, and
- Venture capitalists.
We will describe each of them in brief.
Funding option #1: Bootstrapping
This term refers to the form of financing your business using your own resources.
As soon as your business gains profit, you should reinvest back into the business — to help it grow and develop further.
An advantage of this form of funding is that you are the sole decision maker as there are no other stakeholders.
An example of a successful low-cost restaurant in Birmingham that was opened using bootstrapping shows that this financing method can be highly profitable.
Funding option #2: Friends and family loans
A good way to start your Alabama business is to seek help from your friends and family. This way, the conditions for repayment are usually more favorable than when you take out a bank loan.
However, to avoid misunderstandings that can interfere with your personal relationships, make a clear written agreement regarding repayment terms.
Funding option #3: Small business grants
Small business grants are a form of funding that you don’t have to pay back. To get this type of grant, you need to fill out an application form with a grantor.
You can take a look at the available Alabama Small Business Grants for 2023/2024 and apply for some of them.
Apart from government grants, there are also those that are given by private organizations. However, there are certain requirements about who can apply for these grants, so first, you have to check if you’re eligible to compete.
These are some of the grants to compete for:
- FedEx Small Business Grant Contest,
- Cartier Women’s Initiative,
- The Halstead Grant, etc.
For a full list of such grants, visit the Alabama Small Business Development Network website, or get in touch with them for more information.
Funding option #4: Small business loans
This is the form of funding that a bank or other lending institution provides to small businesses to cover their startup expenses.
In this case, you have to pay back the loan within a particular time frame.
In Alabama, small businesses can get different types of loans, and the most popular ones are:
- Small Business Administration (SBA) loans,
- Business equipment financing,
- Traditional bank loans, etc.
Funding option #5: Angel investors*
These types of investors are individuals willing to help entrepreneurs start their businesses and are among the most popular sources of investment in Alabama.
They provide smaller amounts necessary only to get the business going.
You can search online to discover what angel investors operate in your area and contact them for more information.
Funding option #6: Venture capitalists*
Unlike angel investors, venture capitalists provide funding as long as the business exists.
These are higher sums, and the businesses they fund are usually large and have the potential for fast growth.
*If you are considering angel investors or venture capitalists, check out a list of angel investors and VC groups in Alabama before making your decision.
Step #8: Register your business
After choosing the type of business you want to start, it’s time to register it with the Alabama Secretary of State.
Regardless of the type of business, to register it, you will have to provide some basic information, like:
- The business name — this is the name you want to give your Alabama business. Also, provide a few alternative names, just in case your preferred name turns out to be occupied (despite the efforts you made to research this in one of the previous steps).
- The business details — this refers to some basic information such as:
- The business address,
- The owner’s information, and
- The business purpose.
- Registered agent information — this is the name and address of a person whom the Alabama Secretary of State should contact for any information related to your business. The address must refer to a location in Alabama.
Apart from these basic details, you will need to provide other information for registration that differs a bit depending on the business type.
We will describe in more detail what it takes to register each type of business entity in Alabama.
Registering for sole proprietorship/partnership in Alabama
After securing your business name, go to the Alabama Secretary of State Business Services webpage to register your business.
You have to fill out a form to apply for a Certificate of Existence. To obtain this document, you need to pay a fee of $28 in Alabama.
If you have subscribed to Alabama Interactive (an official government application for providing online services), the fee will be $27.
Registering for LLC in Alabama
Registering an LLC is pretty easy and doesn’t require much paperwork.
You have to submit a Domestic LLC Certificate of Formation to the Alabama Secretary of State, and you can do it either online or by mail.
Apart from that, you should submit your Name Reservation Certificate and a fee of $200.
You can form your Alabama LLC in 6 steps:
- Name your LLC,
- File a Name Reservation,
- Choose a Registered Agent,
- File LLC Formation Documents,
- Create an LLC Operating Agreement, and
- Obtain an EIN (Employer Identification Number).
Registering for corporation in Alabama
Forming a corporation in Alabama is a little more complicated than forming other business structures.
However, if this type of entity suits your needs, you will have many benefits, such as
- Limited liability,
- Easy-to-obtain grants,
- Lower tax rates, etc.
To form a corporation, you have to submit a Certificate of Incorporation to the Alabama Secretary of State, online or by mail. Along with that, you need to submit your Name Reservation Certificate and a $200 fee.
Here is what you need to start your corporation in Alabama:
- Decide on the name for your corporation,
- File a Name Reservation,
- Choose a Registered Agent,
- Choose your corporation’s initial directors, and
- Submit a Certificate of Incorporation.
When you form your corporation, it will automatically be considered a C corporation by the IRS (Internal Revenue Service). For it to be taxed as an S corporation, you need to file Form 2553.
For a C corporation to become an S corporation, it must fulfill these conditions:
- It must be a domestic entity,
- It must have up to 100 shareholders, and
- It must have only one class of stock.
Registering for nonprofit in Alabama
Forming a nonprofit requires more paperwork than other types of businesses. For instance, some of these procedures involve applying for tax exemption and choosing board members.
After finishing with legal documentation, you should submit your Domestic Nonprofit Corporation Certificate of Formation, either online or by mail. With that, you should also file your Name Reservation Certificate and a $200 fee.
You need to take these steps to form your Alabama nonprofit:
- Name your nonprofit,
- Reserve your Alabama nonprofit name,
- Choose a Registered Agent,
- Choose your board members and officers,
- Submit the Certificate of Formation,
- Draft Bylaws and Conflict of Interest Policy,
- Organize an organizational meeting,
- Obtain your EIN,
- Register for a State Tax Account, and
- Apply for tax exemptions (for both federal and state taxes).
Step #9: Obtain federal and state tax IDs
You should visit the Alabama Department of Revenue website to register your business for the purpose of taxation.
Now, depending on your business structure, you may have to pay both federal and state taxes.
Companies in Alabama also have to pay an annual business privilege tax based on the company’s net worth.
In Alabama, the business privilege tax rate ranges from $0.25 to $1.75 for each $1,000 of net worth. The minimum business privilege tax that a company has to pay is $100.
In terms of income taxes, C corporations are recognized as separate entities from their owners.
This means that such companies have to pay a tax on their income, and their owners pay taxes on the profit they gain — i.e. their dividends.
These are known as corporate income taxes.
On the other hand, S corporations, sole proprietorships, partnerships, and LLCs are not required to pay corporate income taxes.
These entities, known as pass-through entities, do not pay a tax on their profit. Instead, all the profit goes to their owners, and they are obliged to pay an individual income tax to the IRS.
Obtaining the necessary ID numbers
Unless your business is a sole proprietorship, you will need to obtain an EIN (Employer Identification Number), also known as a Federal Tax ID.
This number is issued by the IRS, and it is used to identify your business for federal and state tax purposes.
Apart from filing taxes, you can use this number for opening a business bank account and for getting lines of credit.
When you choose your formal business structure, it’s time to apply for your EIN. You can apply for an EIN online on the IRS website, or you can fill out Form SS-4 and send it by mail.
Some businesses in Alabama need to obtain the Alabama State Tax ID number. This refers to any companies that want to hire employees in Alabama or sell taxable goods in this state.
The application procedure is pretty similar to that for the Federal Tax ID, but it will take a bit longer to obtain this number.
You can register and apply online for a tax account number.
Step #10: Open business banking and credit accounts
Although it is not obligatory, it is highly recommended that you open your business bank account to facilitate the process of starting a business in Alabama.
This way, you can separate your private assets from your business financial resources. A business account also makes it easier for you to track your business expenses and file taxes.
To apply for a business bank account in Alabama, you will need an EIN. If you are a sole proprietor and don’t possess this number, you can use your Social Security Number instead.
It is also a good idea to open a credit account for your Alabama business.
A business credit card can help your Alabama business build a credit profile and provide it with various benefits, such as higher credit limits.
Using business banking and credit accounts ensures your private asset protection.
Step #11: Get the necessary licenses and permits
Depending on the type of Alabama business you are starting and its location, you may need several licenses and permits for it to function legally.
These documents are obtained on several levels:
- State, and
- Local level.
However, there are other types of business licenses in Alabama you should consider. We’ll explain them later.
In terms of federal licenses, you can visit the US Small Business Administration (SBA) website to apply for the necessary permits.
For those licenses required by the state of Alabama, visit the Alabama Department of Revenue’s business licensing page and get informed about the licenses you need.
You can get in touch with a local county clerk and find out if you need any additional local licenses.
In Alabama, every city and municipality has its own requirements regarding business licenses.
Thus, if you are planning on operating your business in various cities and/or municipalities, you will have to apply for a business license in each of those places.
Regardless of the industry your Alabama business belongs to, you will have to get a business license, known as the Business Privilege License, from the Alabama Department of Revenue.
On their website, you will find instructions about how to obtain this license from the county/municipality in which your business is located.
If your business deals with selling products, it is subject to the sales tax and needs to have a seller’s permit.
You can obtain the seller’s permit via online registration.
Other licenses you may need
Apart from this, you may also need other licenses, like Municipal Business License, or a Store License.
In addition to the aforementioned licenses, your type of business may require some other specific licenses and permits.
For example, the lawn care business may demand getting a lawn care license and some other landscaping licenses. These licenses may be necessary to confirm that, for instance, a pesticide or fertilizer you use doesn’t damage the environment.
You can check online what permits and licenses you need to get for your specific type of business.
Step #12: Choose an appropriate location for your business
When choosing the place where your business will be situated, you have to account for a number of things:
- How you can find your place among the competition,
- Whether you’ll be able to afford the price of rent for a brick-and-mortar business, and finally,
- Whether your product/service is in demand in that particular area.
Certainly one of the most important business centers in the Southeastern US is Birmingham — one of the largest cities in Alabama.
Birmingham attracts a large number of entrepreneurs, and it’s widely known for its manufacturing and automotive industries. Apart from that, many other industries have developed in Birmingham, such as medical care, communications, banking, etc.
Additionally, Forbes put 3 cities in Alabama on its list of the best small places for business and career — Daphne, Auburn, and Tuscaloosa.
Step #13: Get the insurances you need
You are advised to get your Alabama business insured. This way, you protect it from potential risks and help it grow faster.
Companies with employees are required to have 2 types of insurance in Alabama:
- Workers’ compensation insurance — if you plan to hire employees, this insurance is most likely obligatory for you. In Alabama, all businesses with more than 5 employees are required to purchase this insurance. It covers medical costs in case of injuries and illnesses employees may suffer at work.
- Unemployment insurance — this insurance is mandatory for businesses with employees. It is meant for helping workers who lose their job due to causes beyond their control.
Other forms of insurance are not obligatory but are recommended as an extra layer of protection.
These are the most popular types of insurance in Alabama:
- General liability insurance — this form of insurance is not mandatory in Alabama but is highly recommended to all small businesses. Purchasing a general liability policy protects your business from lawsuits, property damage losses, injuries that people may sustain on your business property, etc.
- Professional liability insurance — this insurance is convenient for those businesses that offer professional advice, such as consulting companies. It protects you from losses that result from property damage, as well as medical expenses, libel, slander, etc. It is also known as Errors and Omissions insurance (E&O).
- Commercial property insurance — this is a recommended form of insurance for businesses that operate inside a building, such as offices, restaurants, shops, etc. It protects their premises and possessions in cases such as a fire, theft, etc.
- Disability insurance — in Alabama, this form of insurance is recommended, but not mandatory. It protects employees against a loss of income in cases they are unable to work due to a disability.
Step #14: Build an internet presence
You should create a brand identity for your Alabama business on the Internet. This way, more people will hear of it, and they’ll be able to get in touch more easily.
There are several ways for you to build an internet presence. Here are some tips.
Substep #1: Open a Google profile for your business
Another good idea is to list your business on Google by setting up a Google business profile.
This way, your potential customers will be able to reach you via Google Maps and check basic info about your business, such as your phone number and address.
You can also attach photos to your profile and let your customers do so as well.
After opening a business profile on Google, your customers will be able to rate your business and help it stand out.
In the case of a lawn care business, a Google account can help you stand out among your competitors. The better the rating of your business, the more people will choose you.
Substep #2: Build a business website
Next, you should create a website for your business using the domain you’ve obtained in one of the previous steps.
Your website will serve both as a source of information for your customers and as an advertisement for your products/services.
For instance, your lawn care business website should contain a list of services that you provide, the price for each, etc. Also, you can include an option for your customers to pay online via your website.
You don’t have to hire specialists such as designers and developers to create a website for you. You can do it yourself using website builders such as GoDaddy, Wix, WordPress, etc.
Substep #3: Create profiles on social media
After opening a Google profile and creating a website, you should consider creating profiles on social media to increase visibility.
This includes the creation of a Facebook page for your company, an Instagram business account, a LinkedIn account, and the like. To keep track of your posts, you may even check out some social media content calendar ideas and plan in advance what you will post and when.
Your business accounts should offer your customers an additional source of information. For instance, if you are in a lawn care business, you can post photos of your work.
Substep #4: Start an advertising campaign
To reach out to a wider audience, a good idea is to start a marketing campaign for your Alabama business.
For example, you can run social media and web ads — i.e. advertise your Alabama business using pay-per-click (PPC) ads. These ads will appear on web pages, social media feeds, and within videos to groups of users based on the criteria of your choice. This way, you can target the audience you want and get to the individuals who are the most likely to become your customers.
Bonus tip: To increase your presence beyond the Internet, turn to TV and radio campaigns — This is a traditional way of advertising that is useful if you have a broad target audience. These types of ads will reach a great number of people as they appear in the middle of a program watched by various audiences. This is also your chance to get to people who are not skilled at using the Internet.
Step #15: Hire employees
Before you begin your search for the right people, you should gather data about the workforce in Alabama.
The latest census results show that 57.4% of the Alabama population is in civilian labor.
The Alabama Department of Labor statistics for December 2022 show that the unemployment rate in Alabama is 2.8% — which is lower than the national average of 3.5%.
Additionally, statistics on the economy in Alabama indicate that about half of Alabama’s workforce is employed in the services sector — more than in any other sector. The manufacturing sector occupies the second place with 8.8% of the state’s workforce.
After glancing at the state of the workforce in “The heart of Dixie”, as Alabama is widely known, it’s time to think about hiring employees.
Unless your business is a sole proprietorship and you are the only employee, make sure to follow all the legal procedures for hiring workers.
Get informed about what taxes you are obliged to pay and set up payroll.
For this purpose, you will need to use your EIN.
Bear in mind that you will also have to report every new employee that you hire to the State of Alabama.
Step #16: Get the necessary business software
Regardless of the type of business you are starting, you’ll have a lot on your plate to take care of.
To get better organized and not let your activities get out of control, you should introduce business management software to your work routine.
Some types of software you may benefit from include:
- Task management software — it helps you create a database where you can enter your tasks and attach related documentation. That way, you can easily access all the data associated with every business deal. For instance, Plaky is a task management tool totally free of charge that makes your projects easy to monitor.
- Team management software — if your team is a large one, it is essential that team members know their responsibilities. To organize the work of your team, a good idea is to turn to team management software that suits your needs. It helps you share important documents and information with your team members and keep everyone updated.
- Sales management software — you should take a look at some popular sales management software options. These tools help you track your daily sales activities, sales pipelines, business deals, etc.
- CRM software — to keep your customers satisfied, you need to constantly work on improving customer relationships. By using a contacts template that a CRM tool offers, all your customer information will be stored in a single place.
Depending on the type of business you opt for, you will also likely need a number of other tools that will assist you with everyday tasks.
By automating day-to-day tasks using project management software for small businesses, you will help your Alabama small business develop faster and save your time.
FAQ about starting a business in Alabama
Now that we’ve covered the essential steps, take a look at some of the most frequent dilemmas that business owners face when starting a business in Alabama.
What is the easiest business to start in Alabama?
The majority of businesses in Alabama are small businesses.
If you’re looking for an opportunity to start a business in Alabama that doesn’t require a lot of time for prior preparation, give these ideas a thought:
Idea #1: Food business
Eating never goes out of fashion! So, if you decide to open a restaurant, a food kiosk, or a catering company, it’s likely that your decision will prove fruitful.
Idea #2: Clothing store
Dressing well is as important as eating well. You can either open a brick-and-mortar store or decide to sell your products online. Whichever option you choose, you can’t go wrong.
Idea #3: Professional services
If you’ve obtained a certificate or a license for a certain skill, it’s time you put it to good use.
You can start an accounting agency, a massage studio, a marketing consultancy agency, etc.
These types of businesses don’t require a lot of investment and the costs of running them are pretty low compared to larger businesses.
What is required to open a business in Alabama?
The requirements for opening a business in Alabama differ depending on the type of business.
Still, some procedures are obligatory for every business.
Every business in Alabama must obtain a particular certificate from the Alabama Secretary of State. For example:
- A sole entrepreneur should file for a Certificate of Existence,
- An LLC needs a Certificate of Formation, while
- A corporation should get a Certificate of Incorporation.
You also need to apply for certain federal and municipal business licenses, depending on the type of business you are starting.
How much is a business license in Alabama?
The cost of a business license, among other things, depends on the type of business you decide to start.
To get a business privilege license you don’t have to pay any taxes, but you may have to pay for obtaining some other state or local licenses.
How much does it cost to register a business in Alabama?
To register your business in Alabama, you need to pay the $100 state filing fee to obtain a general business license.
Depending on the type of business, you may need more than one license, and that will increase your initial business costs.
Expert tip for starting a business in Alabama
Starting a business can be exciting, but at the same time pretty chaotic.
To help you go through it all with as little stress as possible, we reached out to Francis Perdue, the owner of Scooter P Entertainment in Alabama.
As a small business owner herself, she shared some advice on what to pay attention to when starting a small business in Alabama.
She highlights the importance of marketing, so her go-to tip for starting your Alabama business is to pay special attention to how you advertise it:
“As a small business owner in Alabama, one tip from my experience here is do not forget to plan for marketing and public relations for your business. After you have solidified your business with it becoming an entity ( LLC, C-Corp, S-Corp, etc.) make sure you reach out to your demographic of customers for your product or service-based company. Having the plan to contact people outside of your sphere of influence (Your Family, Friends, Church, etc.) is a great start.”
Francis shared some ideas on how to market your Alabama business:
“Utilize the local media, city of commerce for official proclamations and red ribbon cutting, OOH (Out of Home) Marketing, Traditional and Non-Traditional Marketing and new media.”
Alabama business resources for further reading
We’ve compiled a list of the most important websites to take a look at when opening a business in Alabama. They offer all the information you need to make your business a legal entity.
- Alabama Secretary of State — this is the page where you can reserve your business name, register your business, and file for many required documents.
- Alabama Department of Revenue — this is an official website of the Alabama state government where you can register your business for taxes.
- US Small Business Administration — visit this website to find useful information for small businesses and to apply for the necessary federal and state licenses and permits.
- Internal Revenue Service (IRS) — this is an official website of the US government where you can apply for your EIN.
- Atlas Alabama — this website contains various small business resources that will come in handy when starting a small business in Alabama.
Starting a business in Alabama — Conclusion\Disclaimer
We hope that this Alabama guide for starting a business has been useful. Keep in mind that its content is for informative purposes only.
Please note that this guide was written in Q1 2023, and any changes of requirements that occur after this period may not be included in this starting a business in Alabama guide.
We strongly advise you to consult with the appropriate institutions before acting on any legal matters.
You should also be aware that this guide refers to the state of Alabama, so the business requirements in other states may differ.
Plaky is not responsible for any losses or risks incurred, should this guide be used without further guidance from legal, tax, or other advisors.