Starting a Business in Tennessee – A Comprehensive Guide

How to Start a Business in Tennessee

Having a business idea is just the first step in entrepreneurship. If you’re considering starting a business in Tennessee, you’ve landed in the right place. Our blog serves as a complete guide to assist you in launching your business in the Volunteer State. It will help you navigate all the necessary steps for start-up. Our insights will be valuable, empowering you to make informed decisions.

Top Two Benefits of Starting a Business in TennesseeSkyline of Tennessee with its friendly environment for starting a business

  1. Favorable Business Climate : Tennessee boasts a welcoming environment for entrepreneurs, with its favorable tax structure, including no personal income tax on wages and salaries, which could boost your business’s net earnings.
  2. Access to Resources : There’s a wealth of resources at your disposal in Tennessee. The state offers various support programs and organizations that assist start-ups, such as the Tennessee Small Business Development Centers.

 

Top Two Challenges When Starting a Business in Tennessee

  1. Understanding Regulations : Like any other state, Tennessee has its own business regulations and licensing requirements that you must adhere to. Navigating these can be complex, but it’s crucial to ensuring your business operates legally.
  2. Finding Skilled Labor : While Tennessee is known for its diverse workforce, finding highly skilled labor may be challenging depending on your industry.

Did you know? Tennessee was ranked as one of the top 5 states for starting a business in a report by Fit Small Business in 2022. This balance of benefits and challenges makes it an intriguing place for launching your business idea.

Regulatory Factors and Taxes in Tennessee

An important aspect of starting a business in Tennessee involves understanding the state’s tax policies and regulatory factors. Knowing these specifics will enable business owners to adequately budget and plan for expenses.

Tennessee has a unique approach to taxation that favors businesses. The state levies a corporate income tax, the Excise Tax, set at a flat rate of 6.5% on the company’s net earnings. Tennessee also imposes a Franchise Tax for businesses operating within the state. This tax is calculated on Tennessee’s greater net worth of real and tangible property at 0.25% per annum.

Sales tax in Tennessee is another essential factor to consider. The state sales tax rate is currently 7%, but local county taxes can increase the total tax rate to 8.5% and 9.75%. Tennessee has no personal income tax on wages and salaries, which can benefit small businesses.

How do I Choose a Business Structure?

There are five primary types of businesses. Each type of business entity is described below.

Sole Proprietorship

A business owned and operated by one individual with no legal distinction between the business and the owner. The owner is personally responsible for all debts and liabilities of the business. Most small business owners in  Tennessee use this business type.

Limited Liability Company (LLC)

A flexible business organization that combines the liability protection of a corporation with the tax benefits and simplicity of a partnership. Owners of an LLC are called members, and their assets are typically protected from the debts and liabilities of the business. You have the flexibility to define many aspects of how your business will work in your Articles of Organization.

S-Corporations

A type of corporation allows for pass-through taxation, meaning that profits and losses are passed through to the shareholders and reported on their tax returns. S-Corporations are limited to 100 shareholders and must meet specific eligibility requirements. An S-Corp can be particularly advantageous if the founders or investors have other income. If the business doesn’t generate a profit in any year, the shareholders can use the losses from a tax perspective.

C-Corporations

A separate legal entity from its owners (shareholders) means that the corporation can enter into contracts, own assets, and sue or be sued. C-Corporations are subject to double taxation, meaning that the corporation and the shareholders are taxed on profits.

A Note About S-Corps and C-Corps

For both S-Corporations and C-Corporations, your business formation documents will include Articles of Incorporation, sometimes called a Corporate Charter.  The specific requirements and format of Articles of Incorporation can vary by jurisdiction. It is advisable to consult with a business attorney or online legal service such as Legal Zoom to ensure compliance with local laws and regulations when drafting and filing these documents.

Limited Liability Partnership (LLP)

A partnership that limits the personal liability of its partners. LLPs are typically used by professional service providers such as lawyers, accountants, and architects. Each partner is protected from the other partners’ wrongful acts, omissions, and negligence, but they may still be personally liable for their actions.

Distribution of Businesses

Business Type Percent of Businesses in  Tennessee
Sole Proprietorship 55-60%
Limited Liability Company (LLC) 15-20%
S-Corporation 10-12%
C-Corporation 3-5%
Limited Liability Partnership (LLP) 2-3%

The percentages may vary yearly depending on the industry and location. These estimates suggest that sole proprietorships are Tennessee’s most common type of business structure, followed by LLCs and S-Corporations. However, the right choice of business structure depends on the business’s and its owners’ specific needs and circumstances.

What is an Employer Identification Number – EIN?

Definition of an EIN or Employer Identification Number

When starting a business in the US, an Employer Identification Number (EIN) is necessary. The IRS gives This unique nine-digit number, making managing taxes easier for businesses. It can also be referred to as a Federal Tax Identification Number or Federal Employer Identification Number.

Do I Need One to Start a Business in Tennessee?

If you plan to start a business in Tennessee, you will likely need an EIN. This number is required when creating a business entity, hiring employees, obtaining business licenses, or opening a business bank account.

How Do I Get One?

Obtaining an EIN is a straightforward process. You can apply for it directly on the IRS website or send Form SS-4 via mail or fax. The online application process is quick and easy, and you will receive the number immediately upon completion. If you need further assistance, call the IRS at 1-800-829-4933 or visit their website at  https://www.irs.gov/businesses/small-businesses-self-employed/employer-id-numbers .

How to Start a Business in Tennessee – Important Registrations

Registering My Business Name

To begin your business in Tennessee, it’s necessary to register your business name with the Secretary of State’s office. You can get in touch with them by calling (615) 741-2286 or visiting their website at https://sos.tn.gov/businesses.To begin your business in Tennessee, it’s crucial to register your business name with the Secretary of State’s office. You can contact them by calling (615) 741-2286 or visiting their website at  https://sos.tn.gov/businesses .

Registering a DBA (Doing Business As) If Relevant

If you anticipate conducting business under a name different from your officially registered business name, you must register a DBA or “Doing Business As.” Tennessee has 95 counties, each with its local government services and regulations.

For a comprehensive directory of Tennessee’s local governments, you can visit  https://www.tn.gov/tec/local-government/counties.html . This site provides contact information for each county, helping businesses understand local rules or requirements.

Registering for Payroll, State Payroll Taxes, and Unemployment Insurance

Tennessee businesses must establish an account with the Tennessee Department of Labor & Workforce Development for payroll taxes and unemployment insurance. Visit their website at  https://www.tn.gov/workforce  or contact them at (844) 224-5818.

Registering for Worker’s Compensation Insurance

Businesses in Tennessee also need to provide workers’ compensation insurance.  If you use a  payroll service , they should also be able to provide worker’s comp.

Registering for Collecting Sales Tax

Businesses in Tennessee must register to collect sales tax. This can be accomplished on the Tennessee Department of Revenue’s website:  https://www.tn.gov/revenue/taxes/sales-and-use-tax/registration.html .

Registering for Income Tax

For corporate income state tax, businesses in Tennessee should register through the Tennessee Department of Revenue. They can be contacted at (615) 253-0600 or visit their website  https://www.tn.gov/revenue .

Registering to Pay Property Tax

If you’re liable for property tax in Tennessee, you should contact the assessor’s office in your local county. For additional information, visit the Tennessee Comptroller of the Treasury website:  https://comptroller.tn.gov/office-functions/pa/property-taxes/property-tax-programs.html .

Permits for Starting a Business in Tennessee

The capitol building in Nashville Tennessee where programs and regulations for starting a business are managed.Do I Need a Business Permit to Operate a Business in  Tennessee?

At the State Level:  In Tennessee, depending on the nature of your business, you may require a state-level permit or license. The Tennessee Department of Commerce & Insurance is the principal authority that manages these permits. You can explore the necessary approvals for your industry by visiting their website  https://www.tn.gov/commerce  or contact them at (615) 741-2241.

Check With Your City:  In addition to state-level requirements, many cities in Tennessee also have specific permit or licensing requirements. Check with your city’s business office or city hall to understand the needs of your particular location. For example, businesses operating in Nashville can check with the Metro Nashville Codes Department at (615) 862-6500 or visit their website  https://www.nashville.gov/Codes-Administration.aspx .

Check Federal Requirements.  Certain industries are regulated at the federal level and require federal permits or licenses. These include businesses involved in activities such as aviation, alcohol manufacturing and sales, and broadcasting. You can learn about federal licenses and permits through the U.S. Small Business Administration (SBA) website  https://www.sba.gov .

Check With Your County:  County-level requirements also exist in Tennessee. Contact your local county clerk’s office to ensure you meet all local ordinances and receive the necessary permits. For instance, if you’re operating in Knox County, contact the Knox County Clerk’s office at (865) 215-2385 or visit their website  https://knoxcounty.org/clerk .

How do I learn about any special permits I need for my business?

Beyond the general business permits, your venture may require specific licenses based on the nature of your operations. Here are some resources to assist you:

Industry-Specific State Departments:  Different industries often fall under the jurisdiction of different state departments. For example, the Tennessee Department of Health  https://www.tn.gov/health  oversees businesses in the health and wellness sector.

Professional Assistance:  Consulting with a business attorney or a seasoned business consultant could provide valuable insights into the specific permits your business might require.

Business Networks and Trade Associations:  Joining local business networks or trade associations relevant to your industry could provide you with practical knowledge from peers who have been through the process.

Tennessee Small Business Development Center:  TSBDC offers free and confidential counseling to entrepreneurs and could be a valuable resource for understanding specific permit requirements. Visit  https://www.tsbdc.org  for more information.

Financing Options for Entrepreneurs in Tennessee

Starting a business can be exciting but often requires a lot of money. Although using personal assets and credit cards may seem like a quick solution, other financing options are available. Exploring alternative financing options can safeguard your finances and ensure the success of your business in the long run.

Financing a New Business

Finding credible funding sources is crucial to the sustainability and growth of any new business. Whether through grants, investments from venture capitalists, or angel investors, every business needs to identify and secure reliable funding. Understanding the different types of financing available and doing comprehensive research to determine the best fit for your business model is essential for your business’s financial health.

SBA Loans and Microloans

The U.S. Small Business Administration (SBA) supports small businesses by offering various loan programs, including microloans. These microloans offer small businesses short-term financial assistance that can be used for various business expenses. These loans can be instrumental in providing the necessary capital for businesses to invest in inventory, equipment, or working capital. You can learn more about SBA microloans at  https://smallbusinessplans.com/sba-microloans-for-small-businessess-and-startups/ .

SBA Microlenders in Tennessee

Here are some options for SBA Microlenders in Tennessee:

Southeast Community Capital        

Barbara Harris

201 Venture Circle, Nashville, TN37228

Phone: 615-916-4916

Email:  keith.hickey@pathwaylending.org

Pathway Lending

201 Venture Circle, Nashville,

TN 37228

Phone: (615) 425-7171

Website:  https://www.pathwaylending.org

These organizations provide micro-loans and additional services like business mentoring and training to support new business ventures in Tennessee.

State and Local Grants and Incentives

Tennessee provides several state and local grants and incentives for small businesses. The state government fosters a supportive environment for businesses to thrive and grow through various departments and initiatives. Let’s delve a bit deeper into the grants and incentives offered.

Tennessee Department of Economic & Community Development (TNECD)

The TNECD offers numerous programs to support small businesses and enhance economic development. Their initiatives include the FastTrack program, which helps companies with infrastructure development, job training, and headquarters relocation expenses. The department also manages various loan and grant programs, including the Rural Opportunity Fund, which specifically aids small businesses in rural counties. For more information, visit the TNECD website at  https://www.tn.gov/ecd .

Launch Tennessee

Launch Tennessee is a public-private partnership with a vision to make Tennessee the most startup-friendly state in the nation. They offer programs and resources to help entrepreneurs at every stage of their business, from idea to market. One of their notable programs is the SBIR/STTR Matching Fund Grant, designed to stimulate innovative research and technology commercialization. For more details about their offerings, visit  https://launchtn.org .

Tennessee Valley Authority (TVA) Economic Development

The Tennessee Valley Authority (TVA) Economic Development program aims to stimulate economic growth in the Tennessee Valley. They provide various services such as site selection assistance and grants for business expansion or relocation. Additionally, they have programs targeted at rural areas and economically distressed communities to spur growth and create job opportunities. More about their services and programs can be found at  https://www.tva.com/economic-development .

Angel Investor Groups

Angel investor groups are an excellent funding source for startups and small businesses. They consist of individuals who pool their resources to invest in promising business ventures. Besides capital, angel investors often bring industry experience and a valuable network of contacts.

In Tennessee, there are several active angel investor groups. One of the notable ones include  Nashville Capital Network . Online platforms like AngelList also provide an avenue to connect with angel investors nationwide.

Nurturing relationships with potential angel investors and understanding their investment criteria can significantly increase your chances of securing investment. Conducting thorough research and seeking legal advice before accepting investment offers is crucial.

Benefits of a Well-Structured Business Plan

In the landscape of Tennessee’s vibrant economy, a well-structured business plan is instrumental to an entrepreneur’s success. This document, often likened to a roadmap, outlines your business’s objectives, strategies, potential challenges, and how to tackle them. It also delineates your financial projections and the resources required to realize your business goals.

Whether start-ups or established entities, businesses in Tennessee gain numerous benefits from a well-thought-out plan. For instance, a business plan helps articulate your concept, which is beneficial when communicating with potential investors, lenders, and partners.

Additionally, it aids in identifying potential market opportunities and the strategies to capitalize on them, which is vital in Tennessee’s diverse and competitive marketplace. A well-structured business plan can also shed light on regulatory requirements unique to the state, helping businesses operate within legal bounds.

Creating a solid business plan in Tennessee often involves understanding the local market, including competitors, potential customers, and the overall business climate. Resources such as Tennessee’s Department of Economic and Community Development offer useful insights to inform your plan. It’s also important to regularly review and update your business plan as your business grows and the market evolves.

Meeting Lender and Investor Expectations

In the business world, capital is often a vital requirement for growth. Meeting lender and investor expectations can dramatically enhance your chances of securing needed funding. Lenders and investors seek assurance that their investment is safe and promises a reasonable return.

Businesses must demonstrate their ability to generate profits and manage debt effectively. This often involves providing a well-structured business plan, explaining competent management, and showing evidence of market opportunity. Also, transparency in financial statements and a clear plan for utilizing the funding are crucial.

Organizations like the Tennessee Small Business Development Center assist in preparing for lender or investor meetings in Tennessee. Understanding and meeting lender and investor expectations improve your chances of securing funding and also help foster long-term relationships with these essential stakeholders.

A well-structured business plan and meeting lender and investor expectations must be balanced when running a successful business in Tennessee. These elements are fundamental to securing funding, making informed decisions, and realizing business growth.

Where Can I Find a Mentor to Help Me Succeed?

Success in entrepreneurship often hinges on guidance and support. Experienced mentors provide invaluable advice, industry insights, and practical strategies tailored to Tennessee’s unique business environment. Tennessee has a robust network of organizations and resources committed to nurturing the success of its entrepreneurs. Here are several options you should consider:

Tennessee SCORE:  Affiliated with the U.S. Small Business Administration (SBA), Tennessee SCORE is an excellent source of free business mentoring. They also offer low-cost workshops and a variety of tools and resources to support businesses at every stage of development.

Website:  https://scoretn.org/

Tennessee Small Business Development Centers (TSBDC): Offering various services, including assistance with business plan creation and financial analysis, TSBDC is a beneficial resource for new and existing businesses.

Phone: (615) 898-2745

Website:  https://www.tsbdc.org/

Pathway Women’s Business Center:  This specialized organization equips women entrepreneurs with practical business development training, personalized counseling, and opportunities for networking and learning.

Email:  info@pathwaywbc.org

Website:  https://www.pathwaywbc.org/

Launch Tennessee:  Fostering innovation and growth, this organization brings entrepreneurs together with programs and events designed to inspire and equip.

Phone: (615) 921-4250

Website:  https://launchtn.org/

By tapping into these resources, entrepreneurs can gain the essential knowledge and support needed to successfully navigate Tennessee’s business landscape.

The Economy of Tennessee

Understanding the Economy of Tennessee is critical when considering starting a business. This information provides an understanding of the economic landscape, purchasing power, and educational profile of the population, all of which are important considerations for a new business.

Economic OverviewTennessee has a vibrant business economy underscored by their strong education system. University of Tennessee is pictured here.

Average Household Income

The median household income in Tennessee stands at around $58,516. This figure is crucial for potential entrepreneurs as it provides a snapshot of the purchasing power of the state’s residents. While slightly lower than the national average, this figure demonstrates a consistent market that can support various businesses, particularly in the consumer goods sector.

Average Level of Education

Approximately 88.8% of Tennessee’s population aged 25 and over have completed high school, while about 29% hold a bachelor’s degree or higher. This high level of education suggests an adaptable, trainable workforce ready for various business sectors. It also signifies an informed and discerning consumer market likely to appreciate high-quality products and services.

Consumer Spending per Capita

Consumer spending per capita in Tennessee is about $39,410. This figure indicates the spending power of the average individual and helps businesses understand their potential market size. While slightly lower than some states, Tennessee’s spending per capita suggests a robust consumer market with significant potential for many companies.

In conclusion, understanding these elements of Tennessee’s economy is crucial when starting a business. It allows entrepreneurs to gauge the state’s market potential, consumer behavior, and economic conditions, all of which contribute to informed business decisions and strategic planning. It’s all about knowing your market and ensuring your business fits within Tennessee’s economic framework.

Top Industries in Tennessee:

Tennessee’s economy is a diversified blend of industries, offering entrepreneurs and business owners many opportunities. A few sectors are particularly prominent, contributing significantly to the state’s economic health and growth.

The automobile manufacturing industry, for example, has a strong presence in Tennessee. The state has several automobile manufacturing plants, including Nissan, General Motors, and Volkswagen. This sector’s influence is substantial, contributing billions to the state’s economy and employing thousands of Tennesseans. The automobile industry in Tennessee was responsible for more than 4% of all American-made cars.

Healthcare is another significant sector in Tennessee, particularly in Nashville, which is often referred to as the healthcare industry’s capital. More than 500 healthcare companies have operations in the Nashville region, contributing approximately $92 billion to the city’s economy and providing over 570,000 jobs globally as of 2021. The healthcare industry in Tennessee includes hospital management, health technology, and outpatient care centers, among other sectors.

Tourism also plays a vital role in Tennessee’s economy. In 2019, travel expenditures reached an all-time high of $23 billion in the state, bolstered by famous attractions such as the Great Smoky Mountains National Park, Graceland, and the country music scene in Nashville.

Technology and renewable energy are emerging as notable industries in Tennessee. Although not as prominent as the others, the state’s tech sector is growing steadily, with Nashville experiencing a 30% growth in tech jobs. The renewable energy sector is witnessing significant change, with the Tennessee Valley Authority making substantial solar and wind power investments.

Network Your Way to Success When Starting a Business

Networking is a skill that most successful business owners have as one of their top talents. You can do it too! Networking is a great way to improve your success and grow your personal and business reputation. Here are a few ways to get started.

Identify Complementary Businesses:  Complementary businesses can add value to your products or services, improving the customer experience and potentially increasing sales. The potential for such partnerships is high in Tennessee, where diverse industries thrive. For instance, a new tech startup might partner with a local university for research and development efforts, or a restaurant might collaborate with local farms for fresh produce.

Leverage Workforce Talent:   The diverse industries in Tennessee have cultivated a skilled and varied workforce. Businesses can leverage this talent to fuel growth and innovation. For instance, the strong presence of the auto manufacturing and healthcare industries suggests a pool of individuals skilled in manufacturing, health services, and related fields.

Collaborate with Industry Leaders:  Tennessee’s prominent industries are home to many industry leaders. Collaborating with these companies can offer mentorship, partnership, and learning opportunities. For a small healthcare tech startup, for example, working closely with established healthcare companies in Nashville could provide invaluable industry insights and potential avenues for growth.

Workforce and Talent

Understanding the workforce demographics, talent pool, and labor market conditions is critical when starting a business or expanding existing operations in Tennessee. This data can shape your recruitment strategies, wage policies, product offerings, and business location decisions.

Unemployment Rate

Tennessee’s unemployment rate is a key indicator of the state’s labor market health. As of 2023, the unemployment rate in Tennessee stands at approximately 3.30%. This figure suggests a relatively robust economy, with a good job availability and workforce supply balance.

Minimum Wage

The minimum wage in Tennessee is another important factor to consider. Tennessee does not have a state-mandated minimum wage. Therefore, employers follow the federal minimum wage of $7.25 per hour. Paying competitive wages above this minimum could help attract and retain talent, given the cost of living and market conditions in different areas of the state.

Average Age and Demographics

Tennessee had a median age of 38.8 years. Approximately 51.2% of the population are females, and 48.8% are males. These figures provide insight into the consumer market and potential workforce. For instance, industries that cater to certain age demographics or genders might find these statistics particularly useful.

Breakdown of People with Various Levels of Education

In terms of education, Tennessee residents aged 25 and above:

  • Approximately 88.8% hold a bachelor’s degree or higher
  • About 29% have a high school diploma or equivalent
  • Roughly 10% do not have a high school diploma

These education levels suggest a highly educated workforce, which could benefit businesses requiring specialized skills or knowledge.

In conclusion, understanding Tennessee’s workforce, talent, and labor market conditions is instrumental for businesses. The unemployment rate, minimum wage, average age, gender ratio, and education levels are pivotal in shaping business strategies and decisions. Collectively, these factors offer a nuanced understanding of the state’s economic dynamics and potential opportunities for business growth.

Top Areas of Skilled Workers for Residents of Tennessee

Tennessee boasts a broad spectrum of industry sectors, presenting numerous opportunities for skilled workers. Manufacturing is a cornerstone of the state’s economy, providing jobs in diverse areas, from automotive production to food processing. This sector’s assembly line workers, technicians, engineers, and other professionals contribute to the production of goods distributed across the nation and the world. Moreover, the manufacturing sector’s continued modernization means a growing demand for employees adept in automation and robotics.

Healthcare is another significant area for skilled workers in Tennessee, particularly in the state’s major cities like Nashville, known as a healthcare hub. The sector encompasses many job roles, from direct patient care, such as nursing and physical therapy, to administrative positions in medical records and health information management. Moreover, the state’s expanding aging population indicates a potential for increased job opportunities in elder care and related health services.

Information Technology (IT) is a rapidly growing sector in Tennessee, bolstered by the state’s efforts to attract tech businesses and startups. IT professionals—software developers, systems analysts, and IT support specialists—are in high demand. The sector offers diverse opportunities in healthcare, finance, and logistics industries, where tech professionals work on everything from maintaining critical infrastructure to developing new software applications.

The availability of diverse employment opportunities in these sectors benefits Tennessee’s residents and attracts talent from other states and countries. This influx of skilled workers further contributes to Tennessee’s economic dynamism, creating a cycle of growth and innovation. As these sectors continue to expand and evolve, they are likely to present even more opportunities for skilled professionals, helping to solidify Tennessee’s status as a desirable place to live and work.

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