How to Start a Business in Tennessee
If you’re thinking about starting a business in Tennessee, you’ll be joining a vibrant, growing community of fellow small business owners in the Volunteer State. According to data culled by the Tennessee State Government, the small business job growth rate was 13% in 2019, which is among the highest growth rates in the southeast.
Of course, starting a business in Tennessee requires more than planting a great idea in a supportive community (though that certainly helps!). Whether you’re opening a concert venue in Nashville, a coffee shop in Chattanooga, an Elvis museum in Memphis, or virtually anything in between, following these eight steps will start your Tennessee business venture off on the right foot.
How to Start a Business in Tennessee in 8 Steps
1. Write a Business Plan
No matter your industry, writing a business plan will be the first step in launching your business. Broadly, your business plan provides an actionable road map detailing your business’s purpose, ownership and management structure, market research, current finances, financial goals, funding plan, and marketing strategy. Business plans can pretty much get as granular as you want—there’s really no such thing as too detailed a business plan—but at the very least, your plan should aim to address the following:
- What product or service do you provide, and how does it set itself apart from its competitors?
- Who is your target demographic? How can you market to them most effectively?
- What is your pricing structure?
- What’s your hiring plan (if necessary)?
- How much money do you currently have, and how much will you need to launch?
- What are your sources of startup funding?
- How long will it take for you to break even? To make a profit?
We know that writing a business plan can seem like a tall order, especially before you’ve officially launched that business. But your business plan will be a crucial foothold as you navigate the tricky (and, sometimes, surprising) process of opening and managing your venture.
Also, keep in mind that your business plan doesn’t have to be set in stone the moment you write it. In fact, it’s common for business plans to alter as you launch, and as you gain material insight into what running your particular business actually looks like.
There are lots of resources to help you draft your business plan, too. You can start by reading our step-by-step guide on how to write a business plan. And if you need more hands-on (and free!) support, you can always stop in at your local SBA or SCORE office.
2. Choose a Business Name
It’s likely that you chose a business name while you were writing your business plan, if not before. But if you haven’t, now’s the time to do so (with the help of our comprehensive guide on how to come up with a business name, of course). In order to move onto the next steps involved in launching your business, you’ll need an available business name—emphasis on available. If your name is already in use by another business in Tennessee, then you won’t be able to file your name with the state. So before you start ordering business cards, merchandise, and an awning emblazoned with your moniker, conduct a name search on Google, the U.S. Patent and Trademark Office trademark database, and the Tennessee Secretary of State name availability search portal.
Once your name is cleared for use, we’d recommend purchasing your domain name with your business website platform of choice, as well as reserving the handle for whichever social media platforms you like (we recommend Instagram and Facebook, at the very least). That way, you can get a jump start on two of the most important aspects of your small business marketing plan.
3. Choose a Legal Structure
Next, you’ll need to decide on a legal structure for your newly named business. The type of business entity you choose determines your business’s ownership structure, how you’re taxed, and your personal liability. Each structure has its own ongoing administrative and tax requirements, too.
The most common types of entities in Tennessee are sole proprietorships, partnerships, corporations, and limited liability companies (LLCs), in addition to some variations among these types. But among these structures, LLCs are probably the most popular: They’re easy to form and maintain, offer owners certain legal protections, and owners can decide whether they’d like to be taxed as individuals or corporations.
We recommend working with an accountant, attorney, or small business advisor to help you figure out which structure makes the most sense for your business. That said, it’s helpful to have a baseline understanding of what each of these structures entails, so read through our guide on types of business entities in advance of your meeting.
4. Register Your Business
With your name and legal structure chosen, you’re ready to officially register your business with the state of Tennessee. (Note that sole proprietorships and partnerships aren’t required to register with the state.) The registration process is slightly different for each entity type, but all legal structures can register online with the Tennessee Secretary of State by completing some paperwork and paying a nominal fee.
5. Register for Taxes
Along with establishing your business’s name and legal structure, you’ll also need to register your business for taxes at the state, federal, and local levels. You can complete the former by registering online with the Tennessee Department of Revenue, which will collect whichever taxes are relevant to your business, such as franchise and excise taxes for corporations, and sales and use taxes for businesses that sell goods and certain services.
At a local level, counties and municipalities in Tennessee are authorized to levy privilege taxes. Check in with your local government to make sure you understand these tax obligations—or, better yet, ask your accountant to help you out here.
You can register for federal taxes online, too: Just head to the IRS website to apply for an EIN, the nine-digit number by which the federal government identifies your business. Technically, sole proprietorships with no employees and single-member LLCs with no employees that are taxed as disregarded entities aren’t required to obtain an EIN, but there’s good reason to do so. For example, your bank might require an EIN in order to open a business bank account. Ditto for applying for a business loan or working with potential vendors. Having an EIN simply makes your business look more credible generally, too—and since the process is so easy (and only takes a matter of minutes), there’s really no reason to skip out on this step.
6. Obtain Licenses, Permits, and Business Insurance
Depending on your industry, profession, and business activities, you may need to secure certain licenses or permits to operate your business legally in Tennessee.
Unfortunately, there isn’t a single platform you can visit to get all your required licenses and permits. You’ll need to visit each agency individually, whether that’s the Alcoholic Beverage Commission, the Consumer and Industry Services division of the Department of Agriculture, the Department of Environment and Conservation, or the Department of Health, among others. Here again, we recommend receiving firsthand guidance from your business attorney or advisor.
And if you require a professional or occupational license to practice in your field, visit the Tennessee Department of Commerce and Insurance, which oversees most professional licensing boards. Visit your city or county website or office to find out about any local permits or licenses you may need, too.
Almost every Tennessee business has one or several forms of business insurance, whether that insurance is legally required or optional (but highly recommended). If you have employees, for instance, then you’re most likely required to purchase unemployment insurance. Workers compensation insurance is required for every Tennessee business with five or more employees (unless you own a construction business, in which case requirements are stricter). At the very least, most businesses should purchase general liability insurance, which protects your business against common claims that may be taken up against your business by a customer, vendor, or other business. Take a look at our guide on business insurance for a better understanding of your coverage options.
7. Separate Your Finances
Maintaining a separation between your personal and business finances is important for a few reasons. Logistically, maintaining a separation will make tax season so much easier on you and your accountant. Depending on your legal structure, this separation might actually be required (failing to do so would involve “piercing the corporate veil”). But either way, maintaining a clear barrier between your finances helps protect your personal assets in case your business runs into legal trouble.
The first step in creating this separation is to open a business bank account. When your business is just starting out, you probably only need a business checking account for easy access to your working capital. (You can open a business savings account down the line when your business starts bringing in enough revenue for it.) It makes the most sense to open a business account with your personal bank. Not only is it logistically easier for you to manage all your finances with the same institution, but many banks offer discounts or incentives for their consumers to open business accounts. Still, your bank may not offer attractive business account options, or you may just want to see if a better deal is out there for you. In either case, we’d recommend taking a look at our guide to the best business bank accounts for small businesses.
Next, we recommend applying for a business credit card. Obviously, your business credit card will be your most flexible form of financing your business’s smaller, daily expenses over the long term, but your card can also act as a super-accessible form of startup funding. Most card companies don’t strictly require that you provide your business’s financial information on their application—rather, you may be permitted to provide your personal financial information, which makes it ideal for barely launched businesses. There are tons of business credit cards on the market, all of which boast different perks and rewards. To help you narrow your search, consult our guide on the best business credit cards available right now.
We also recommend that you use accounting software to truly get a handle on your finances. There are so many powerful accounting software options out there designed particularly for small businesses—including a few options that are totally free—so you’ll have no trouble finding a platform that’s easy, intuitive, and on-budget for you.
8. Secure Startup Funding
For most business owners, tracking down a source of funding to launch their ventures is the most nerve-wracking aspect of starting their businesses. That’s because, more often than not, startup funding comes from a patchwork of non-traditional sources. Banks typically need to see years’ worth of financial documentation and a solid credit score before extending credit to businesses—which new ventures just don’t have.
Other than bootstrapping and using their personal savings, many business owners gather at least a portion of their required capital through friends and family loans. If your personal finances and credit score are strong, you might also consider approaching your bank for a personal loan, which you can then use for your business. A few more options to look into can include crowdfunding, Kiva loans, or finding an angel investor (and don’t forget about your business credit card!).
Additionally, you might consider applying for an SBA microloan. These government-guaranteed loans are among the most accessible form of traditional business financing, because they’re actually designed to extend credit to business owners that are typically excluded from the traditional lending space—including women, veterans, minorities, and startups. We also recommend visiting your local SBA or SCORE chapter to find out about state-sponsored grant, loan, or incentive programs for Tennessee startups.
The Next Steps
Completing the previous eight steps ensures that your Tennessee small business is foundationally sound. But, as you can likely tell, the particulars involved in each step can vary pretty drastically depending on the type of business you’re starting. If you’re setting up a home-based graphic design company as a sole proprietorship, for example, you’ll have much fewer bureaucratic hoops to jump through than, say, opening a restaurant with a full staff.
For that reason, we highly recommend working with an advisor or consultant in some form (yes, we’ve said it before, but it bears repeating). Luckily, there are tons of free, state-specific resources available for Tennessee entrepreneurs, including the Business Enterprise Resource Office (BERO), Tennessee Small Business Development Centers (TSBDC), SCORE, and SBA Learning Centers. Of course, all of these resources are available even after you’ve completed the launch phase of your business, as well. Good luck!
Christine Aebischer is an editor at JustBusiness and Fundera.
Previously, Christine was an editor at the financial planning startup LearnVest and its parent company, Northwestern Mutual. There she wrote and edited on topics such as debt, budgeting, insurance, taxes, investing, and retirement. She has written for print and online on topics ranging from personal finance to luxury real estate.