Running a business is a lot easier when you love where you live: Chicago, Illinois’ largest city, was recently ranked the 3rd best city in the world–as well as the world’s happiest city–by Time Out Magazine.
No, it doesn’t compare to Silicon Valley in terms of startup activity, but that’s a good thing. Renting or buying property in the state is much cheaper than in California or New York, which is crucial for an entrepreneur launching a new business when every dollar counts. Plenty of successful startups were launched in Illinois, including VillageMD, and Uptake.
Furthermore, the state’s reputation for high taxes is blown out of proportion: Tax Foundation ranks it 13th in the nation in individual income taxes. A good indicator of an Illinois business’s odds of success is seen in its startup early survival rate of 80%, which is above the national average.
In this article, we’ll aid you in launching your Illinois-based business by walking you through each step of the process, while also pointing you in the direction of invaluable resources that you’ll need to render your business a success.
Illinois small business statistics at-a-glance
- According to the Tax Foundation, Illinois’s individual state income tax is the 13th friendliest in the nation.
- An average of 80% of Illinois startups survive beyond their first year of existence, which is the 19th highest rate in the U.S.
- 1.2 million small businesses operate in Illinois, accounting for 99.6% of the total businesses in the state.
- 2.5 million Illinois residents work for small businesses, which is 45.5% of the state’s total workforce.
- 311,609 small businesses in Illinois are minority-owned.
- The health care and social assistance industry is the largest small business employer in the state, followed by accommodation and food services, and manufacturing.
- In 2017, the Illinois economy grew at a faster rate than the U.S. economy.
Starting a business in Illinois 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 Illinois?
- Who is your target market?
- Do existing businesses in Illinois 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 Illinois 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 Illinois.
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.
Investors in Illinois benefit from a state tax credit program offering a tax credit equal to 25% of their investment up to $2 million. Considering the available incentives, it should be easy to locate investment resources in the state.
Illinois Angel Investors and VCs
- Central Illinois Angels – An angel investment group founded in 2009 that has invested over $13 million in Illinois-based startups.
- Chicago Media Angels – An investment group specializing in funding film and documentary projects by Chicago-area filmmakers and companies.
- Hyde Park Angels – An angel group named for the Chicago neighborhood that is home to the renowned University of Chicago. Hyde Park portfolio companies have raised nearly $900 in capital and created over 2250 jobs.
- Illinois Ventures – A VC firm connected to the University of Illinois that provides seed funding to early-stage companies developed in the university system.
Additional Investor Resources
- AngelList: Illinois Angel Investors – An exhaustive list of over 5000 investors seeking funding opportunities in the Land of Lincoln. Individual listings include each investor’s professional background, along with a tally of total investments they’ve made, and their 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
Next, it’s time to take the big step and register your business with the state of Illinois. Whether you are forming a sole proprietorship, an LLC, or a corporation, this process varies.
For sole proprietorships
Launching this type of business in Illinois requires no special filing. However, if you plan to operate your sole proprietorship under a business name separate from your given name, you must file a certificate of assumed business name.
First, search the Illinois Secretary of State Department of Business Services database to see if your chosen name is available. Next, you must file an assumed business name certificate at the local county clerk’s office, which usually costs $5, although in some municipalities the fee is higher.
The final step is running an advertisement for your business in the local newspaper once a week for 3 consecutive weeks, at your own expense.
For LLCs and corporations
As in all states, the first step in forming either an LLC or corporation is appointing a registered agent to receive process notices and other government correspondence on the business’s behalf. Anyone with a physical address in Illinois can be a registered agent, meaning you can appoint yourself. However, due to the complicated nature of the paperwork, first-time business owners are encouraged to hire a professional for $50-$200 a year.
Once you have a registered agent, check the availability of your business name, and proceed to register your business through the Office of the Illinois Secretary of State. LLCs must file Articles of Organization, while corporations must file Articles of Incorporation. Filing can be done online or through the mail, and payment can be made with a major credit card.
Articles of Organization filing fee: $150
Articles of Incorporation filing fee: $175 ($150 filing fee, $25 franchise tax fee)
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 Illinois, you must file a Business Registration Application, which you can do online using MyTax Illinois.
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 Illinois 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.
While Illinois does not issue a statewide business license, it’s likely that you’ll need one or more special licenses or permits to operate your company in Illinois. Visit the Illinois.gov business portal for information on businesses regulated by the state, and consult your local county clerk’s office for local regulations regarding business licenses.
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?
With 9.5 million of Illinois’ 12.7 million residents living in the Chicago metropolitan area, it’s likely that you’ll choose to open your business in–or around–the city of Chicago. Although central Illinois college towns such as Champaign and Bloomington-Normal offer alternatives, most startup activity in the state is focused in the Windy City.
As Chicago is a city of neighborhoods that vary considerably in terms of cost of living and commercial enterprise, you’ll want to choose one that works best for your circumstances. Check out this article by Chicago Magazine to get an overview of the city’s neighborhoods and suburbs.
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
Illinois small business resources
- Illinois Secretary of State: Business Services – Register to your business online.
- Illinois.gov: Business – Learn more about licenses or permits you may need to operate your business in Illinois.
- My Tax Illinois – Apply to pay business taxes with the state.
- SBA: Illinois – The Illinois District Offices of the Small Business Administration, which are located in Chicago and state capital Springfield.
- Illinois Small Business Development Center – An organization dedicated to educating and assisting small business owners in the state of Illinois.
- Illinois Department of Commerce: Incentives and Tax Assistance – Learn more about tax credits and exemptions that may apply to your business.
- SCORE: Chicago – The Chicago chapter of the nation’s leading business mentorship program.
- Built in Chicago – The nexus of the Chicago startup community. Includes company profiles, news, job listings, and more.
- Chicago Inno – A great source for local startup news and developments.
- Illinois University Innovator Network – A network linking university incubator programs around the state.