Though it’s home to one of the largest companies in the world, there’s plenty of room in Arkansas for small businesses: in total, 247,000 small businesses are currently in operation of the state, employing nearly 48 percent of the state’s workforce. There a number of reasons why launching a business in Arkansas poses an attractive proposition for promising entrepreneurs. For one, Arkansas boasts some of the cheapest property costs in the United States, meaning that renting or purchasing office space in the state won’t break the bank. What’s more, CNBC ranked Arkansas as the top state in the country in terms of the cost of doing business.
For those starting a business in Arkansas, we’ve written this step-by-step guide to help through this complicated process. We’ll help you draft a business plan, offer advice on which business entity to form, point you towards investors in the state, and more. After reading it through, we think you’ll find that starting your own business in the Natural State is easier than you anticipated.
Arkansas small business statistics at-a-glance
- As of 2018, 247,018 small businesses are operating in Arkansas, accounting for 99.3 percent of the total businesses in the state.
- 479,727 Arkansas workers are employed by small businesses, comprising 47.8 percent of the state’s workforce.
- Firms with fewer than 100 employees account for the largest share of small business employment in the state.
- Arkansas’ unemployment rate of 3.7% is 0.4% below the national average.
- Minorities own 35,962 businesses in the state.
- The health care and social assistance industry is the largest small business employer in the state, followed by the accommodation and food services and retail trade industries.
Starting a business in Arkansas 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 Arkansas?
- Who is your target market?
- Do existing businesses in Arkansas 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 Arkansas 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.
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 Arkansas.
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 Arkansas.
Arkansas Angel Investors and VCs
- Innovate Arkansas – A state-funded group focused on growing tech startups in Arkansas. Innovate Arkansas has raised an impressive $363 million dollars for over 600 clients while creating over 820 jobs.
- Fund for Arkansas’ Future – An angel investor fund with its eyes on early-stage Arkansas companies. So far, the fund has reviewed hundreds of applications and made 32 investments in 17 portfolio companies.
- New Road Capital Partners – A Rogers, Arkansas venture capital fund specializing in large investments upwards of $5 million.
Additional Investor Resources
- AngelList: Arkansas Angel Investors – A large directory of over 4900 investors interested in funding Arkansas small businesses. Listings will tell you about each investor’s professional background, along with a tally of their past investments and areas of interest.
- Startup Junkie – A group affiliated with the University of Central Arkansas that offers free consulting services to budding entrepreneurs in the state.
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
When you are ready to register your business, begin by searching the Arkansas Secretary of State trademark database to see if your chosen name is available in Arkansas.
For sole proprietorships
Forming a sole proprietorship in Arkansas requires no special filing, although the Arkansas Secretary of State advises you to record the name of your business with the local county clerk.
For LLCs and corporations
Those forming an LLC or a corporation in the state are required to file special paperwork. For an LLC, you must file Articles of Organization, while forming a corporation necessitates filing Articles of Incorporation. You can file either document online with the Arkansas Secretary of State for a fee of $45. Simply visit the page and click on the entity you intend to form for further instruction. Filing the paperwork by mail is also an option and costs $50.
The process of forming a corporation or LLC requires you to appoint a registered agent that will handle process notifications and government paperwork on behalf of the business. As long as you have an Arkansas address, you can be your own registered agent, although many business owners will hire an outside individual or business to handle the paperwork. Registered agent services will usually run you $100 to $300 a year.
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. Visit the Arkansas Department of Finance and Administration for information on filing taxes as a corporation or LLC. If you’ve opened a franchise of an existing business in the state, you must pay franchise taxes.
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 Arkansas
- First National Bank of North Arkansas
- Simmons Bank
- Bank of Little Rock
- First State Bank of DeQueen
- Priority 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.
Application fees for a business license in Arkansas can vary from $50 to $1000 depending on the city you are based in and the type of business you run. Some cities and counties do not issue business licenses at all.
The Arkansas Small Business and Technology Development Center offers a handy PDF guide explaining the permit and licensing requirements for all types of businesses in the state, along with the web addresses of the organizations that issue each license or permit.
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?
State capital Little Rock is Arkansas’ largest city and presents a greater range of opportunities for entrepreneurs. However, there are plenty of smaller communities like Batesville and Fayetteville that are also promising locations depending on the type of business you decide to open. You can learn more about places to start a business in Arkansas in this article from Arkansas Money and Politics.
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
Arkansas small business resources
- Arkansas Secretary of State: Doing Business in Arkansas – Government guide to getting your Arkansas business up and running.
- Dream It Do It Arkansas – A great Secretary of State-backed resource for budding entrepreneurs based in Arkansas.
- Arkansas Small Business and Technology Development Center – The top organization of its kind operating in the state.
- Arkansas.gov: Owning a Business – The government’s portal for business owners.
- SBA: Arkansas – Arkansas branch of the Small Business Administration.
- Arkansas Economic Development Commission Division of Science and Technology – Provides grants for local tech-based businesses.
- GENESIS Technology Incubator – A tech business incubator located in Fayetteville.
- Venture Center – A Little Rock-based accelerator and incubator program.
- Arkansas Inc. – A great entrepreneur resource and guidance site hosted by the Arkansas Economic Development Commission.
- SCORE: Northwest Arkansas – The NW Arkansas branch of the nation’s largest business mentoring network.