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Do you have a great business idea that you’re hoping to take to fruition? Indiana is a great place to do it in, with a low tax burden for entrepreneurs and boasting a high startup survival rate. The Hoosier State is one of the top ten business-tax friendly states in the nation, according to the Tax Foundation, laying claim to the 2nd-lowest property tax rate in the U.S., in addition to top 15-ranked corporate and individual tax rates. Also helping to keep expenses down for entrepreneurs are Indiana’s cost of living and affordable housing, which are both in the top 10 lowest in the country.
This favorable climate for small businesses is reflected in Indiana’s early startup survival rate of 80.39%, which is the percentage of startups in the state active one year after launch. Now that you’re convinced of Indiana’s entrepreneurial-friendly environment, read our guide to starting a business in the state, which will walk you through each step of the process whether you are forming a sole proprietorship, LLC, or corporation.
Indiana small business statistics at-a-glance
- Indiana’s cost of living is the 9th lowest in the United States, while its housing affordability ranks 3rd.
- The Hoosier State’s 11th ranked corporate tax rate, 15th lowest income tax rate, and 2nd lowest property tax rate spurned the Tax Foundation to place it in the top 10 states with business-friendly tax climates.
- Indiana’s early startup survival rate is 80.39%, which is the 11th highest in the country.
- 508,924 small businesses operate in Indiana, accounting for 99.4% of the state’s total businesses.
- 1.2 million Indiana residents are employed by small businesses, which is 45% of the state’s total workforce.
- Indiana’s chief small business employer industry is manufacturing, followed by health care and social assistance, and accommodation and food services.
- In 2016, the median income for self-employed owners of their own businesses in Indiana was $45,276.
Starting a business in Indiana 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 Indiana?
- Who is your target market?
- Do existing businesses in Indiana 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 Indiana 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 Indiana.
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 Indiana.
Indiana Angel Investors and VCs
- Central Indiana Community Foundation – A large group of angel investors that sponsors initiatives with the potential to have a positive impact on the community at large.
- Elevate Ventures – The largest investor network in Indiana, boasting a thick portfolio of successful biotech and medical tech startups.
- Indiana Angel Network – An angel organization with over 200 members founded by entrepreneur Robert Clark, who boasts a long history of assisting CEO’s in increasing the revenue of their companies.
- Innovate Indiana Fund – An investment fund partnered with companies that have an Indiana University connection. Provides capital, connections, and guidance to early-stage companies growing out of the IU environment.
- XCap Angels – An Indiana angel group that counts 10 companies among its portfolio, so far.
Additional Investor Resources
- AngelList: Indiana Angel Investors – An extensive directory of nearly 5000 investors seeking investment opportunities in Indiana. Individual listings give an investor’s professional background, a tally of total investments they’ve made, and their field(s) of interest.
- VisionTech – Not an investment group, but rather a privately held company dedicated to connecting angel investors with promising early-stage Indiana startups, particularly in the life sciences and agri-business areas.
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
Now it’s time to make your business official with the state of Indiana. This process will take a different course depending on the business entity that you’ve settled on.
For sole proprietorships
As in most states, operating a sole proprietorship in Indiana requires no special filing. However, if you intend to use a business name separate from your given name, you need to file an assumed business name certificate with your local county recorder’s office.
First, perform a search at the Indiana Secretary of State website to see if your chosen business name is available in the state. If it is, you are ready to file your assumed business name certificate. You can print out a copy of the form from the Indiana Archives and Records Administration, or obtain one at your county recorder’s office. Once you file, you are free to operate under your assumed name.
For LLCs and corporations
The first step in forming either of these entities is appointing a registered agent to receive process notices and other government correspondence on the business’s behalf. You can be your own registered agent if you have a physical address in Indiana, but first-time business owners are recommended to hire a professional for $50-$200 a year. After appointing a registered agent, you should check the availability of your chosen business name, and proceed to the step of filing the necessary application to form your business.
Those forming an LLC must file Articles of Organization, and those forming a corporation must file Articles of Incorporation. Both forms can be filed online with the Indiana Secretary of State, or printed and mailed in. The fee for filing either form is $100.
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 Indiana Department of Revenue website to determine whether you need to file to pay taxes with the department, which lists 11 state taxes that may apply to your business, including sales tax, innkeeper’s tax, and motor vehicle rental tax.
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.
Banks operating in Indiana good for small businesses
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.
Indiana does not issue a general business license, but it does have over 400 specialty licenses, permits, and certifications for various occupations, and chances are you’ll need to obtain at least one of them to legally operate in the state. Check the Indiana.gov Business Owner’s Guide for a list of license categories, and the departments responsible for issuing each type of license.
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 capital, largest city, and home to Indiana University — Purdue University Indianapolis (a merging of the city’s IU and Purdue campuses), Indianapolis is a great environment to start a business in. The city is inexpensive to live and do business in compared to other American cities and has a large population of young, college-educated professionals from which to build your team. Bloomington, a thriving college town and home to Indiana University, is another good choice for entrepreneurs.
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
Indiana small business resources
- InBIZ – The Secretary of State’s portal for registering your business, filing your bi-annual business entity report, and other business-related services.
- Indiana.gov: Business Owner’s Guide – Contains guidance for Indiana entrepreneurs on how to manage a business in the state once it’s been formed, including info on how to register for taxes and obtain special licenses and permits.
- INTax – Pay Indiana business taxes.
- Indiana Economic Development Corporation – A state-sponsored organization dedicated to boosting Indiana businesses.
- Indiana Small Business Development Center – One of the best resources for Indiana entrepreneurs, with ten state locations providing guidance and resources to help make your business a success.
- SBA: Indiana – The Small Business Administration Indiana district office, located in Indianapolis.
- Indiana Economic Digest – Up-to-date Indiana business and economic news.
- The Flagship Enterprise Center – An incubator program and advanced business center located in Anderson, IN that draws support from Purdue University, the SBA, and a host of other sponsors.
- Bloomington EDC: Entrepreneurship – A directory of incubator and business incentive programs in Bloomington.
Indiana SCORE branches
The nation’s leading business mentorship network has several regional branches in Indiana: