While Massachusetts isn’t one of the most budget-friendly states to live and do business in, the opportunities afforded to entrepreneurs in the state make its high expenses a fair trade-off. This year, US News named Massachusetts the 2nd best state for business for its high business birth and patent creation rates.
Further evidence of Massachusetts’ terrific startup climate is seen in the statistics: 81.18% of Massachusetts businesses survive their first year, which is the 5th highest rate in the nation, while startups in the state create an average of 5.88 jobs in their first year, which places it in the top ten for startup early job creation.
As launching a company in Massachusetts is not without its difficulties, we’ve compiled this useful guide for entrepreneurs starting a business in the state. We’ll walk you through each vital step of getting your labor of love off the ground, from drafting a business plan to obtaining a federal tax ID and attracting investors.
Massachusetts small business statistics
- 652,661 small businesses operate in Massachusetts, accounting for 99.5% of the state’s businesses.
- 1.5 million residents in the state are employed by small businesses, which is 46.1% of the state’s workforce.
- Health care and social assistance is the leading small business employer industry in the state, followed by accommodation and food services, and professional, scientific and technical services.
- 84.63% of Massachusetts entrepreneurs create a business by choice rather than necessity.
- An average of 5.88 jobs are created by Massachusetts startups in their first year.
- Massachusetts boasts a high startup survival rate of 81.18%.
- The state’s patent creation rate of 1,095 per million people was the 2nd highest in the nation between 2015 and 2017.
- Massachusetts was ranked 11th in individual income taxes and 13th in sales tax in Tax Foundation’s 2020 State Business Tax Climate Index.
Starting a business in Massachusetts 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 Massachusetts?
- Who is your target market?
- Do existing businesses in Massachusetts 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 Massachusetts 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 Massachusetts.
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 Massachusetts.
Massachusetts Angel Investors and VCs
- Beacon Angels – An angel group based in Boston and founded in 2006 focused on funding early-stage companies with high growth potential. Investments typically range between $50K to $200K.
- Boston Harbor Angels – A group of accredited investors boasting 15 years of experience in funding startups in the fields of life sciences, information technology, consumer products, and related fields.
- Boynton Angels – An angel group focused on investing in businesses based in the Worcester and central Massachusetts area.
- Hub Angels – Founded in 2000, Hub Angels is one of the longest-running investment groups of its kind in the Boston area. So far, the group has funded $40 million in Massachusetts companies.
- Converge – A highly successful woman-founded venture capital fund that has invested $510M in 77 portfolio companies.
Additional Investor Resources
- AngelList: Massachusetts Angel Investors – A directory of over 5,300 angel investors seeking investment opportunities in the state. Listings will give you an investor’s professional background, total investments made, and fields 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
After deciding on a business entity, you can go ahead and register your business with the Commonwealth of Massachusetts. Depending on your chosen business entity, the registration process varies.
Establishing a sole proprietorship in Massachusetts
If you are using your own name to operate as a sole proprietor there’s no need to file with the state government. However, those doing business under an assumed name separate from their given name must file an assumed business name certificate.
Before you proceed, run a business entity search to ensure that your chosen business name is not already in use. If it’s free to be used, you can head to your local town or city clerk’s office to file an assumed name business certificate application. Filing fees vary depending on your location. Once your application is accepted, you are free to operate your sole proprietorship in Massachusetts.
Forming an LLC or corporation in Massachusetts
Establishing either of these entities in the state follows a similar process, but with different application forms. The first step is appointing a registered agent to tend to process notifications and other government correspondence on your business’s behalf. Anyone with a physical address in the state can be a registered agent, meaning you can appoint yourself, although hiring a professional for $50-$200 a year will save you a lot of time.
With a registered agent in tow, run a search to confirm your chosen business name is available for use in the state, after which you can proceed to file the documents necessary for registration.
For those forming a corporation, you must file Articles of Organization with the state. This can be done online, or via mail, and the fee is $275 for up to 275,000 shares, with an extra $100 added for each additional 100,000 shares.
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. You can register an account with MassTaxConnect, an application provided by the Massachusetts Department of Revenue, to pay state taxes applicable 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 Massachusetts 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.
Massachusetts lacks a general business license, but you may need to acquire one or more specialty licenses to operate, depending on the nature of your business. Visit the Mass.gov Professional Licenses & Permits portal for information and guidance on how to get the licenses or permits you’ll need to operate in the state.
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?
The Boston-Cambridge-Newton, Massachusetts metropolitan area is the center of startup activity in the state, ranking in the 87th percentile in the number of startup companies and startup growth.
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
Massachusetts small business resources
- Secretary of the Commonwealth of Massachusetts – Perform an entity name search, register your LLC or corporation, and find other forms and applications on this website.
- MassTaxConnect – A web-based application that allows you to register your business and file state taxes.
- Mass.gov: Professional Licenses & Permits – Find out what licenses you’ll need to operate your business, and connect with the agencies that issue them.
- Massachusetts Small Business Development Center – A statewide organization that provides advice and education to small business owners at little-to-no cost.
- SBA: Massachusetts – The Massachusetts District Office of the U.S. Small Business Administration, with branches in Boston and Springfield.
- Built in Boston – The online hub of the Boston startup community.
- Mass Tech: Incubators and Accelerators – A huge directory of incubators and accelerator programs located throughout the state.
- EforAll – An organization founded in Massachusetts dedicated to ensuring that everyone has an equal opportunity to make their small business dream a reality.
Massachusetts SCORE branches
The nation’s leading business mentorship network has many regional branches in Massachusetts: