Washington is a haven for small businesses, with 99.5% of the state’s firms having 500 employees or fewer. Considering the high ratio of small businesses in the Evergreen State, there must be something going on there that helps them survive and thrive at a greater rate than other U.S. states. Sure enough, Washington’s early startup survival rate of 80.89% is above the national average.
In the hopes of aiding aspirant entrepreneurs about to join the fray, we’ve put together this comprehensive guide to starting a business in Washington, shining the spotlight on all the key steps of turning a great business idea into a functioning enterprise. Along the way, we’ll point you in the direction of vital local resources and investors to boost your odds of success.
Washington small business statistics at-a-glance
- 608,956 small businesses are active in the state of Washington, accounting for 99.5% of the state’s total businesses.
- 1.4 million Washington residents work for small businesses, which is 51.4% of the state’s private workforce.
- In 2016, small businesses created 62,697 net jobs in Washington, with firms comprising 20 employees or fewer accounting for well over half of those jobs.
- The number of small business proprietors in Washington increased by 1.9% in 2017.
- 80.89% of Washington startups survive beyond their first year.
- Washington startups create 5.26 new jobs in their first year, on average.
- Tax Foundation rates Washington 19th in its 2020 Business Tax Climate Index, with its individual income tax rate ranking 6th in the nation.
Sources: U.S. Census Bureau, Bureau of Labor Statistics, Kauffman, Tax Foundation
Starting a business in Washington in 12 steps
1. Develop an idea
Every successful business starts with a good idea. Ask yourself these questions:
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.
- 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?
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:
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 Washington market for your business idea.
- Is there a demand for your product/service in Washington?
- Who is your target market?
- Do existing businesses in Washington offer a similar product/service?
- What makes your business unique compared to the competition?
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 the 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 Washington.
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 Washington.
Washington Angel Investors and VCs
- Alliance of Angels – A large Seattle-based group of over 140 angel investors that invests at least $10 million a year in 20+ startups based in Washington and the surrounding Pacific Northwest region.
- Bellingham Angel Investors – An angel group started in 2005 focused on investing in early and middle-stage Washington startups based in Whatcom, Skagit, and Island counties.
- Puget Sound Venture Club – Established back in 1985, the PSVC is one of the longest-running groups of its kind in the region, investing over $161 million in 1000+ companies through its lifespan.
- Spokane Angel Alliance – The largest angel group in Eastern Washington, SAA’s 100+ members meet on a bimonthly basis to review entrepreneur pitches and investment opportunities.
- E8 Angels – A Seattle-based angel group with a focus on startups in the “cleantech” category, i.e., renewable energy, smart grid technologies, electric cars, and other sustainable tech.
- SeaChange Fund – A young angel investor group with headquarters in Washington, Idaho, Oregon, Alaska and British Columbia that has amassed a portfolio of 21 companies in its brief 4-year lifespan.
Additional Investor Resources
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:
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.
- 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.
6. Register your business
After you pin down the structure your business will take, you can make it official by registering with the state of Washington. Depending on your chosen business entity, this process follows different steps.
For sole proprietorships
Sole proprietors using their own legal name to do business in Washington are free to operate without filing legal documents with the Secretary of State. However, those intending to use a business name different from their legal name must register their trade name with the Washington State Business Licensing Service, which is a relatively painless process.
First, use the Washington Secretary State Business Search to make sure that your chosen trade name is free to use in the state. You must create a User ID in order to use the search tool.
After determining that your business name is distinguishable from others in the state, you are free to fill out and submit a Business License Application, selecting Register Trade Name under Purpose of Application. The application can be filed online, or through the mail. The filing is $5.
For LLCs and corporations
The first step in forming either an LLC or a corporation in Washington is designating a registered agent to handle process notices and other government correspondence on behalf of your business. The agent must be a firm or individual authorized to do business in Washington and have a physical address in the state.
Next, run a search to verify that your business name is free to use in the state. Then, you can file the obligatory documents to form your business in Washington.
An LLC is created in Washington through the filing of a Certificate of Formation with the Office of the Secretary of State. This can be done online, or through the mail. The processing fee is $180 for mail filing or $200 for online filing.
A corporation is created in Washington through the filing of Articles of Incorporation with the Office of the Secretary of State. The articles may be filed online or via postal mail. The processing fee is $180 for mail filing or $200 for online filing.
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.
For sole proprietorships, an EIN is optional, although it is required for corporations and LLC’s. You can apply online for your EIN through the IRS website, or fill out and mail this form.
Each state has its own laws and taxes regarding businesses. Washington does not administer a traditional income tax, but it does have a business and occupation tax (B&O tax) on the “value of products, gross proceeds of sale, or gross income of the business”.
The B&O tax rate depends on the classification of your business. Visit the Washington Department of Revenue to find out your business’s classification and the rate you can expect to pay. Many businesses are eligible for one of several major tax credits, including the Small Business B&O Tax Credit.
The B&O tax can be reported and paid online upon registering your business with the Department of Revenue.
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 Washington 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.
Most Washington businesses require a state business license in order to operate legally, while some may require an additional city or specialty license depending on the location and nature of the business.
Visit the State of Washington Business Licensing Service for detailed instructions on how to apply for a state business license, and an explanation of the conditions wherein your business will require a city or specialty occupational license.
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?
Seattle–Washington’s major metropolis–has many characteristics that make it a great place to open a business, including a well-educated populace, a wealth of venture funding sources, and an excellent restaurant and nightlife scene. These qualities contribute to Washington’s lively startup scene, and status as the home city of some of the most successful businesses of the last quarter-century (Starbucks, Amazon, Microsoft).
However, the city is expensive, with a high cost of living and housing prices, making it difficult for entrepreneurs on a tight budget to gain a foothold in the city. Fortunately, there are alternatives for budding small business owners who lack the cash flow to establish themselves in Seattle, such as Spokane, the largest city in the eastern part of the state, which is 86.7% cheaper than Seattle, or Olympia, a lively college town with affordable housing prices.
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
Washington small business resources
- Washington Corporations and Charities Filing System – Perform a business name search, or register your business with the state.
- State of Washington Business License Service – Apply for one of several business licenses, including state, city, and specialty licenses.
- Department of Revenue: Register my Business – Register a tax account in order to report and pay the state B&O Tax.
- Washington Small Business Development Center – A statewide organization dedicated to aiding entrepreneurs through no-cost consultation and a variety of other services.
- StartUp Washington – A state-sponsored organization focused on boosting the state’s business community through education, tools, and providing access to funding.
- Built-in Seattle – The online nexus of Seattle’s tech and startup community. Get the latest tech news, learn about upcoming entrepreneur-focused events, and more.
- NFIB: Washington – The Washington hub of the nation’s top small business advocacy organization, featuring news and up-to-date info on issues relevant to the state’s small business community.
- SURF Incubator – The most renowned tech business incubator in Seattle, which also offers rentable workspace, and hosts numerous educational events and workshops catering to members of the city’s startup community.
- Startup Spokane – A great incubator/jack-of-all-trades organization servicing the startup community of the largest urban area in eastern Washington.
- Greater Seattle | SCORE – The chapter of the nation’s leading business mentoring network serving the Seattle metropolitan area.