How to Decide Where to Establish Your Business

As a new business owner, one of the many decisions you will need to make is where to establish your business. Rules and costs associated with establishing a business are determined by state law, so it’s important to understand the implications involved.

Here’s how to decide where to establish your business:

Ease of Starting Your Business

In some states, it’s easy to start a business. I started my first business in Utah. The paperwork was minimal, and the cost was pretty low. When I moved to Pennsylvania, I researched what it would take to transfer my business. The paperwork involved was more extensive, but still manageable. In the end, though, I ended up dissolving the business and starting fresh in Idaho.

So far, Idaho’s requirements have been the easiest of the three. I filled out one form and sent in a small fee. There are reporting requirements starting next year, but those aren’t onerous.

Other states are more difficult to deal with. I’ve heard horror stories about starting a business in California or New York. However, if you live in one of those areas, you might just have to grit your teeth and do what it takes to make it happen. A good accountant or small business attorney can help you navigate the twists and turns to make it work properly.

Cost of Living

Sometimes, deciding where to establish a business is more a matter of basic cost of living. I know a number of entrepreneurs who, like me, have small businesses that have few employees. A few of them have recently moved to Tennessee to take advantage of the low cost of living and favorable tax situation.

In my case, moving to Idaho has been a great help. Everything costs much less here. My housing is half what I paid in Pennsylvania--for twice the space. My insurance costs are also lower. I can’t even imagine what it would cost to live in California, New York, New Jersey, or Washington, DC. From food to utilities to insurance, making a choice based on cost of living can help you get your business off the ground.

Another great thing about a place like Idaho is that it offers more than you might think. While smaller towns and cities are not as exciting as San Francisco or Boston, the reality is there are plenty of livable places that aren’t major cities. In fact, Boise, the capital of Idaho is considered exceptionally livable and was recently recognized as a great place for millennials.

When you establish a business, you have the option to go almost anywhere you want; the reality is that starting a business comes with a number of costs. If you live in an area with a high cost of living, you’ll have fewer financial resources to put toward your business. If you can manage to choose where to live, it makes sense to go with a lower cost of living.

Taxes

Finally, don’t forget to consider taxes. One of the biggest reasons that my entrepreneur friends choose Tennessee is because of the low taxes. Idaho has a higher personal income tax than Pennsylvania (which surprised me), but the cost of living is so much lower that it makes up for it.

You should consider the taxes involved, based on your business organization. A “pass-through” business comes with a different tax situation than a C corporation. When you consider where to establish your business, you also need to consider what makes sense in terms of business organization. Make it a point to research how taxation works for your business in the state you choose.

Business Location vs. Where You Live

Finally, in some cases it’s possible to establish your business in a state where you don’t live. However, there may be complications that come with it, including how you get your mail if your business is located in a different state.

I like to have my business located in the same state as me, but I’m also registered as a single-member LLC and my income is passed through. Talk to a knowledgeable professional about your options as you decide on the best location for your business.