Setting Up a New Small Business in Washington State

If you live and work in Washington state, forming a new business isn't that complicated. Fortunately. Nevertheless you do need to walk through several steps in the right order to minimize problems later on:

Step #1 -- Verify You're Starting a Business

A simple first step is to verify that you're actually starting a business. If you're getting paid to perform services (like consulting or contracting) or you're buying and reselling stuff (like food or clothes or computer supplies), yes, you're a business.

However, some activities don't rise to the threshold of a business. For example, investing in real estate is not a business. And researching investments (including businesses you might start) isn't really a business either.

Step #2 -- Decide Who's Really Starting the Business

Another important step is deciding who's really starting the business. Now, the person starting the business might be you. In other words, you might start a sole proprietorship.

But you have other options for business ownership, too. In Washington state, for example, you can easily form a limited liability company and then have the limited liability company own and operate the business. (This often gives you some liability protection while keeping your taxes and accounting pretty simple.)

You can also form a corporation and then have the corporation own and operate the business. Corporations complicate your accounting and taxes which is an extra burden for a small business. But corporations often save the owners taxes.

Note: If you'll use an LLC or corporation to own and operate a business, you need to form the LLC or corporation as almost the first step in the new business setup service.

Step #3 -- Acquire Any Needed Business Licenses

Washington state as well as many local governments requires that businesses apply for a business license. In the case of the state, for example, businesses apply for a master business license with the department of licensing. In the case of local municipal governments like Seattle, Bellevue and most any other incorporated cities, businesses apply for city business licenses.

Note: The state and local governments use business licenses as a way to identify businesses that should pay excise taxes such as gross receipt receipts (the case in Seattle and Bellevue) and other taxes (such as Redmond's head taxes).

Three important cautions about business licenses: First, be sure that the entity that's starting the business actually gets the business licenses. For example, if you form an LLC and have the LLC own and operate the business, the LLC needs to obtain the business licenses.

A second caution about business licensing: Note that if you operate in multiple cities, you'll probably need city business licenses from than one municipality. For example, if you're a Seattle law firm that regularly visits and works with Bellevue clients, you may need both a Seattle and Bellevue license.

A third and final licensing caution: Some professions require professional licenses in addition to the business license the firm needs from the Washington state department of licensing. For example, certified public accountants themselves need to be individually licensed by the Washington state board of accountancy. And public accounting firms need firm licenses from the Washington state board of accountancy. In order to operate a CPA firm in the state of Washington, therefore, not only does a CPA firm need a business license, but the CPAs in the firm need individual licenses and the CPA firm itself needs a firm license. If you operate in a profession (health, law, accounting, engineering and so forth), consult the state agency that regulates your profession for information on individual or firm licensing requirements.


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QuickBooks for Dummies author Stephen L. Nelson provides small businesses and their owners with tax and accounting services. Nelson's web site provides more information about starting a new small business in Washington state and about forming a Washington state LLC.