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Vermont’s small business figures reflect the state’s independent, self-reliant character: small businesses comprise 99% of the state’s businesses, and over 61% of Vermont’s residents are employed by small firms. Compared to neighbor New Hampshire, where less than half of the population works for small businesses, it’s easy to see how Vermont stands out.
In the interest of helping budding entrepreneurs in the Green Mountain State, we’ve put together this comprehensive guide to starting a business in Vermont. We’ll take you through each step in turning a great business idea into a living, breathing entity, beginning with drafting a business plan. Additionally, we’ve provided a wealth of links to vital funding sources and small business advocacy groups to help boost your odds of success.
Vermont small business statistics at-a-glance
- 77,614 small businesses operate in Vermont, which is 99% of the state’s total businesses.
- 161,080 Vermont residents are employed by small businesses, accounting for 61.3% of the state’s private workforce.
- The number of small business proprietors increased by 1.8% in 2017 compared to 2016.
- In 2017, the median income in Vermont for an entrepreneur self-employed at their own incorporated business was $44,051.
- 80.53% of Vermont startups survive beyond their first year of existence, which is above the national average.
- Vermont startups create 4.33 jobs in their first year, on average.
- Vermont is not among the states with the best business tax climates, ranking 44th in Tax Foundation’s 2020 Business Tax Climate Index.
Starting a business in Vermont 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 Vermont?
- Who is your target market?
- Do existing businesses in Vermont 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 Vermont 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 Vermont.
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 Vermont.
Vermont Angel Investors and VCs
- FreshTracks Capital – A seed and early-stage VC firm founded in 200 with a focus on Vermont startups. The group provides funding, consulting, and other resources to accepted companies.
- North Country Angels – A network of Vermont investors with 20 years of experience of investment in early-stage and seed-stage Vermont companies. While investors make individual investment decisions, the group meets together every month to review potential client companies.
- Vermont Seed Capital Fund – A professionally managed “evergreen” equity fund of $5 million which invests exclusively in Vermont startups. Investments range between $25K and $250K.
Additional Investor Resources
- AngelList: Vermont Angel Investors – An exhaustive directory of nearly 5,000 investors seeking the opportunity to invest in Vermont startups with growth potential.
- Northern New England Women’s Investor Network – A coalition of women investors across Vermont, Maine, and New Hampshire that meet regularly to network and discuss investment opportunities.
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 the right structure for your business, you’re ready to register with the state of Vermont. This is a required step for sole proprietorships, LLCs, and corporations in the state.
For sole proprietorships
Whether you use your legal name or fictitious business name as a sole proprietor in Vermont, you must register with the Secretary of State.
First, use the Business Name Search provided by the SoS to make sure that your chosen business name is not already in use in the state.
If the name is free to use, or you are using your legal name to do business, you can go ahead and register a trade name with the Vermont Secretary of State. You can file online, or through the mail. However, online registration is preferred. Those that opt to file through the mail must request a form. The filing fee is $50.
For LLCs and corporations
Those forming one of these two entities must first assign a registered agent to handle the service of process on the business’s behalf. The registered agent must be a business or individual authorized to operate in Vermont and have a physical address in the state.
Next, run a search to verify that your chosen business name is free to use in the state. After determining that the name is free, you can file the necessary documents to form your LLC or corporation in Vermont.
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. A majority of Vermont businesses are required to register with the Vermont Department of Taxes, and pay state taxes applicable to your business such as Sales and Use Tax, Meals and Rooms Tax, and Employer Withholding Tax.
Businesses can register a tax account through the same application used to register their business with the Secretary of State, however, if your business is already registered with the SoS, but doesn’t have a tax account, you can register for one using myVTax.
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 and credit unions operating in Vermont 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.
Vermont does not issue a general business license, although over 40 professions are regulated in the state, and your business may require a license, permit, or certification in order to operate legally.
Visit the Secretary of State website for a list of professions regulated by the Vermont Office of Professional Regulation. Clicking a profession will give you information on the license necessary to legally operate in the field, and in many cases, you can apply online for them.
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?
Though its population is below 50K, Burlington is Vermont’s largest city. It is also the state’s best city in which to start a business, recently being named the 12th best city in the nation for entrepreneurs. Affordability, high wage growth, and excellent internet service all contribute to Burlington’s entrepreneur-friendly environment.
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
Vermont small business resources
- Vermont Secretary of State: Corporations Division – Run a business name search, register your business or trade name online.
- myVTax – Register a tax account for your business, and file and pay taxes.
- Vermont Secretary of State: List of Professions – A directory of regulated professions in Vermont, with information on how to apply for the necessary licenses.
- Vermont Small Business Development Center – Offers no-cost consultation and a slew of other services for Vermont entrepreneurs.
- NFIB: Vermont – The Vermont page of the nation’s leading small business advocate. Get the latest small business news, and read about important issues facing the state’s entrepreneurial community.
- VCET – A renowned organization sponsored by the state government and a number of universities dedicated to boosting Vermont startups through a variety of means, including consultation, access to funding, and offering affordable working space.
- LaunchVT – An early-stage business accelerator wherein participants have the opportunity to secure over $100K in funding.
- Vermont Economic Development – Find the right Regional Development Corporations (RDC) for you and wherever in Vermont you’re located.
- Study Hall – A coworking and event space for entrepreneurs and remote workers located in the heart of downtown Burlington.
- Vermont | SCORE – The nation’s top business mentoring network has a number of chapters located around the state of Vermont.