Entrepreneurs in Virginia have advantages over most other states: Old Dominion placed 4th in Forbes’ most recent Best States for Business ranking, earning 1st place marks in regulatory environment and quality of life. Opening up a business in Virginia means that you get to take advantage of a booming state economy, moderate tax rates, and plenty of investment sources.
For the sake of helping nascent small business owners in the state, we’ve put together the definitive guide to starting a business in Virginia, covering all the key steps, from writing a business plan to applying for the occupational licenses and permits you’ll need to operate legally in the state.
Virginia small business statistics at-a-glance
- 745,886 small businesses are active in Virginia, comprising 99.5% of the state’s businesses.
- 1.5 million Virginians are employed by small businesses, accounting for 47.2% of the state’s private workforce.
- Small Businesses created 50,960 net jobs in Virginia during 2016, with small firms having fewer than 20 employees experiencing the largest net gains.
- 78.62% of Virginia startups survive their first year in existence.
- Virginia startups create 4.68 jobs in their first year, on average.
- According to the Tax Foundation’s 2020 Business Tax Climate Index, Virginia has the 14th ranked corporate tax, and 11th rated sales tax.
- Professional, Scientific, and Technical Services is Virginia’s leading small business employment industry, followed by accommodation and food services, and health care and social assistance.
Starting a business in Virginia 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 Virginia?
- Who is your target market?
- Do existing businesses in Virginia 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 Virginia 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 Virginia.
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 Virginia.
Virginia Angel Investors and VCs
- 757 Angels – A large network with a membership topping 100 that has invested $47 million in 23 companies since launch.
- New Dominion Angels – A young angel investment group founded in 2015 that counts over 21 startups from the mid-Atlantic region among its portfolio companies.
- Shenandoah Valley Angel Investors – A 29 member strong investment group that invests in startups in a broad range of industries, including manufacturing, technology, healthcare, and others.
- Virginia Active Angel Network – An angel investor group started in 2005 by University of Virginia graduates.
Additional Investor Resources
- AngelList: Virginia Angel Investors – A directory of over 5,100 angel investors interested in funding early-stage Virginia startups.
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 the business structure that’s right for your fledgling company, you can register it with the Commonwealth of Virginia. This process follows different steps depending on your chosen business entity.
For sole proprietorships
Sole proprietors using their legal name to do business in the state may do so without filing with the state government, however, those that intend to use a trade name must register an assumed business name certificate with the county clerk’s office in the county in which the business is located.
First, run a search using the Business Name Database hosted by the Virginia Corporation Commission to verify that your chosen business name is distinguishable from others on record. After this, you may file your assumed name certificate application with your local county clerk. The filing fee varies between counties.
For LLCs and corporations
Everyone forming an LLC or corporation must first appoint a registered agent to handle process notices and other government correspondence on behalf of the business. The registered agent must be a firm or individual authorized to do business in Virginia and have a physical address in the state.
Next, run a search to confirm that your business name is available for use in the state. Then, you can file the paperwork necessary for the formation of your business.
An LLC is formed in Virginia through the filing of Articles of Organization with the Virginia State Corporations Commission. You can file the articles online using the Virginia New Entity Formation service, or through the mail. The filing fee is $100.
A corporation is formed in Virginia through the filing of Articles of Incorporation with the Virginia State Corporations Commission. This can be done online, or by using postal mail. The filing fee depends on the number of authorized shares the company is eligible to issue, beginning at $75 for 25,000 shares, or less, and peaking at $2,525 for over 1 million 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. Visit the Virginia Department of Taxation for an explanation of the state taxes your business will be required to pay. You can also register your business to report and pay taxes through the website.
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 Virginia 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.
Visit the Virginia Department of Professional and Occupational Regulation website to apply for any occupation licenses, certificates, or registrations that you need to operate legally in the state. The site will tell you the necessary qualifications for applying for each license and provides printable application forms and links to where you can apply.
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?
Richmond is a great Virginia city to start a business in. The city is well-positioned near busy cities like Washington, D.C., and Baltimore, as well as great outdoor destinations such as Jefferson National Forest, if you need a break from urban life. Entrepreneurs living in Richmond can also take advantage of the city’s top-notch nightlife and art scenes.
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
Virginia small business resources
- Virginia State Corporation Commission – Perform a business name search, or register your business online with the state.
- Virginia Department of Taxation: Businesses – Learn about state-administered business taxes, and register your business online to file and pay taxes in the state.
- Virginia Department of Professional and Occupational Regulation – The state agency tasked with issuing and renewing many types of professional business licenses.
- Startup Virginia – An organization offering a number of incubation and educational programs for fledgling startups in the state, and also provides workspace at its large facility in downtown Richmond.
- Virginia Small Business Development Center – The largest organization dedicated to aiding small business owners in the Commonwealth of Virginia. Offers free one-on-one consultation and a host of other services aimed at assisting Virginia entrepreneurs.
- NFIB: Virginia – Get involved in local issues facing Virginia small businesses through the Virginia website of the nation’s leading small business advocacy group.
- RVA Works – A Richmond-based incubation program using the WIBO curriculum.
- 1717 Innovation Center – An all-in-one workspace, event & conference center, and design lab for Richmond entrepreneurs and community organizations.
Virginia SCORE chapters
The nation’s top business mentoring network has a number of local chapters spread across the Commonwealth where entrepreneurs can get advice on how to grow their businesses: