How to Start a Business in Arizona

Step 1: Create a business plan

As you transform your enterprising idea from concept to reality, writing a business plan is vital.

Your plan can help you:

• Think through potential problems the business may face
• Understand your target customer and how you’ll win them over
• Find local, state, and/or federal business development incentives your business may qualify for
• Identify your competitors
• Examine how you’ll stand out in your market
• Develop the “SMART” goals and metrics you’ll track

Above all, a business plan helps you understand your entrepreneurial path. You can get a better grasp of the problem your service or product can solve. You can also work through how you’ll finance your company, what your pathway to profitability may look like, and how you plan to scale the business as it grows.

Trying to refine your plan in the time of COVID-19? Check out Arizona’s Small Business Boot Camp for insights on dealing with the pandemic as a small business owner.

Financing assistance and aid may also be available from resources such as the Phoenix Community Development and Investment Corporation, Small Business Administration (SBA), Maricopa SBDC, and the Arizona Entrepreneur’s Edge.

Step 2: Choose a business entity

It’s time to determine which legal entity you’ll establish your company as. Two common business structures in Arizona are the sole proprietorship and limited liability company (LLC). As you consider your choice, examine the pros and cons of each before deciding.

Sole Proprietorship

A sole proprietorship is a simple business structure that has one owner. It can be established without state registration and includes a fairly straightforward taxation scheme. Along with your personal return, you file a separate schedule that details your sole proprietorship’s losses and profits.

However, sole proprietorships offer no way to separate business and personal assets or liabilities. Legal or financial problems in the business could put your personal property at risk, including savings, real estate, or other assets. Plus, while business taxes can be easier to figure out, it may be harder to attract long-term financing.

Limited Liability Company

On the other hand, LLCs can have one or multiple owners known as members. This business structure is a separate legal entity and can shield your personal assets from business liabilities. It may also allow you to take advantage of lower taxation than business entities like corporations.

While you have to establish your LLC by filing the proper paperwork with the Arizona Corporation Commission and maintaining annual filings, the advantages of starting a business in Arizona as an LLC, particularly the personal asset protection, could outweigh the paperwork disadvantages for many Arizona companies.

Step 3: Determine your Arizona business startup and operating costs

From leases to licenses and business insurance to equipment, costs and expenses will be part of your startup and ongoing operations. For example, in the city of Surprise, an initial business license currently costs $168 per license, with an annual per-license renewal fee of $84.

Depending on your industry, your costs may include:

• Paying employees and contractors
• Purchasing office equipment, computers, and furniture
• Transportation expenses, such as buying or leasing vehicles, plus fuel, parking, and repairs
• Insurance: Common coverage includes general liability protection, commercial auto, and professional liability. 

Taxes are another consideration. For example, Arizona businesses pay the transaction privilege tax. Other state and federal taxes may apply based on your business size, revenue, and/or industry. Also, check with your business’s locality for local taxes that may apply.

Step 4: Create a business name

Naming your Arizona business is a crucial step toward building your brand. You also have the option to file an “assumed business name” or “doing business as” name (DBA) if you want to operate under a name other than the legal name of your company.

When deciding what to name your business, consider those that are easy to spell, easy to say, and easy to understand. But first, you need to make sure your name is available.

Arizona requires that business names be “distinguishable” from all other business names and DBA names in the state. In other words, if another business is already using the name you want, you’ll need to work with a different, available name instead. Trying to use a name already taken by another business could result in legal issues.

To check if a business name is in use, search the Arizona Corporation Commission’s business database.

Once you’ve identified an available business name, check what domain names are available to register for your company website (and email addresses, too). If you plan to use social media in your marketing, make sure you can reserve your business name on your preferred platforms.

Step 5: Register a business in Arizona, get insurance, and open a business bank account

Setting up required registrations with the state is one of your next steps as the owner of a business in Arizona. LLCs and corporations need to register with the Arizona Corporation Commission, though this typically isn’t required for a sole proprietorship or general partnership trading under the personal names of the owners.

Obtain Arizona Business Licenses & Permits

State and local business licensing and zoning compliance are also necessary, and requirements will vary depending on your town or city. Communities such as Surprise also list their zoning codes online for reference. And, while the City of Maricopa hasn’t required a general business license since 2019, regulated businesses like auctioneers, tattooists, and scrap dealers must apply for a business license.

Register with ARD & Get a Transaction Privilege Tax License

Your business will also need to register with the Arizona Department of Revenue “before conducting any taxable business activity in Arizona.” A Transaction Privilege Tax license is required, and your business may be subject to other taxes, too.

Apply for an Employer Identification Number (EIN)

Depending on your company type and whether you hire employees, the Internal Revenue Service may require you to get an employer identification number (EIN), which you’ll use for hiring, filing taxes, and opening a business bank account.

Business Bank Account

A business bank account can help you avoid commingling personal and business expenses. Speaking of business banking, consider applying for a business credit card to build up your company’s credit.

Also, consider speaking with a local insurance agent to secure the necessary business insurance for your enterprise.

Step 6: Market your business in Arizona

Craft a marketing plan that works through your company’s branding, how you’ll engage with the public, who your target customer is, and how you’re different from competitors.

For example, are your prospects active on social media? If so, narrow down where they’re talking the most and engage with them on platforms such as Instagram, Facebook, or Twitter.

Optimizing your business profile in directories such as Yelp or Google My Business can also help people find your company online. Word of mouth continues to be a solid way to get new business, too. As you work with customers, ask them to tell others about your company, and consider setting up a loyalty program that rewards customers for spreading the word.

Set up a business website, too, so you can fully explain your business services, who you are, and how customers can get in touch.

Benefits of Opening a Business in Arizona

Arizona is one of many states seeing a surge in entrepreneurship. New business applications skyrocketed from 19,052 in the third quarter of 2019 to 30,356 in the third quarter of 2020.

Arizona entrepreneurs can also benefit from a growing workforce statewide and broader skills thanks to schools such as Arizona State University. Small businesses are also a large component of Arizona’s business makeup. In Phoenix alone, about 95% of businesses have 50 employees or fewer.

Examples of Good Businesses to Start in Arizona

With so much population and business growth in the Grand Canyon State, there are opportunities for all sorts of new businesses, such as:

• Daycare
• App development
• Specialty foods
• E-commerce
• AC repair and installation
• Financial services
• Sports and recreational equipment
• Dog walking
• Barbershops and beauty salons 
• Life coaching

Bottom Line

Arizona wants to be a place where new businesses are welcome, and where they can open their doors without a lot of red tape. With the right business plan, understanding of your customers, some financing, and a knowledge of how you want to grow your company, you too could become successful starting a business in Arizona.