small businesses in Alabama

Learning how to start a small business in Alabama would be a great idea because the state boasts of having the 3rd lowest tax burden, the 6th lowest cost of labor, and 9th in lowest cost of living in the United States of America.

You might have thought that you need to go to a big city if you want to launch a small business but recent analysis has proven that businesses thrive, even in small metros in Alabama.

I will share a simple guide on how you can start a small business in Alabama and accelerate financial and personal independence.

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Note that you can always connect with a business resource in your local area if you somehow lose track.

The ten steps to starting small businesses in Alabama are:

1. Opt for the right business idea

Choosing what kind of business to start is the first step towards business ownership. You should opt for a business idea that suits your interests, your goals, and your natural abilities.

This is because the going will get tough at some point and these things will keep you motivated and also greatly enhance your chances of becoming successful.

Some of the most popular business ideas in Alabama are:

  • Legal consulting firms
  • Clothing Boutique
  • Pottery Business
  • Reiki Business
  • Vape Shop
  • Screen Business

2. Have a Business plan

Careful planning is what builds a successful business.

You should take your time to critically analyze and scrutinize your business idea and also create a game plan before you commit a significant amount of money and other resources.

You should at least have answers to questions like:

Product Development

What will distinguish your product or service from that of your competition? What solution does your business provide?

Sales and Marketing

Who are your target customers? How do you think you can get the attention of your potential customers and turn them into buyers?

People and Partnerships

What job roles will you need to hire and what professional relationships are needed to be formed in order for your business to succeed?

Financial planning

How many clients or sales will you need in order to balance books? How much money would be required to make it happen? Where and how will you get the funding?

3. Form Your Business

There are two major advantages of registering your company as a legal business entity, such as a Limited Liability Company (LLC) or a Corporation.

  • It increases your credibility
  • In the event that your business is sued, it protects it from personal liability.

Registering a Limited Liability Company (LLC) is a great option for most small businesses.

When compared to other business entities, Limited Liability Companies are a lot easier to set up and manage and their tax treatment is favorable.

Setting up a Limited Liability Company in Alabama costs as little as $160 – $178.

If you decide not to register your company as a legal business entity, you will be held personally responsible and accountable for the debts and liabilities of your business.

Also, unregistered business owners may have to file a Trade Name which can also be called a “DBA”.

We highly recommend that you check the availability of the business name you are planning as a web domain. You may also want to buy the URL even if you are not ready to make a business website, in order to prevent others from buying it.

4. Do your Tax Registration

Most businesses require an Employer Identification Number (EIN), also known as the Tax Identification Number. 

An EIN is what is used to identify a business in its tax filings and without your EIN, you cannot hire employees or open a business bank account.

Also, you should be aware of important Alabama taxes that may apply to your business:

  • If you are selling a physical product, you will need to register for Alabama Sales Tax
  • If you hire employees, you will need to register for the Alabama Unemployment Insurance Tax and State Income Tax on behalf of your employees.

5. Open Business Banking and Credit Accounts

For your personal asset protection, using a dedicated business banking and credit account is necessary.

When you mix your personal and business accounts, your personal assets become at risk in the event that your business is sued. This is referred to as “piercing your corporate veil”.

Your business can be protected with these two steps:

A. Opening a business bank account:

  • It separates your personal assets (house, car, and other valuables) from your company’s assets, which is essential for the protection of your personal assets.
  • It makes accounting and tax filing easier.

B. Obtaining a business credit card:

  • It helps you separate personal expenses from business expenses.
  • It helps to build your company’s credit history, which would be important when trying to raise capital in the future.

6. Set up an Accounting System

Setting up an accounting system would help you keep a record of your business performance and also simplify your annual tax filings.

A quality accounting software would let you download your bank and credit card transactions, thereby, making accounting fast and easy.

7. Get all the Necessary Permits and Licenses

You will need to comply with the federal, state, and local government regulations in order to operate your new business legally.

This involves getting one or more business permits and licenses. For example, a hotel would most likely require a building permit, fire safety permit, police license for a hotel, health trade license, and so on.

8. Get your insurance

Getting your business insured will help you manage risks and focus on growing your business. There are different types of business insurance but the most common ones you should consider are:

  • General Liability Insurance
  • Workers Compensation Insurance
  • Professional Liability Insurance

It is highly recommended that all small businesses, including businesses that are home-based, should purchase a general liability policy.

Businesses like consulting and accounting firms that sell professional advice or services should consider a professional liability policy.

In Alabama, businesses with five or more employees are required to have workers compensation insurance by law. Have it in mind that officers and LLC members are also counted as employees.

9. Define Your Brand

A solid brand is a foundation on which the strongest and most memorable businesses are built. You should think about what your business stands for when developing your brand.

Customers and clients are looking for companies that have a captivating brand, as much as they are shopping for high-quality products and services. So, what are the fundamental values that drive your business?

You should create the best name for your business because your business name is the basis of good branding and a successful business.

10. Establish a Web Presence

Regardless of what business you are in, a professional website is critical to the long-term success of your business.

A website amplifies the credibility of your business, as well as allows potential customers to find your business online and discover the products or services that you offer.

The following avenues should also be considered for promoting your business online, in addition to a website:

  • Setting up social media profiles (Facebook, Twitter, LinkedIn, etc.)
  • Creating accounts on sites for review (Yelp, Google Reviews, etc.)
  • Registering for a local Google profile.


I hope you find this step by step guide on how to start a small business in Alabama very useful. You do not need to go to a big city in order for your business to thrive.

All you have to do is follow this detailed guide and put in all the necessary work in order to achieve the desired results.

Frequently Asked Questions

1. Does Alabama require a business license?

Most businesses in Alabama are required to have at least one business privilege license. You are to apply for licenses from the probate judge or license commissioner in the county where your business is located.  A business license costs about $600.

2. How much does it cost to get an LLC in Alabama?

The cost of getting an LLC in Alabama will vary because it depends on the county where your LLC’s registered agent is located. However, the total cost to form an LLC in Alabama on average is about $180.

3. Where do I get a business license in Alabama?

Business Licenses are issued through the local county probate offices. Guidance is provided to the counties in administering the licenses by the license section.

4. Do you need a business license for an LLC?

A business license isn’t required to form an LLC, but it might be necessary to register the LLC with the state and get an occupational license before the LLC can legally operate as a business.

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