Maryland lies at a geographically advantageous position for entrepreneurs: it’s located at the nexus of the north and the south and serves as a gateway to both regions of the country. What’s more, the nation’s capital, Washington, D.C., lies just beyond its borders.
In order to aid budding entrepreneurs in the Old Line State, we’ve produced this step-by-step guide to starting a business in Maryland. By following our advice on how to draft a business plan, attract investors, and register your business in the state, you’ll increase your odds of becoming one of the 77.58% of Maryland businesses to survive their first year.
Maryland small business statistics at-a-glance
- 581,712 small businesses operate in Maryland, accounting for 99.5% of the state’s total businesses.
- 1.1 million Maryland residents are employed by small businesses, which is 50.2% of the state’s total workforce.
- 203,326 Maryland small businesses are minority-owned, which is over one-third of the small businesses in the state.
- The health care and social assistance industry is the state’s leading small business employer, followed by professional, scientific, and technical services; and accommodation and food services.
- 77.58% of Maryland startups are still active after their first year of existence.
- An average of 4.04 jobs are created by Maryland startups in their first year.
- Maryland’s tax climate is not among the most business-friendly: the state ranks 43rd overall in Tax Foundation’s 2020 State Business Tax Climate Index.
Starting a business in Maryland 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 Maryland?
- Who is your target market?
- Do existing businesses in Maryland 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 Maryland 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 Maryland.
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 Maryland.
Maryland Angel Investors and VCs
- Baltimore Angels – A group of over 55 investors that is based in Maryland’s largest city. The Baltimore Angels have invested over $9 million in more than 50 portfolio companies, to date.
- The Dingman Center Angels – An investment group active since 2010 with a focus on early-stage companies in the Mid-Atlantic region. Investment opportunities are presented to the group during monthly meetings, and members make their own decision whether to collaborate on an investment.
- New Dominion Angels – An angel investment group that funds early-stage companies based in the Mid-Atlantic region. Currently, the group counts over 15 companies in its investment portfolio.
Additional Investor Resources
- AngelList: Maryland Angel Investors – An exhaustive director of over 5,000 angel investors seeking Maryland businesses to invest in. Individual listings include each investor’s professional background, a tally of total investments they’ve made, and their fields of interest.
- Baltimore SourceLink: Venture Capital – A directory of 20 venture capital groups active in the Baltimore area.
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
After deciding on a business entity, it’s time to register with the state of Maryland. Depending on whether you are starting a sole proprietorship, LLC, or corporation, the steps of this process vary.
For sole proprietorships
If you operate your sole proprietorship under your own name, no special filings are required in the state of Maryland. However, if you plan to use an assumed name separate from your given name, you are required to submit an application for a trade name.
First, run a business entity search to confirm that your chosen business name is available for use in Maryland. If your business name is available, create an account with the Maryland Business Express portal, and file your trade name application online. The $25 filing fee can be paid with a major credit card.
For LLCs and corporations
According to federal law, business owners forming an LLC or corporation must appoint a registered agent to receive process notices and other government correspondence on the business’s behalf. Those with a physical address in the state can appoint themselves as registered agent, but hiring a professional for $50-100 will save you a lot of time, and ensure that applications are filed correctly.
Next, do a business entity search to make sure that your chosen business name is not already in use in the state. After confirming your chosen name is available, you can submit the necessary application to form your business in Maryland.
Those forming an LLC must file Articles of Organization. This can be done online, or through the mail, and the filing fee is $ 100, with a 3% service fee added for online filings.
Entrepreneurs forming a corporation are required to file Articles of Incorporation, which can be done online, or through the mail. The fee for filing the articles is $120, which includes the filing fee of $100, in addition to a $20 organization and capitalization fee. If the aggregate par value of the stock is above $100,000, you will not need to pay the organization and capitalization fee. Online filings require a 3% service 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.
Maryland requires businesses to report taxes. Use your EIN to register with the Maryland Comptroller of Treasury. Visit this page for more information on business tax forms, and instructions on how to pay state taxes that apply to your business.
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 Maryland 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.
The Maryland state government hosts the helpful Maryland OneStop Portal where you can learn about specialty licenses and permits that your business needs to legally operate, and apply for them through the state agencies tasked with issuing a particular license, permit, or certification.
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?
According to an Inc.com ranking, Maryland’s largest city, Baltimore, is not among the best U.S. cities to start a business in, with low scores in net business creation and wage growth. However, the city is home to several fine incubators such as Emerging Technology Centers and Betamore that can aid entrepreneurs in growing their businesses in the city.
Bethesda, a suburb of Washington, D.C., is a more promising location for entrepreneurs to base their companies due to its strong local economy and well-educated populace.
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
Maryland small business resources
- Maryland Business Express – Register your business online, run a business entity search, and find information on how to manage your business in Maryland.
- Comptroller of Maryland: Information for Business Taxpayers – Register your business and file Maryland state taxes.
- Maryland Onestop Portal – Learn about and apply for special licenses, permits, and certifications necessary for operating your business in the state.
- Maryland Small Business Development Center – A statewide organization dedicated to aiding Maryland small business owners through consultation and educational resources.
- SBA: Maryland – The Maryland District Office of the U.S. Small Business Administration. Located in Baltimore.
- Baltimore Small Business Resource Center – An organization established by the Baltimore County Chamber of Commerce and the Baltimore County Department of Economic Development dedicated to educating and assisting entrepreneurs in the Baltimore metropolitan area.
- Betamore – An incubator program in Baltimore offering workspace, educational workshops and networking events to entrepreneurs in the city.
- ETC Baltimore – A network of several incubator and accelerator programs for aspiring entrepreneurs in Baltimore. ETC has worked with 500 companies in the city since launch.
Maryland SCORE branches
The nation’s largest business mentorship network has a number of regional branches in Maryland: