Starting a Business in Alabama: 9 Essential Steps

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Alabama boasts a dynamic business climate with various tax incentives and enterprise zone programs, a growing population, and fast-developing metropolitan areas. It can be a rewarding place to start a business. Here are nine steps to make it happen.

Start a business in Alabama

1. Choose a business idea
2. Name your business
3. Write a business plan
4. Choose a business structure
5. Apply for a federal employer identification number (EIN)
6. Obtain business licenses and permits
7. Examine business insurance options in Alabama
8. Understand financial considerations
9. Market your business

1. Choose a business idea

The first step toward getting your new business up and running in Alabama is identifying your business idea. Will you offer products, services, or some combination of both? After you decide on your idea, ask yourself the following key questions:

• Who is your customer? Who are you selling to? Will you market directly to consumers (B2C) or business-to-business (B2B)? Will you sell purely online, in a traditional brick-and-mortar storefront, or through a combination of the two? Analyze other businesses in the same market and research industry trends to understand what you’re up against.

• What is your projected profitability? Your business needs to make money, and it needs to make more than it spends over the long term. Consider your pricing, distribution opportunities, business model, and the costs you’ll incur building your business and developing your product or service. What’s your break-even point? How much must you sell to cover your expenses?

2. Name your business

Once you have an idea for your Alabama business, the next step is to name it. There are several factors to think about. Here are a few considerations when choosing a business name:

• Be unique. You can’t have the same name as another business. Check to see if your desired title is different from other businesses in the state by running a search on the Alabama Secretary of State website.

• Include certain words. Your business name must contain words indicating the entity type. LLCs must contain “Limited Liability Company” or an abbreviation such as “LLC” or “L.L.C.”; corporations must contain “Corporation,” “Incorporation,” “Co.,” or “Inc.” Sole proprietorships operate under the proprietor’s name. Partnerships must contain the partners’ names, plus the abbreviation for either “General Partnership” or “Not For Profit General Partnership.”

• Exclude certain words. Your business name can’t contain words that might lead customers to confuse it with a legitimate government agency, like the FBI or Treasury. Your business name also can’t contain words suggesting you operate in certain professional fields, like law or accounting, unless your business has obtained the proper licensing.

• Reserve a business name. You must reserve your business name online or by mail before registering your business with the state. (You can reserve your business name online at the same time that you register your business online.) It costs $28 to reserve a name in Alabama online; $25 by mail.

• Reserve a trade name. Known as DBAs (doing business as) in other parts of the country, trade names in Alabama allow you to operate under a name different from your business’s legal name.

• Reserve domain names and social media handles. Your chosen domain name (URL) and social media handles should correspond to your business name or trade name to make it easy for potential customers to find you.

3. Write a business plan

Every business should start with a business plan. You can write a business plan from scratch, or start with a customizable template. A business plan includes seven things:

1. Executive summary

2. Detailed company description

3. Market analysis

4. Outline of organizational and managerial structure

5. List of products or services

6. Customer segmentation report

7. Sub-plans for marketing, logistics, and business finances

You can also write a business plan suited to your goals, such as a lean plan (which keeps things simple and agile, including only information management needs to know) or a plan specific to your legal business entity type or tax status, like a nonprofit.

4. Choose a business structure

Your business structure determines how your company is taxed and how easily you can secure investments, among other factors. There are four primary business structures: sole proprietorships, partnerships, limited liability companies (LLCs), and corporations. Here’s how they differ:

• Sole proprietorships. Sole proprietorship is the default designation for businesses that don’t formally incorporate and have no partnership agreement. Sole proprietorships are owned and operated by a single person and are taxed at the business owner’s personal-income rate. However, a sole proprietor’s personal assets are not protected against creditors or legal damages.

• Partnerships. A partnership has two or more owners. Partners are taxed at their personal-income rates. However, they do not enjoy protection for personal assets if the company is sued.

• LLCs. Limited liability companies (LLCs) are popular in Alabama and across the US. As “pass-through entities,” the business income of LLCs, like partnerships and sole proprietorships, can be taxed at the business owner’s personal-income levels. However, at the same time, LLCs enjoy certain legal insulations of corporate entities, such as personal asset protection for owners.

• Corporations. Owners of corporations enjoy the protection of their personal assets and the ability to raise capital through the issuance of stock. They can be formed as C corporations or S corporations. S corporations are more limited in the number and kind of shares they can issue but, like LLCs, enjoy pass-through taxation status.

5. Apply for a federal employer identification number (EIN)

Once you choose a formal business structure for your Alabama business, you must register for a federal employer identification number, or EIN. Although these nine-digit numbers are issued and administered by the Internal Revenue Service (IRS), federal and state tax authorities use them to identify businesses for tax purposes. They can also help secure lines of credit and obtain business credit cards. Business owners can apply for an EIN online through the IRS website, free of charge.

With an EIN, you can establish your new business in Alabama. Register your business through the Alabama Secretary of State’s office. For LLCs, you must file a Certificate of Formation online or by mail, along with a $200 filing fee. For corporations, you must file a Certificate of Incorporation online or by mail for $200.

6. Obtain business licenses and permits

While there’s no general business license in Alabama, almost every business entity operating in the state must obtain a business privilege license from the county or municipality in which it’s based. These cost between 25¢ and $1.75 for every $1,000 of your business’s net worth, with a minimum fee of $100. The state Department of Revenue provides instructions and local contact information for obtaining this permit. Companies that sell products ordinarily subject to sales tax also need a business tax registration, known in other states as a seller’s permit.

7. Examine business insurance options in Alabama

Purchasing business insurance is essential for managing risk and attaining a degree of liability protection for your new Alabama business. Standard insurance packages available for purchase in Alabama include:

• General liability insurance. A general liability insurance policy protects you from lawsuits, financial losses due to property damage, and injuries on business property (such as customer slip-and-falls). General liability insurance is not mandatory for Alabama businesses, though many commercial leases require it.

• Workers’ compensation insurance. Known as workers’ comp, this insurance policy covers injuries and illnesses that employees might sustain on the job (including death). If you plan to hire employees, know you’re required by law to purchase workers’ comp if you have five or more employees.

• Professional liability insurance. Sometimes called errors and omissions coverage (E&O), professional liability insurance is meant for businesses that offer expert advice or special professional services—like lawyers, accountants, real estate agents, and doctors. It covers financial losses resulting from mistakes like poor advice.

8. Understand financial considerations

Aside from purchasing insurance, you may need to make other investments in your Alabama business. These might include hiring certain professionals or contractors, like a lawyer, accountant, or web designer. You’ll also want to pay for web hosting services and possibly professional social media management.

9. Market your business

Once your Alabama business is up and running, you can publicize your products or services. This is where your marketing plan comes in. You can raise your business’s profile both in Alabama and across the country by investing in paid advertising, having a robust presence on social media platforms like Facebook, Instagram, and TikTok, and building relationships with the press locally and afar.

Building a marketing campaign for your company means you can build out slogans and taglines, design logos, and develop a unified brand voice, color schemes, and fonts. All of these elements can end up in different types of marketing campaigns, including:

• TV and radio ads. Broadcast media ads are a more traditional form of advertising that expose your company to a broad but untargeted audience.

• Pay-per-click web ads. Your customers interact with pay-per-click web ads on web pages, social media feeds, and online videos. Compared to TV and radio commercials, web ads can be more focused. You can target specific customers based on demographics, interests, search histories, and geographic location.

• Social media influencer campaigns. Leveraging influencer marketing campaigns, you can pay influencers to promote your products, give reviews, and offer discount codes, which in turn gives you access to their followers.

This small business marketing guide provides more information on marketing fundamentals, including how to build an online audience, convert customers, and sustain existing customer relationships.

Tips for starting a business in Alabama

Starting a business can seem easy once you’ve done your market research and have funding in place, according to Phala Mire, president and CEO of Women’s Business Enterprise Council (WBEC) South, which includes Alabama. “Don’t forget that there are steps every business owner needs to take before starting a business to ensure that the company is operating in compliance with state and local laws,” she emphasizes.

Here, Phala shares her top three startup tips for business owners launching a business in Alabama:

1. Research startup requirements on the state and local levels. Startup requirements can vary by state, geographic location, and business type. Make sure to check in with your state’s Office of Economic Development to find out exactly what steps you need to take and what resources they provide to business owners.

2. Obtain licenses, permits, and registration. Register your business with the Secretary of State and obtain any licenses and permits necessary for your business structure and industry requirements. Having the necessary licenses and permits ensures that you run the company legally—and avoid potential fines and penalties. The Alabama Secretary of State provides a comprehensive bank of forms for all business types. This is also a great time to research possible business certifications—national, state, and local—that can help your business access opportunities for certified small businesses, as well as minority-, veteran-, and women-owned businesses.

3. Take advantage of any tax breaks and business startup incentives. Check out what is offered by your state or city government. The Alabama Department of Revenue website lists tax incentives such as the Enterprise ZoneCredit or Exemption that incentivizes economic growth in economically depressed areas of the state. Used effectively, tax incentives can provide considerable financial benefits to entrepreneurs in Alabama.