Hawaii’s picturesque beauty, sandy beaches, and peaceful vibe should be more than enough to convince entrepreneurs to launch a business in the state, but the Aloha state has more to offer than just a dazzling, exotic local to live and work.
The state’s property tax rate ranks 11th in the nation according to the Tax Foundation, meaning that buying or leasing property for your business in the state won’t break the bank. Further evidence of Hawaii’s business-friendly climate is found in its startup early survival rate: the state ranks top 15 in the U.S. in the percentage of businesses still active one year after launch, with an 80.33% share.
While Hawaii has a booming tourism industry, that’s not the only area in which Hawaii businesses find success. Make starting a business in Hawaii easier by following our step-by-step guide, which is full of resources to aid in the process of launching a new company.
Hawaii small business statistics at-a-glance
- Hawaii’s state property tax rate is the 11th lowest in the nation.
- Hawaii boasts an early startup survival rate of 80.33%, which is 13th in the country.
- 128,863 small businesses operate in Hawaii, accounting for 99.3% of the state’s total businesses.
- 271,340 Hawaii residents are employed by small businesses, which is over half of the state’s workforce.
- 74,187 Hawaii small businesses are minority-owned, accounting for 57.5% of small businesses in the state.
- Accommodation and Food Services is the largest small business employer industry in Hawaii, followed by health care and social assistance, and retail trade.
- The median income for those self-employed at their own businesses in Hawaii is $49,619.
Starting a business in Hawaii 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 Hawaii?
- Who is your target market?
- Do existing businesses in Hawaii 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 Hawaii 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 Hawaii.
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 Hawaii.
Hawaii Angel Investors and VCs
- Blue Startups – A venture program and accelerator focused on linking startups with economic opportunities in Asia. Accepted applicants of the program are granted an investment of $350K, one-on-one mentorship, working space, and a host of other perks.
- Hawaii Angels – A group of Hawaii angel investors that have invested over $30 million in almost 60 companies since its founding in 2002.
- Sultan Ventures – A Hawaii VC firm with services and guidance for area startups that extend beyond providing an initial investment.
- Startup Capital Ventures – An early-stage VC with offices in California and Honolulu. While the firm’s principal focus is on Silicon Valley, they also invest in Hawaii-based startups.
Additional Investor Resources
- AngelList: Hawaii Angel Investors – An extensive director of nearly 5000 investors seeking funding opportunities in Hawaii. Listings will tell about an investor’s professional background, in addition to providing a list of past investments, and areas of interest.
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
Once you have decided on the type of business entity you will form, it’s time to register your business with the Hawaii state government. This process varies depending on whether you are forming a sole proprietorship, an LLC, or a corporation. Thankfully, registering any type of business is not much of a hassle, and can be done online.
For sole proprietorships
Operating a sole proprietorship in Hawaii does not require the filing of any legal documents. However, if you intend to use a business name that is different from your given name, it’s a good idea to register that name with the government. First, run a search to see if the name is available. Next, create an account at the Hawaii Business Express website, and follow the instructions to register your business name. Currently, the fee is $50, but for the calendar year of 2020, the fee will be reduced to $25.
For LLCs and corporations
Registering either of these two business entities with the Hawaii state government requires you to appoint a registered agent to receive process notices and other government correspondence on the business’s behalf. You can choose to be your own registered agent since anyone with a Hawaii address can be one. However, if it’s your first time forming a business, you may consider hiring a professional. Employing the services of a registered agent runs from $50 to $200 a year.
Forming an LLC: Forming an LLC in Hawaii requires you to file Articles of Organization with the state government. After checking to see that your chosen business name is available, visit the Department of Commerce and Consumer Affairs LLC portal. From there, you can register your LLC online, or print the documents and mail them. The fee for filing Articles of Organization is $50.
Forming a corporation: Forming a corporation requires to you file Articles of Incorporation with the Hawaii state government. First, do a search to verify that the business name you’ve selected is available. Next, visit the Hawaii Department of Commerce and Consumer Affairs corporations page where you can file Articles of Incorporation online, or print the PDF and file it by mail. The fee is $50.
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. In Hawaii, the Hawaii Business Express website where you register your business online also allows you register to pay business taxes with the state. If you used the site to register your business, you can use the same login information to handle your state 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.
Banks operating in Hawaii good for small businesses
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.
Hawaii does not issue a standard business license for all businesses. Any licenses or permits you need depends on the type of business you start, and the requirements of your local jurisdiction. Consult the Hawaii DCC Professional and Vocational Licensing Division website for information about what license you’ll need based on the nature of your business. You should also contact your local government office for further advice.
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?
Hawaii is an archipelago comprising 8 major islands, with over two-thirds of the population living on the island of Oahu, where the capital and largest city, Honolulu, is located. Unless you are starting a tourism-related business, or your business is mostly online, you will likely decide to open your business there.
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
Hawaii small business resources
- Hawaii Business Express – Your portal for registering your business or business name, applying for taxes, and other dealings with the Hawaii state government.
- Hawaii DCC Professional and Vocational Licensing Division – Information on licensing for 51 professions and vocations regulated by the state of Hawaii.
- Hawaii Small Business Development Center – The statewide network dedicated to advancing and assisting small businesses.
- SBA: Hawaii – The Hawaii district office of the Small Business Administration. Located in Honolulu.
- Hawaii | SCORE – The Hawaii chapter of the nation’s leading business mentoring network.
- HiSTEP: Hawaii State Trade Expansion Program – A government program dedicated to helping local small businesses with export development.
- Hawaii Community-Based Economic Development – A program issuing micro-loans to Hawaii small businesses.
- Mana Up Hawaii – A 12-week accelerator program for product companies based in Hawaii.
- Tech Hui – A thriving social network for those in the Hawaii tech business community.
- XLR8UH – A nationally renowned startup accelerator program. Accepted applicants are granted an investment ranging from $25K – $125, and take part in one-on-one mentorship and educational workshops.