Starting a New Business in Missouri
Starting a New Business in Missouri is intended to serve as a reference document and in no way attempts to provide all the information necessary to start a business. It is published with the understanding that MO SBTDC is not engaged in rendering legal, accounting or other professional services. The advice of an attorney and/or accountant should be sought before entering into any business activity or contract.
For personalized information and assistance on hiring employees, please locate a Missouri Small Business & Technology Development Center or call 573-884-1555.
- The basics
- Registering and licensing a business
- Professional services
- Record keeping
- Developing a business plan
- The marketing plan
- Legal formation
- Federal taxes
- State taxes
- Hiring employees
- Financing your business
- Private sources
- State sources
Determining the requirements to start a new business can be confusing and time-consuming because so many agencies regulate business operations. There are basic requirements which all businesses must comply, no matter the type.
Don’t underestimate the importance of planning. While it is possible to start with minimal planning, successful businesses typically have a plan, know their market, their customers and have a good understanding of the financial requirements of the business.
If you have questions or require additional information, assistance is available from the Missouri Small Business & Technology Development Centers statewide. Find an office near you.
Owning and operating a small business can be a fulfilling and rewarding way of life, but it is not always an easy one. Don’t make the decision lightly. A great deal of thought and research should go into making a decision that will affect you and your family for a long time to come. Consider that:
- The failure rate for new start-up businesses is high.
- If you need financing, you will be expected to provide 20 percent or more of the total funds.
- Small business owners spend many long hours every week on their business.
- To obtain a business loan, you will be expected to personally guarantee repayment.
- It is normal for small businesses not to earn a profit in the first two years.
- The number one reason small businesses fail is because they did not have enough working capital to survive the first two years.
- Grants to start a for-profit business enterprise are virtually non-existent. Even not-for-profit businesses can expect intense competition for funding.
Good management is key to a successful business. The chances for success are improved if you have abilities in:
Marketing strategy. Developing market strategies requires knowing the type of product or service your customer wants, how to target and reach them and how to sell your product or service at a price your customers are willing to pay that provides the profit you need.
Technical ability. You must consistently get the work done when expected and correctly to have satisfied customers. Your technical knowledge of the product or service you provide is essential.
Financial knowledge. Financial management is required to plan and control your business’ cash flow, raise or borrow the money you needed and get through tight periods without being caught short of cash. Your credit history is one measure of your ability to manage money. A poor credit history will reduce your ability to obtain financing.
Registering and licensing a business
Register the name of your business with the Missouri Secretary of State (sos.mo.gov) by filing the necessary forms and paperwork. The way to register a name is different for each type of legal structure. Choices of legal structures are sole proprietorship, partnership, limited liability company (LLC) or corporation.
For information on these business structures, fictitious name registration, purchasing an existing business, obtaining an Employer Identification Number (EIN), tax considerations, licenses, zoning, permits, patents, trademarks, service marks, franchising and more, see Doing Business in Missouri: Legal Formation. Each legal structure has unique registration requirements.
To check on the availability of a business name, search the Secretary of State’s database sos.mo.gov/businessentity/soskb/csearch.asp Obtain local business licenses through the city or county government (generally this is the city clerk or county clerk).
It is advisable to enlist the services of an accountant and a lawyer when considering a new business operation. Their advice and guidance can help you choose the form of business organization best suited for your particular situation.
Your lawyer should be experienced in business matters. Ask for recommendations from business owners or other trusted sources such as your banker or chamber of commerce. In the initial interview, discuss fees and ask about their experience with businesses similar to yours. A reputable lawyer will welcome an open discussion on both subjects. Do not feel obligated to hire the first lawyer with whom you discuss your business plan. Find one with whom you are comfortable and you feel you can trust.
The Missouri Bar Lawyer Referral Service can refer you to an attorney who practices in your area and the kind of lawyer appropriate for your situation. A Missouri Lawyer Referral Service-appointed attorney will confer with you for up to 30 minutes for $25. See: missourilawyershelp.org
Although an accountant is not mandatory for starting a new business, it is highly recommended that one be consulted. Again, seek recommendations from your lawyer, banker and other business associates. Don’t feel obligated to hire the first accountant that you interview. For assistance in locating an accountant, try Missouri Society of Accountants: missouri-accountants.com.
An accounting system provides an organized method to track all business activities generated by each transaction and provides the information required by taxing and regulatory authorities.
Sound accounting practices can mean more profits because it provides a tool to evaluate the performance of your business. The system used should:
- Maintain a record of all business transactions.
- Provide financial statements (profit and loss statement, balance sheet, cash flow statement and key financial ratios) that show operating results and the company’s financial condition.
- Protect the assets of the business from errors, fraud and carelessness.
- Provide a basis for business planning by showing the results of past decisions and facts needed for future decisions.
- Generate information periodically required by taxing and other regulatory authorities.
There are numerous computer software programs on the market as well as accounting forms and systems. Many trade associations offer standard accounting systems for member businesses. The Missouri Small Business & Technology Development Centers offer classes on various topics, including financial management. You can also consult an accountant for assistance in setting up an accounting system, or hire one to do your books for you. If you need assistance in locating an accountant, contact the Missouri Society of Accountants.
An important first step toward any successful business is proper planning. The business plan describes the proposed business, its products or services, market, staffing and financing needs.
For information on developing a business plan, worksheets to compute startup costs and to project sales and earnings over the first three years and more, see Guide to Writing a Business Plan.
A number of commercial software packages are also available to help in putting together your business plan. It is important, however, that the plan reflects the unique characteristics of your business that gives it a competitive edge. Standard packages will get something down on paper, but your plan should be your work. Understand the information in the document and avoid a cookie cutter business plan.
The business plan outline must also include market analysis. A key element of marketing, whether included in your business plan or as a separate document, is to know your customers -– their likes, dislikes, buying habits, location, expectations, etc. You can incorporate these factors in your market strategy to capture and maintain market share. A marketing plan helps answer the following questions:
- Who are your customers?
- What specific market will you target?
- How are your customers/markets segmented?
- Are your markets growing? Steady? Declining?
- Is your market share growing? Steady? Declining?
- How will you obtain or increase your market share?
- How will you promote your business to your targeted customers?
- What pricing strategy have you devised?
Missouri law allows businesses to operate under four forms or organizations:
- Sole proprietorship
- Limited liability company
Each structure has its own advantages and disadvantages and there are variations within these forms. Selecting the best legal structure considers the following factors:
- The ease to form and maintain
- Liability protection
For legal formation information including the four types of business structures, fictitious name registration, purchasing an existing business, obtaining an Employer Identification Number (EIN), tax considerations, licenses, zoning, permits, patents, trademarks, service marks, franchising and more, see Doing Business in Missouri: Legal Formation.
The Federal Insurance Contributions Act provides for old age, survivors, disability and hospital insurance (Medicare). The Social Security Tax finances the old age, survivors and disability portion, while the hospital insurance portion is financed by the Medicare tax.
You must pay self-employment tax if:
- You were self-employed and your net earnings from self-employment (excluding any church employee income) were $400 or more; or
- You performed services for a church as an employee and received income of $108.28 or more. However, if you are a member of the clergy or a religious worker, you may not have to pay self-employment tax.
You are self-employed if you carry on a trade or business as a sole proprietor, an independent contractor, a member of a partnership, LLC or are otherwise in business for yourself.
You do not have to carry on regular full-time business activities to be self-employed. Part-time work, including work you do on the side in addition to your regular job, may also be self-employment.
A trade or business is generally an activity carried on for a livelihood or in good faith to make a profit. The facts and circumstances of each case determine whether or not an activity is a trade or business. Regularity of activities and transactions and the production of income are important elements. You do not need to actually make a profit to be in a trade or business, as long as you have a profit motive. You do need, however, to make ongoing efforts to further the interests of your business.
The self-employment tax rules apply even if you are fully insured under social security or have started receiving benefits.
For more information see irs.gov/Businesses/Small-Businesses-&-Self-Employed.
Corporate estimating tax
A corporation must file Form 1120, Declaration of Estimated Tax, with the Missouri Deptartment of Revenue (dor.mo.gov/forms) and Form 1120, Federal Estimated Tax, with the IRS (irs.gov/uac/About-Form-1120).
The federal government also imposes excise taxes on various types of business activities. Some excise taxes are on the production or sale of certain goods, while others are on services or the use of certain products or facilities. Still others are imposed on specific types of businesses.
For further information on excise taxes and other federal taxes, refer to IRS Publication 510 (PDF), Excise Taxes. For more detailed information on other federal taxes, refer to IRS Publication 334 (PDF), Tax Guide for Small Businesses.
Corporate income tax
State law sets the corporate income tax rate at 6.25 percent of Missouri taxable income. In addition, Missouri allows 50 percent of federal income tax liability to be deducted before computing taxable income.
Sole proprietorship/partnership/S corporation
All net business income is taxable to the sole proprietorship or to the partnership/S corporation according to each partner or shareholder’s share of ownership. Your personal income tax rate depends on your level of total personal income. You may be able to deduct some personal expenses from your gross income directly related to your business on your federal return.
Every employer maintaining an office or transacting any business in Missouri and making payment of wages to a resident or nonresident individual must obtain a Missouri Employer Tax Identification Number. State tax is then withheld from the employee’s payroll and remitted to the Missouri Department of Revenue. For more information go to dor.mo.gov/business/withhold.
Retail sales tax
Any person or company that has a business location in Missouri from which they sell or lease goods to a final consumer is required to collect and remit Missouri sales tax. Also, any company that leases motor vehicles (including boats, trailers and outboard motors) is required to collect and remit Missouri sales tax. If the lease period is 60 days or less, the sales tax is based on the address of the lessor. If the lease period is more than 60 days, the sales tax is based on the address of the lessee. It is the business’ responsibility to ensure that sales tax is collected at the correct tax rate. You must have a Missouri Retail Sales License prior to making sales. Conducting retail sales without a valid Missouri Retail Sales License may result in a penalty of up to $500 for the first day and $100 for each subsequent day, not to exceed $10,000, in addition to any other penalties or interest that may be imposed. For the first 20 days this penalty does not apply to persons opening a business in the state of Missouri for the first time.
A bond must accompany the application for the license. The amount of the bond is based on your estimated monthly gross sales. Complete information on various bonds is included in the Missouri Tax Registration Application [MO Dept. Revenue Form 2643 (PDF)] .
A table of sales tax rates for Missouri counties and cities can be found at dor.mo.gov/business/sales/rates/.
Vendor’s use tax
Out-of-state businesses making sales of goods to the final consumer located in Missouri may be required to collect and remit Missouri vendor’s use tax. They must obtain a Missouri Use Tax License and post a bond.
Out-of-state businesses that lease goods to Missouri customers from an out-of-state business are required to collect and remit Missouri vendor’s use tax. They also must obtain a Missouri Use Tax License and post a bond.
Individual consumer’s use tax
If your business is located in Missouri and is purchasing goods from an out-of-state vendor for consumption, when Missouri tax was not collected at the time of purchase, you are required to remit Missouri Individual Consumers Use Tax (dor.mo.gov/personal/consumer). You must register for the payment of Use Tax; however, no bond is required.
Most companies doing business in Missouri are required to pay unemployment insurance to protect their workers. This applies to most businesses having one or more workers on the payroll for 20 weeks during the calendar year, and to businesses paying an individual employee $1,500 in a given quarter. See labor.mo.gov/DES for more information.
All businesses with five or more employees (except agricultural or domestic labor) must also provide Workers’ Compensation insurance in case of job-related injury, illness or death. Construction companies, regardless of the number of employees, must provide workers’ compensation insurance.
Tax records retention
The following list includes the most common documents you should keep. All businesses should retain items 1 through 6. If you are operating a business that makes retail sales, you should also keep items 7 through 10.
- Copies of federal income tax returns (retain at least three to five years).
- Sales journals and/or receipts journals (retain at least five years).
- Purchase journals and/or check registers (retain at least five years).
- General ledgers (retain at least five years).
- Detailed depreciation schedules (retained until items are fully depreciated, or at least five years, whichever is longer). Note: The depreciation schedule should show where the item was purchased. All purchase invoices listed on the depreciation schedule should be filed separately rather than with other expense purchases.
- Copies of paid bills for goods and services (retain at least five years).
- Copies of letters of exemption to support claims for sales to tax-exempt entities. Be aware of the expiration date on each letter of exemption.
- Copies of the checks from tax-exempt entities to prove that payment for the tangible personal property or taxable service was made from the funds of the tax-exempt entity and not those of an individual member of the tax-exempt entity.
- Updated and fully completed resale exemption certificates. (Resale exemption certificates must be signed by an owner or officer and updated every five years.)
- Copies of sales and use tax returns and backup documents used to prepare these returns (retain at least five years).
The following payroll records should be retained for at least three years in the event of a withholding tax audit:
- Copies of W-2 forms
- Monthly payroll records showing the actual Missouri withholding
- Copies of MO941 reports
The nature of your business may require that you keep additional records. Please use these lists as a general guide, but consult with your tax practitioner for advice about your specific needs.
For a complete guide to hiring employees and helpful tips, see Doing Business in Missouri: Hiring Employees.
Funding for a business usually comes in two forms: debt and equity. Debt is obtained from borrowing and must be repaid from cash flow. Equity is contributed by owners or investors and is not repaid from operations. Retail and service businesses are difficult to finance. Funding for these enterprises is usually used for working capital, inventory and fixtures. The value of this kind of collateral is much lower than the original purchase price if the loan goes into default and the assets are sold at auction to retire the debt. As such, retail and service operations will need a larger equity position from the owner than other kinds of businesses.
Lenders prefer to finance business that use borrowed funds to purchase assets such as real estate or equipment because the value of these assets remain close to their purchase price if they must be sold by the lender to retire a debt.
Most lending institutions require a business plan that outlines the amount of money needed and demonstrates the company’s ability to pay back the loan. A lender may also require a credit application for new business loans.
Keep in mind that the number of small business failures is high, making many lenders skeptical and risk-averse. You must display the ability to manage all aspects of the business and meet all your financial commitments.
Your local bank is the first place to approach for business financing. Commercial lending departments deal specifically with small business and may offer special services to small business owners. Many alternative financing programs require a letter of denial or partial funding from a bank before they will consider your application.
Recognizing the importance of small businesses to Missouri’s economy, the state of Missouri has developed programs that provide financing options to small businesses. For more information on state financing and incentive programs, visit Doing Business in Missouri: Financing Your Business.
Contrary to popular belief, grants of cash for business are virtually nonexistent. There are rare instances where a cash grant has been given to some highly specialized business or in an unusual situation, but there are no cash grants available to virtually all start-up businesses. Beware of any organization that promises to guide you to sources of free money for a fee, such as to purchase a book or attend a seminar.
There are many government grants designed to assist business, but these usually don’t go directly to the business. Instead, they go to agencies and organizations that perform some service for business or benefit business indirectly. For example, grants are made to local communities to help with infrastructure improvements needed to attract business. Other grants are given to agencies to develop technology or to provide educational resources and information to small business owners. Grants given by private foundations fund not-for-profit agencies that perform specific activities closely aligned with the foundation’s mission and goals.
Books, websites and infomercials that tout government grants for business are usually exercises in cleverly misleading entrepreneurship. Read the fine print carefully and buyer beware.
There are numerous organizations, public and private, throughout the state that provides assistance to individuals and new business owners. This following list represents those organizations that offer a statewide service area.
Missouri Small Business & Technology Development Centers
The Missouri Small Business & Technology Development Centers (MO SBTDC) help Missouri small businesses identify problems, explore opportunities and obtain solutions by offering comprehensive, timely assistance to create positive impact. Assistance is targeted to meet the changing and evolving needs of the Missouri small business community.
Staff are qualified to help small businesses by offering:
- Training seminars and programs on a variety of business topics
- Low or no-cost personal and confidential consulting services
- Referrals to specialized technology, exporting, procurement and other resources
The Missouri Small Business & Technology Development Centers serve clients throughout the state. Find an SBTDC office near you.
Service Corps of Retired Executives (SCORE)
SCORE counselors, experienced business professionals, provide free, confidential counseling. Services include business plan preparation, financing, recordkeeping and problem-solving. To locate a SCORE office, visit score.org/chapters-map.
Small disadvantaged business purchasing programs
There are different certifying requirements for agencies that have programs for small disadvantaged businesses (SDB) or minority/women business enterprises (MBE/WBE). The two commonly used in Missouri are the SBA programs and the Missouri MBE/WBE certification program. Other agencies may have additional certification requirements.
The SBA administers the 8(a) Business Development Program under which small disadvantaged business are eligible for price evaluation adjustments of up to 10 percent when bidding on federal contracts in certain industries. The program also provides evaluation credits for prime contractors who achieve SDB subcontracting targets. The program is intended to help federal agencies achieve the government-wide goal of 5 percent SDB participation in prime contracting. Contact an SBA district office to become certified.
Missouri MBE/WBE certification
Certification as a Minority Business Enterprise (MBE) or Woman-Owned Business Enterprise (WBE) provides greater opportunities for these businesses to bid on state contracts. For your expenditures to be included in the state’s participation goals, the firm must be certified as an MBE/WBE. If you currently do business with a minority- or woman-owned form not certified, encourage them to apply. The basic requirements for certification are that the business is at least 51 percent owned and controlled by minorities or women.
It takes 60 to 90 days to become certified. There is no application fee. The process can be accelerated if the business is SBA 8(a)-certified. An 8(a) certification does not qualify the company as an MBE/WBE for Missouri state participation goals, however. Go to the Missouri Office of Equal Opportunity for more information about MBE/WBE certification.
Assistance to become certified through the SBA or Missouri is provided by the Missouri Procurement and Technical Assistance Program (MO PTAC). Find a PTAC office near you.
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