How to Start a Business in Tennessee in 2022: The Ultimate Guide, Step-by-Step

Tennessee is a go-to place for entrepreneurs. With no personal income tax, adequate business assistantship, training, and funding, the state’s dream to have established and growing industries are fast becoming a reality.

According to Launch Tennessee, it aims to make the state the No. 1 place in the Southeast to start and grow a business.

The first step to starting a business in Tennessee is having a good business idea.

Whether you have a business idea already or not, check out the step-by-step guide on how to start, grow and run a business in Tennessee.

We have also provided the cost of starting a business and some startup examples to look out for in Tennessee.

Why Start A Business in Tennessee?

This is a question in the heart of many entrepreneurs. We have quite a number of responses.

The regulatory and tax environment in Tennessee attracts and promotes small businesses.

When compared to other US states, tax and regulatory burdens are low.

There is no salary/personal income tax for sole proprietors and other entrepreneurs in Tennessee. Businesses only have to pay state and city business income tax.

Again, the government has provided may free and cheap assistance and training programs for startup entrepreneurs. Their programs guide business owners through every business development cycle.

Lastly, the poverty rate in Tennessee is 13.9% as of the last census. This shows that the majority of the populace can afford basic needs thereby have the purchasing power to patronize a business startup.

Read this: Why Every Business needs a Tax Attorney in 2022 | A Must Read

What is the Cost of starting a Business in Tennessee?

To form a Tennessee LLC, file the Articles of Organization. The cost of filing this form is $50 per member with a minimum fee of $300 and a maximum fee of $3,000.

For a corporation, the article of incorporation costs $20 with a minimum of $100 to file. The sole proprietor and general partnership are exempt from this fee.

Although Tennessee doesn’t assess a personal income tax, both LLCs and corporations are subject to an excise and franchise tax. The excise tax is the higher amount between 6.5% of the total net earnings or $0.25 per $100 of the company’s fixed asset/equity

Whereas the franchise tax is based on total net worth or the value of real personal property owned/used in Tennessee, whichever is greater.

Tennessee also has a fairly high sales tax that averages at 9.47%.

Examples of Startups in Tennessee

There are some Tennessee startups that have made waves you should look out for include Chatanooga, FreightWaves, and Revolution.

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How to Start a Business in Tennessee?

We will go straight to describe the step-by-step guide on how to start and run a business in Tennessee.

#1 Decide on the Business Idea

This is the most difficult part of starting a business anywhere, Tennessee inclusive.

When deciding on the business idea to execute, you have to juxtapose interests, skills, and the needs of your community. Although a passion for the chosen idea will determine its continuity, passion without sales will end in frustration.

Carefully decide the business idea to run with based on patronage and passion. This entails conducting thorough market research to understand your strengths and weakness in that industry.

There are basically four business types that can be formed in Tennessee namely:

  • Sole proprietorship
  • Partnership
  • Limited liability company (LLC), and
  • Corporation

There are also special structures lie limited partnerships, sole corporations and DBAs.

Decide on the type of business you wish to form in Tennessee, and choose a business name.

During the business naming, LLCs and corporations should consult with the Tennessee Secretary of State to check if the business name already exists.

Sole proprietorships and partnerships are required to use their names or those of their partners. Tennessee does not require you to register a fictitious business name.

#3 Write a Business Plan

The key ingredient in every business is a plan.

According to the government of Tennessee, a basic business plan should contain the following headings:

  • Executive summary: It is the summary of your business plan that should contain your selling point, followed by financial projections and funding options.
  • Introduction: This includes details of your new business like a description of company operations, primary market, goals, structure, location, etc.
  • Marketing plan: Here you’ll include a market analysis, identify competitors, your target market, and a marketing plan. It also details s the how, when, and where of your advertisements.
  • Management team: This section should include the name, physical and email addresses, phone number, and relevant work or industry experience for each member.
  • Financial projections: These contain documents that support loan requests and indicates the financial position of the company.
  • Personal Financials: If you’re going to use the business plan to support a loan request, include personal financial statements for every owner no matter how small the percentage of ownership.

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#4 Register Business in Tennessee

After writing the business plan, the next move is to register the business in Tennessee.

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If you’re a sole proprietor or general partnership in Tennessee doing business under your real name, there is no need to file for registration. But, if the name is fictitious, register an assumed name, also called DBA.

LLCs and corporations will file Articles of Organization and Charter for Profit Corporation ( articles of Incorporation) respectively. Remember to submit and appoint a registered agent who will represent your company for official duties with the secretary of state.

#5 Apply for Licenses and Permits

Businesses in Tennessee have to pay for some licenses and permits.

a. Tax Registration

The sales tax is for businesses in Tennessee that are or will sell goods. Therefore, register for the sales tax as well as the Use tax.

The use tax is the counter of sales tax. It is a tax on a purchasing price. All Tennessee businesses must pay the use tax if the sales tax wasn’t collected.

b. Employer Identification Number

A business owner in Tennessee obtains a federal employer identification number from the IRS if you have employees or you’re taxed separately.

c. Additional Permits

These licenses and permits are given by different agencies depending on the business you’re into.

For instance, you obtain a permit from the Alcoholic Beverage Commission to sell liquor, Agriculture plants service for agricultural produce, etc.

#6 Check for Zoning Regulations

Different locations have regulations as regards the business activities that can be located in them.

Verify the spot of your business, calculate the cost of running the business and be sure to rent/lease a favorable location.

#7 Report Taxes

Tennessee does not have a personal income tax, therefore, many business owners do not owe state business income tax.

Generally, every business that conducts business in Tennessee should register and remit business tax. This comes in two forms: state business tax and city business tax.

All businesses that sell goods or services must pay the state business tax.  This includes businesses with a physical location in the state as well as out-of-state businesses performing certain activities in the state. 

Out-of-state businesses must pay the state business tax if they:

  • Sell a service that is delivered to a location in Tennessee
  • Lease items in Tennessee
  • Sell items that are shipped or delivered to a location in Tennessee, or
  • Make sales as a natural gas marketer to customers located in Tennessee

In addition, there is also the city business tax as well. Click here for a comprehensive list.

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#8 Obtain Insurance

It is necessary that every business obtains an insurance cover that protects him from an unforeseen disaster.

Check with the insurance agent to obtain the plan that best suits your business type.

#9 Open a Bank Account

No matter the type of business you wish to form in Tennessee, consider opening a separate business account for accountability. You can easily track the business income and expenses and have a good financial record.

#10 Find Funding

If you desire to obtain funding, the government of Tennessee has written some channels you can fund through. They include:

  • Family, friends, and colleagues
  • Credit cards
  • Commercial credits
  • Federal government loan programs
  • State government loan programs
  • Non-traditional financing like Certified Development Financial Institutions
  • Incite co-investment fund
  • Equity financing

#11 Business Assistance and Training

There are many avenues to find training and assistance for each stage of your business cycle.

The Tennessee small business development centers offers assistance to help business owners grow and develop a successful busuiness with little or no cost.

SCORE, BERO (Business Enterprose Resource Office), Business incubators and accelerators, SBA learning center are other platforms for training and assistance.

#12 Sart Up structures

By setting up structures we mean an accounting system, branding and social media accounts.

Setting up an accounting system for your business is one of the most important things you can do for your company to ensure long-term success.

You may ditch employing an accountant for accounting software. This will save you some accounting headache.

Similarly, branding your new business in Tennessee makes it visible to prospective clients since many customers search online before deciding to patronize a business.

Lastly, have a strong social media presence.

Conclusion

Starting a business in Tennessee is quite easy because the government has provided many assistance and training to guide you through any business cycle stage.

They’ve provided resources ranging from startup assistance, licensing requirements, business relocation, identifying capital, government procurement, exporting, agriculture, and business expansion, among others.

Just go ahead and start your business in Tennessee, all you need is available!

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