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Alaska, located far beyond the reaches of the contiguous United States, may not be the first state that comes to mind when people think of great places to start a business. However, Alaska is among the most tax-friendly states in the nation and provides a low-risk environment for entrepreneurs to grow and nurture a young company.
The costs of getting a business up-and-running can be hard for entrepreneurs to manage, and a lack of cash flow is one of the main reasons that they fail. Therefore, any quality that lightens the expense burden in the early stages is more than welcome. Alaska does well in this regard: Tax Foundation ranks it the 3rd most tax-friendly state in the country, as well as 1st in individual income tax and 5th in sales tax. By starting a business in Alaska, you will save considerable sums of money to put towards key expenses that would otherwise end up in the government’s pockets in states like California and New York that present a considerable tax burden for businesses.
Considering its tax-friendly climate, the fact that Alaska boasted the 2nd highest rate of new entrepreneurs as of 2016 should come as no surprise. If you love natural beauty and don’t mind occasional weather, you ought to consider the state as the home of your new business.
Alaska small business statistics at-a-glance
- Ranked the #3 most tax-friendly state in the United States, as well as #1 in Individual income tax and #5 in sales tax by the Tax Foundation.
- Over 69,000 small businesses operate in Alaska, accounting for 96.4% of the businesses in the state.
- Over 141K people in Alaska are employed by small businesses, which accounts for 53% of the state’s total workforce.
- The construction industry is the largest small business employer in the state, followed by healthcare and social assistance, and retail trade.
- In 2016, small businesses received over $228 million in loans to foster their growth.
- 26.2% of Alaska small businesses received $10K to $29K in capital in 2017, followed by 23.8% that received $9,999 or less, and 19% that received $100K to $600K.
Starting a business in Alaska in 12 steps
1. Develop an idea
Every successful business starts with a good idea. Ask yourself these questions:
- Which product or service can your business provide that doesn’t already exist on the market?
- How does your business idea refine an existing product or service?
Determine your personal strengths and interests: developing an idea that suits your personality and positive traits will provide motivation to put in the long hours necessary in addressing the myriad challenges you’ll face in getting your business off the ground.
Figure out how to market your expertise: if your business idea is not something you totally believe in and can sell effectively, it will be much harder to succeed.
2. Do the research
Once you have an idea, it’s time to put it through the wringer and decide if it’s viable in the market. Conduct market research to arrive at answers to these key questions:
- Is there a demand for your product/service in Alaska?
- Who is your target market?
- Do existing businesses in Alaska offer a similar product/service?
- What makes your business unique compared to the competition?
Coming up with satisfactory answers may require refinement, or even a total overhaul, of your original idea. Be patient: you’ll only want to proceed with the next steps after determining that a niche exists in the Alaskan market for your business idea.
3. Draft a business plan
Now it’s time to write the blueprint of your business. A great business plan should chart the path of your company from infancy to success while being able to attract investors to provide financing.
Your business plan ought to include the following sections:
- Executive summary – An overview of your business and why it will be successful
- Description of business – Explain the advantages of your business and the problems it solves
- Market research – Provide research on your industry, target market, and potential competitors
- Organization and staff – Detail the nuts and bolts of your business; how it’s structured and who will run it
- Product or service description – State what you are selling or offering
- Marketing plan – Explain your strategy for attracting customers
- Fundraising – The money you’ll need in the next five years to grow your business and how you’ll spend it
- Financial forecast – Data and balance sheets providing a financial forecast for your business
- Appendix – An optional section with supporting and/or requested documents like resumes, letters of reference, permits, etc.
Plan on running your business well
4. Secure funding
Every business needs money to get off the ground. In fact 82% of businesses that fail do so because of a lack of cash flow, U.S. Bank found in a recent study. Your business plan should include a detailed estimate of the funds you’ll need to cover expenses for at least a year, so now it’s time to acquire the money.
If you aren’t wealthy enough to self-fund your business, you can choose from a number of other funding options. These include a loan from the U.S. Small Business Administration, taking out a loan from a commercial bank, launching an equity crowdfunding campaign, or securing funding from an angel investor or venture capitalist group active in Alaska.
An angel investor is a wealthy individual who invests their personal finances in a startup, typically in the beginning stages, whereas a VC is a group of investors that will fund a business throughout its existence.
Which route you choose depends on the specifics of your business: angel investors typically invest smaller sums to help get a startup off the ground, while VCs invest larger sums of money in exchange for a greater say in the operations of a business. Smaller startups usually opt to pursue funding from angel investors. Plenty of both types of investors are operating in Alaska.
Alaska Angel Investors and VCs
- Alaska Investor Network – A group of over 40 investors dedicated to investing in Alaskan businesses, aiding local entrepreneurs, and growing the state economy.
- Alaska Venture Partners – An angel investment group run by John Wanamaker, a successful entrepreneur that has founded or co-founded six companies. AVP provides capital to early-stage companies, in addition to consulting services.
- Launch Alaska – A major Anchorage-based accelerator program focused on boosting startups in the areas of food, water, transportation, and energy.
Additional Investor Resources
- Alaska Angel Conference – An annual conference where entrepreneurs can meet with novice and experienced investors to develop relationships and earn funding for new businesses. 2020’s conference will be held on April 23rd in Anchorage and one startup with the most convincing pitch will receive an investment equal to or exceeding $100K.
- Angel.co: Alaska Angel Investors – An extensive listing of over 4,900 investors interested in funding Alaska-based companies. Individual listings include investors’ investment history and industries of focus.
5. Decide on a legal business entity
The form of business entity you choose will affect many factors going forward. There are 3 main options to decide from:
- Sole proprietorship – The name for running a business by yourself. Legally, you and your business are one and the same, with no separate legal entity for your business. A partnership is legally identical to a sole proprietorship, except that it comprises two or more people.
- Corporation – A complex legal structure that is a separate entity (providing legal protection to owners) from the owner and comprises directors, officers, and shareholders.
- LLC – AKA “Limited Liability Company”, this is a hybrid entity between a sole proprietorship and a corporation that possesses advantages of both. An LLCs provides the liability protection of a corporation, yet isn’t subject to double taxation as the profits go through your personal tax return.
Nowadays, LLCs are the option of choice for small business owners as they are easy to manage and provide the benefits of a corporation while lacking their complex structure. Taxwise, they operate more like a sole proprietorship.
You may want to consult with an attorney to help decide which entity works best for your business.
6. Register your business
For sole proprietorships
Once you’ve settled on a catchy name for your business, head to the Alaska Department of Commerce website to see if your name fits the requirements and is available.
After determining that your business name is valid, it’s time to officially register your business with the state. You can file either online or through the mail and the filing fee is $25. Expect to wait 10-15 days for your registration to be processed.
For LLCs and corporations
If you choose to form an LLC you must also file Articles of Organization, while those forming a corporation will file Articles of Incorporation. You can file both forms through the Alaska Department of Commerce, either online or via hardcopy. The fee is $250, although there may be additional costs involved.
Forming an LLC in Alaska requires you to appoint a registered agent, which is an individual designated to receive correspondence from the Alaska Secretary of State, as well as process notices and other government paperwork. The website has clear instructions on completing the process, but you may want to consult an attorney before you file.
7. Acquire federal and state tax IDs
Now you should obtain a Federal Employer Identification Number (EIN), which is like a social security number for a business and allows you to open bank accounts, handle payroll, and file taxes.
Each state has its own laws and taxes regarding businesses. Head to the Alaska Department of Revenue for information on the state’s corporate income tax and other taxes you may have to pay.
Tax-ready all the time
8. Open business banking and credit accounts
Opening a bank account for your business is crucial because it allows you to separate company assets from your personal assets, and makes filing taxes a lot easier. This is a recommended step, even if you are operating a sole proprietorship.
It’s also a wise idea to obtain a credit card for your business because it will help you isolate business expenses and build up credit for your company, which may help in securing investment in later stages.
Major business banks operating in Alaska
We also recommend Novo Bank
9. Get the necessary licenses and permits
Depending on the type of business you are opening, you may need to apply for a number of permits and licenses to operate legally. For example, a restaurant will need a liquor license, and a pawn shop will need a reseller’s license. The paperwork may prove a hassle, but it’s a necessary ordeal that will protect you from fines, lawsuits, and other legal hazards.
The first thing you’ll need to do is buy an Alaska business license through the Alaska Department of Commerce, Community, and Economic Development. The site has an easy to follow step-by-step guide through the entire process. A license will cost you $50 and must be renewed once a year. You can find out if you need any additional licenses or permits for your business by answering the questions on the site.
10. Choose a location
Whether you are running an online business or opening a restaurant, location is everything. Be aware of the demographics of the neighborhood or town that you are considering: Are the local residents likely to visit your business? Will nearby competitors take a share of your potential profits?
As the state’s largest city and home to over 40% of the state’s residents, Anchorage (population: 297,832) is the central hub of most of Alaska’s business activity. Juneau and Fairbanks, the next two largest cities in the state, are barely a tenth of Anchorage’s size. Therefore, entrepreneurs are advised to start their business in Anchorage, as launching anywhere else in the state would prove difficult.
11. Get insured
No matter what type of business you form, buying insurance coverage to protect yourself in the case of property damage or legal action is a good idea. In fact, businesses with employees are required by the federal government to have two types of insurance, while others are strongly encouraged or required at the state level, depending on your business type. Consult with a licensed insurance agent to find out which types of insurance you should get.
Required forms of insurance:
- Workers’ compensation: Covers medical costs and disability benefits if an employee is injured or becomes ill on the job.
- Unemployment insurance: Provides benefits to workers after a loss of job through no personal fault.
Recommended forms of insurance:
- Professional liability insurance: Covers losses as a result of property damage, medical expenses, libel, slander, and negligence claims.
- Commercial property insurance: Covers property damage to business owned properties and possessions as a result of fire, theft, or storm.
- Disability insurance: Provides short-term benefits for employees suffering an illness or injury. Required in certain states such as California, New York, and Hawaii.
12. Develop an internet presence
Establishing an identity on the web is an important investment in a business’s future development. Here are some key steps in the process:
- Register a domain name for a company website (You can use domain.com, Bluehost, GoDaddy.com, Namecheap.com). Design the website and fill it with content.
- Create profiles on the popular social media services (Twitter, Facebook, Instagram)
- Register a Google profile for your business
- Create accounts on review sites such as Yelp, Google Reviews, and TripAdvisor
More than a website builder
Alaska small business resources
- Alaska Small Business Development Center – A statewide organization with tons of resources and info for Alaska small businesses.
- Alaska.gov: Business – The state government’s business portal where you can register your business, and find information on necessary licenses and permits.
- Anchorage Economic Development Corporation – Connects Alaska small businesses with funding resources.
- SBA: Alaska Small Business Resource Guide – An excellent guide to all the resources available to entrepreneurs in Alaska.
- Alaska Cooperative Development Program – Dedicated to supporting and promoting cooperative businesses in Alaska.
- SCORE: Alaska – The Alaska portal for the nation’s largest non-profit business mentoring organization.
- Alaska Startups – An Anchorage-based community of entrepreneurs.
- The Boardroom – A vast coworking space located in downtown Anchorage.
- Alaska Procurement Technical Assistance Center – Provides Alaska businesses with a number of counseling and workshop programs.
- INCORP: Alaska – Provides registered agent services for $99 a year.