Rhode Island may be the smallest state, but that doesn’t mean that it lags in economic performance. The Plantation State boasts robust health care, manufacturing, and tourism sectors that contribute to an overall favorable environment for entrepreneurs in the state.
Rhode Island’s scenic beauty and clean air–which many residents of neighboring states flock in to enjoy during the autumn foliage season–are the icing on the cake for the state’s small business owners.
To aid you in your quest for entrepreneurial success, we’ve produced the definitive guide to starting a business in Rhode Island. We’ll walk you step-by-step through each crucial aspect of launching an enterprise in the quintessential New England state, from drafting a business plan, to acquiring the specialty licenses and permits you’ll need to operate legally.
Rhode Island small business statistics at-a-glance
- 101,516 small businesses operate in Rhode Island, which is 98.9% of the state’s total businesses, or about 1 for every 10 residents in the state.
- 229,974 Rhode Islanders are employed by small businesses, comprising 52.8% of the state’s total workforce.
- Rhode Island entrepreneurs self-employed at their own incorporated businesses earned an average yearly income of $65,580 in 2017.
- The healthcare and social assistance industry is the leading small business employer in Rhode Island, followed by accommodation and food services at #2, and manufacturing at #3.
- 74.3% of Rhode Island startups survive beyond their first year of existence.
- 4.16 new jobs are created by Rhode Island startups in their first year, on average.
- Tax Foundation rates Rhode Island 39th overall in their 2020 State Business Tax Climate Index.
Starting a business in Rhode Island 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 Rhode Island?
- Who is your target market?
- Do existing businesses in Rhode Island 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 Rhode Island 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 Rhode Island.
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 Rhode Island.
Rhode Island Angel Investors and VCs
- Cherrystone Angel Group – Rhode Island’s leading angel investment group, boasting a portfolio of over 20 New England companies, many of which are in the biotech field.
- RevUp Capital – A Rhode Island venture capital firm that specializes in investing in B2B and B2C companies. Initial investments typically range between $100K and $250K.
- Slater Technology Fund – A top seed-stage venture fund in the state, with a focus on tech startups.
- Thursday Ventures – An early-stage tech investor currently accepting pitches from Rhode Island entrepreneurs.
Additional Investor Resources
- AngelList: Rhode Island Angel Investors – A directory of nearly 5,000 angel investors interested in funding Rhode Island startups with high growth potential.
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 businesses 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 settle on a business structure, you’re ready to register with the state of Rhode Island. The registration process varies depending on whether you are launching a sole proprietorship, an LLC, or a corporation.
For sole proprietorships
Sole Proprietors in Rhode Island do not need to register with the state government, however, if you intend to use a business name separate from your legal name, you are required to file an assumed name certificate with your local city or town clerk.
First, search the Rhode Island Secretary of State Business Name Database to make sure your name is available for use in the state. Next, head to the city or town clerk in the community where your business is located and fill out an assumed name certificate, get it notarized and submit the form. The filing fee is $10.
Check out the Rhode Island Directory of City & Town Officials to find contact info and get in touch with your local city or town clerk.
For LLCs and corporations
The first step in creating either entity in Rhode Island is appointing a resident agent (known as a registered agent in most states) to handle process notices and other government correspondence on your business’s behalf. The resident agent must have a physical address in the state.
Next, run a search to confirm that your chosen business name is available in the state. If the name is free to use, you can go ahead and file the required documentation to form your business.
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 State of Rhode Island Division of Taxation to register your new business online to pay state taxes. Your application can be used to register for an income tax withholding account and an unemployment insurance account, as well.
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 Rhode Island 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.
Head to the State of Rhode Island Department of Business Regulation website to take care of your licensing needs in the state. The department does not regulate every type of business in the state, but it does regulate many of them. Through the site, you can search and apply for licenses, keep track of your applications, and contact an employee of the department with any questions you may have.
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?
Rhode Island’s small size means that there aren’t too many cities in the state to choose from to launch your business out of, and no matter where you live and work, other urban areas in the New England region are a short drive away.
Our pick for the top Rhode Island city to start a business in is Providence, which boasts cheaper median home prices and a lower cost of living than most other large cities in the New England region. In recent years, development in the city’s metro area has given it a new look, yet many areas of the city retain their rustic New England vibe.
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
Rhode Island small business resources
- Rhode Island Secretary of State: Business Portal – Find all the necessary forms you’ll need to register your business or trade name. You can file most forms online.
- Rhode Island Department of Taxation: Business Registration – Register your business to file taxes in the state.
- Rhode Island Department of Business Regulation – Obtain the licenses or permits you need to operate legally in Rhode Island or contact a representative of the department for guidance.
- Rhode Island Small Business Development Center – An organization dedicated to aiding Rhode Island small business owners through free consultation, training programs, and providing access to vital resources.
- Rhode Island Inno – Get the latest news pertaining to Rhode Island’s startup community and learn about upcoming entrepreneur-focused events in the state.
- Rhode Island Coalition of Entrepreneurs – An organization focused on strengthening connections within the Rhode Island business community and creating greater opportunities for the state’s entrepreneurs.
- Social Enterprise Greenhouse – An organization headquartered in Providence offering a wide range of services for social entrepreneurs in the state, including an incubator, accelerator, coworking space, advising, and more.
- NFIB: Rhode Island – The Rhode Island nexus of the nation’s leading small business advocacy group. Get the latest small business news and learn about pressing issues affecting Rhode Island entrepreneurs.
- Mass Challenge Rhode Island – An accelerator that uses a competition model for accepting startups into the program. Winning applicants can potentially win up to $100K in cash and four months of free office space in downtown Providence.
- Rhode Island | SCORE – The nation’s leading small business mentoring network’s sole Rhode Island chapter.