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How to Start a Business in Kentucky

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Published on September 20, 2021

Updated on September 16, 2022

How to Start a Business in Kentucky

Disclaimer: Step by Step Business’ content is for informational and educational purposes only. It’s not intended to be a substitute for professional legal or tax advice. All of our articles are thoroughly reviewed and fact-checked by our editorial team. Read our editorial guidelines for more details.

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How to Start a Business in Kentucky

Kentucky is a global logistics haven, with shipping hubs operated by DHL, UPS, and Amazon. The Bluegrass State also has the lowest business costs in the US and is among the 10 best states in labor costs. Startups enjoy funding support and professional mentoring so entrepreneurs are equipped with all they need to grow their business.

It’s no wonder the Commonwealth has been recognized as having one of the US’ best business climates. If you’re looking to take advantage of all Kentucky has to offer, this step-by-step guide lays out everything you need to know to start a business in the great state of Kentucky.

People working on business ideas

Step 1: Choose a Business Idea

The crucial first question is, what sort of business would you like to run? You may have several ideas in your head, or maybe you haven’t gotten that far. Either way, it’s wise to look closely at the state itself and at your own abilities to best determine which areas might offer the most opportunity. 

To develop a business idea, you could:

  1. Look for market gaps or problems that need solving. Maybe your neighborhood lacks a good cafe, or the state’s farm industry needs modernization.  
  2. Follow your passion. What do you love? What are you great at? 
  3. Look at what’s trending in Kentucky and which industries are key to its economy. The state has a thriving manufacturing industry that exported more than $30 billion Kentucky-made products in 2019. You can make anything from utilities to textiles. You could also get into the alcohol industry, as Kentucky produces about 95% of the world’s bourbon. 

Check out our guides to different business ideas if you need further inspiration. Once you have a few ideas in mind, do some homework to decide if your ideas are feasible. Here are some things to consider when choosing a business idea:

  • Capital requirements – How much will you need? Do you have access to funds?
  • Time requirements – How long will it take for you to start selling?
  • Industry trends –  Is the industry growing or shrinking? 
  • Profit potential – How much money can you realistically make?
  • Lifestyle factors – Running a business is hard work. Are you ready?

Step 2: Hone Your Idea

Once you’ve chosen a business idea, get more specific in your evaluation of the opportunity. Consider the why, what, how, and who.

Why? Identify an Opportunity

First, consider the viability of the business idea you have in mind. Here are three questions to consider:

  • Is there an opportunity in the market?
  • Will your idea provide value to customers? 
  • Will people want to buy it? 

Starting a business requires investment, so it’s unwise to just assume profitability. Make it a point to conduct research and ask people you know and trust what they think of your idea.

Kentucky’s economic development website allows visitors to examine business profiles, state demographics, and other information.

What? Determine Your Products or Services

The next thing to do is define your offerings. Ask yourself:

  • Which products or services will I sell?
  • How will I offer them: website, physical store/office, or both? 

You may consider offering related products or services to increase purchase sizes and boost overall value for customers. This step is going to define how your business will look to customers and why they will buy, so take your time and be sure. 

How Much Should You Charge? 

Before determining your price list, get to know your competitors. Visit the shops and websites of companies that offer similar products or services — see what they’re selling and at what prices and use this to inform your decisions. 

If you have a direct competitor, it’s a good idea to choose a competitive price point. Run the numbers to find your break-even price, then use this Step By Step profit margin calculator to determine your mark-up and final price point.   

You’ll also need to consider how to position your product. Are you going to offer a lower-priced alternative, a la Walmart, or are you going to position your business as more high-end, like a Pottery Barn or Restoration Hardware? 

Once you’ve locked on a pricing system that works for you, you’ll need to test it to see if this is attractive to your target market.

Who? Identify Your Target Market

Knowing your target market is crucial to successful sales and marketing. This is where customer profiling comes in handy.

The first thing to do is figure out whether you’re selling to consumers or businesses. If you choose consumers, determine which people are most likely to buy, by looking at:

  • Demographics – Age, gender, income, location
  • Psychographics – Attitudes, values, interests, tastes

Knowing your customers will allow you to shape your messaging and know where to place your marketing. For example, based on who your customers are and what they like, are they more likely to be on Facebook or TikTok?

If you are selling to businesses, first determine what kinds of firms will be interested in what you’re offering. Next, figure out the relevant decision-maker within these companies — it may be a VP, IT manager, or head of sales — and adjust your marketing accordingly.

"Secure your business name" written in notebook

Step 3: Choose a Business Name

Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember. 

Here are some ideas for brainstorming your business name:

  • Short, unique, and catchy names tend to stand out
  • Names that are easy to say and spell tend to do better 
  • The name should be relevant to your product or service offerings
  • Ask around — family, friends, colleagues, social media — for suggestions
  • Including keywords in the name, such as “meats” for a butcher, boosts SEO
  • Choose a name that allows for expansion: “Jim’s Bakery” over “Jim’s Cookies”
  • Avoid location-based names that might hinder future expansion
  • Use online tools like the Step by Step business name generator

Once you have a few potential names, check the Kentucky Secretary of State website to see if the name is available. You can also check out Kentucky’s name guidelines to make sure the name you choose conforms to regulations.

It’s also a good idea to check for nationally trademarked names, to ward off any potential problems later if your business expands, and check the availability of related domain names using Domain Name Checker tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these. 

Once you’ve found a name that clears these hurdles, go ahead and register at this Name Reservation Request form for Kentucky. You can send it by mail or drop it off in person at the Secretary of State’s Office in Frankfort.

Step 4: Create a Business Plan

Drawing up a business plan may seem like a daunting task, but it’s an essential step in creating a successful business. The plan will function as a trail map to guide your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision.

  • Executive Summary: Brief overview of the entire business plan; should be written after the plan is complete.
  • Business Overview: Overview of the company, vision, mission, ownership, and corporate goals.
  • Product and Services: Describe your offerings in detail.
  • Market Analysis: Assess market trends such as variations in demand and prospects for growth, and do a SWOT analysis.
  • Competitive Analysis: Analyze main competitors, assessing their strengths and weaknesses, and create a list of the advantages of your services.
  • Sales and Marketing: Examine your companies’ unique selling propositions (USPs) and develop sales, marketing, and promotional strategies.
  • Management Team: Overview of the management team, detailing their roles and professional background, along with a corporate hierarchy.
  • Operations Plan: Your company’s operational plan includes procurement, office location, key assets and equipment, and other logistical details.
  • Financial Plan: Three years of financial planning, including startup costs, break-even analysis, profit and loss estimates, cash flow, and balance sheet.
  • Appendix: Include any additional financial or business-related documents.
Saving money in jar

Step 5: Register Your Business

Choosing your business location is an important decision because it can affect your taxes, legal requirements, and revenue. But you’ve already decided to launch your business in Kentucky, so we can check that box. 

Choose your business structure

Businesses come in several varieties, each with its pros and cons. The legal structure you choose for your business shapes your taxes, personal liability, and business registration requirements, so it’s important to choose wisely. 

The most popular business entity types are outlined below.

Sole Proprietorship

Sole proprietorship is the most simple and straightforward structure, and therefore the most common for small businesses. It is an unincorporated business, with no legal distinction made between the business and the owner. As a sole proprietor, all income goes to you, but you are also liable for any debts, losses, or liabilities incurred by the business. 

You do not need to register your sole proprietorship with the Commonwealth of Kentucky. But you are required to file a Certificate of Assumed Name with your county clerk.

General Partnership

General partnership is similar to sole proprietorship, but with two or more people forming the company. Again, they keep the pre-tax profits but are jointly liable for any losses or liabilities. In a general partnership, each partner is known as a general partner and has unlimited liability. 

Like a sole proprietorship, general partnerships are not required to be registered with the Kentucky state government. But you are required to file a Certificate of Assumed Name with your county clerk.

Limited Liability Partnership (LLP)

This business structure is popular with lawyers, accountants, and architects. It is more formal than a general partnership and allows each partner to limit their liabilities and share management responsibilities according to an agreement between the partners. This can be a good choice when one or more partners want to invest in the business but have little or no management responsibility. 

In Kentucky, Limited Liability Partnerships must file a Statement of Qualification with the Secretary of State.

Corporation

The next step up is a corporation, in which the company is a separate legal entity from its owners. In this structure, the owners are not personally liable for losses, but take their profits through shareholder dividends.

If you choose to create a Kentucky corporation, you will also need to decide whether you want to form a C corporation or an S corporation. There are two ways to register a corporation in Kentucky.

There is a $40 filing fee for your Articles of Incorporation, plus a Corporation Organization Tax based on the number of shares. You can see the complete list of fees on the Kentucky Secretary of State website.

You will also need to appoint a registered agent, also known as an agent for the service of the process. Your Kentucky registered agent will be responsible for receiving all of the official paperwork sent by the Kentucky Secretary of State.

Limited Liability Company (LLC)

A limited liability company (LLC) combines characteristics of corporations with those of sole proprietorships. As the name suggests, the owners are not personally responsible for liabilities or debts. As an LLC, you’ll need to choose whether you want to be taxed as an LLC or as an S Corp. 

Similar to a corporation, you will need to appoint a registered agent, also known as an agent for the service of the process. Your Kentucky registered agent will be responsible for receiving all of the official paperwork sent by the Kentucky Secretary of State. An easy and quick way to get a registered agent is to use ZenBusiness’s online registered agent service.

There are two ways to register a limited liability company in the Commonwealth of Kentucky:

There is a $40 filing fee for your Articles of Incorporation. You can see the complete list of fees on the Kentucky Secretary of State website.

Nonprofit

Finally, you may be interested in a nonprofit if your business idea has a social purpose. A non-profit organization is a legal entity organized and operated for a public or social benefit, as opposed to a business formed to generate a profit for its owners.

You will also need to appoint a registered agent, also known as an agent for the service of the process. Your Kentucky registered agent will be responsible for receiving all of the official paperwork sent from the state.

There are two ways to register a non-profit corporation in Kentucky:

There is an $8 filing fee for your Articles of Incorporation for Non-Profit Corporation. You can see the complete list of fees on the Kentucky Secretary of State website.

Step 6: Register for Taxes

The final step before you’re able to pay taxes is getting an Employer Identification Number or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN. 

Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business operations will occur over the period of a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.

The IRS website also offers a tax-payers checklist and taxes can be filed online. It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.

n Kentucky, businesses are required to complete the State Tax Registration Application form and file it online. For a detailed guide on state tax requirements, you can visit the Kentucky Business One Stop Portal.

Business structure comparison infographic

Step 7: Fund Your Business

After creating your business plan, you should know how much money you’ll need to launch your business. Securing financing is your next step and there are plenty of ways to raise capital:

  • Bank loans: This is the most common method, but getting approved requires a rock-solid business plan and strong credit history.
  • SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
  • Kentucky Small Business Loans fund businesses in manufacturing, agribusiness, or services and technology. If your business idea falls under any of these categories, you can consider applying. 
  • Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
  • Venture capital: Offer potential investors an ownership stake in exchange for funds, keeping in mind that you would be sacrificing some control over your business.
  • Crowdfunding: Websites like Kickstarter and GoFundMe offer an increasingly popular low-risk option, in which donors fund an entrepreneur’s vision.
  • Personal: Self-fund your business via your savings, the sale of property or other assets, and support from family and friends.
Documents in files

Step 8: Apply for Licenses/Permits

You may need certain business licenses and permits to comply with Kentucky law. These vary based on location, but if you’re selling tangible goods, you’ll need a seller’s permit.

Here’s the SBA information on federal licenses and permits, and Information on Permits and Renewals and Special Licenses and Permits for Kentucky

Your city, town, or county may also have additional requirements, such as signage and zoning permits. Speak to representatives of your local governments about licensing requirements.

This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties. If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes. You might consider a license compliance package from a filing firm such as MyCorporation or MyCompanyWorks, or hire an attorney via Avvo or FindLaw.

Step 9: Open a Business Bank Account

Before you launch your business you’ll need somewhere to put the money you make, and that requires opening a bank account.

Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you run your business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer business account options, just inquire at your preferred bank to learn about rates and features.

Banks vary in terms of offerings, so it’s a good idea to consider your options to choose the best plan that works for you. Once you choose your bank, you’ll need to bring your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and any other legal documentation that proves your business is registered.

"Business insurance" written on a keyboard

Step 10: Get Insurance

Business insurance is an area that often gets overlooked yet it can be vital to your success. Insurance protects you from unexpected events that can have a devastating impact on your business.

Here are some of the different types of insurance to consider:

  • General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
  • Business Property: Provides coverage for your equipment and supplies.
  • Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
  • Worker’s compensation: Provides compensation to employees injured on the job.
  • Property: Covers your physical space, whether it is a cart, storefront, or office.
  • Commercial auto: Protection for your company-owned vehicle.
  • Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
  • Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of any of the above insurance types.

Step 11: Prepare to Launch

As opening day nears, prepare for launch by reviewing and improving some key elements of your business. 

Develop your website 

Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism. They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google. 

You can create your own website using services like WordPress, Webflow, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer and/or developer to create a custom website for your business.

Essential software and tools

Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks. 

Marketing

Some of your business will come from the casual passerby or online visitor, yet you should still invest in marketing! Getting the word out is especially important for new businesses, as it’ll help in increasing customer and brand awareness. 

Once your website is up and running, make sure you link to your social media accounts and vice versa. Social media is a particularly good way of promoting your business because you can create engaging posts that advertise your products: 

  • Facebook: Great platform for paid advertising, allows you to target specific demographics, like men under age 50 in the Cleveland area. 
  • Instagram: Same benefits as Facebook but with different target audiences.
  • Website: Search engine optimization (SEO) will help your website appear closer to the top in relevant search results, a crucial element for increasing sales. 

Accounting

  • Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero
  • If you are unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.

Step 12: Build Your Team

As your business grows, you will likely need workers to fill various roles and positions. But before you begin the hiring process, you should first consider the essential positions for your line of work. 

What levels of management and employees will you have? What is your pay scale? Costs are always an issue for a startup, but you need to make sure that you pay enough to hire people with the right skills and experience.

It’s a good idea to create a hiring plan. First, determine which hires you’ll need to launch, then the future hires you’ll need as the business gets going. Be cautious and selective when hiring people for any role. You want to build a great team that will make your business run smoothly and create a great work environment so you’ll retain them for a long time. 

In Kentucky, you need to report new hires to the state’s New Hire Reporting Center. You can fill in the New Hire Form, create an account on the New Hire Reporting Center Employer Services Portal, and submit it there.

Free-of-charge methods to recruit employees include publishing a job ad on LinkedIn, Facebook or Jobs.com. You might also use a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Finally, you could hire a recruitment agency to help you find talent.

Kentucky on the map

Step 13: Start Making Money

With everything in place, you’re now ready to throw open the doors on opening day! When you do, you’ll want some customers coming in. Here’s how to find them.

Focus on Your USPs

Make sure to highlight the unique selling propositions, or USPs, of your products and services. Customers may already want your offerings, so your job is to convince them to pick you over your competitors.

Here are some good selling points that you can capitalize on:

  • High-quality materials 
  • Top value items, competitively priced
  • Easy to use 
  • Convenient and time-saving 
  • Ideal for your target market

Understand Your Sales Channels

Make sure that you are selling through the right channels. You know your target customers by now – where and how are they most likely to buy? Do they buy online or in stores? 

If you don’t have a store, you can find partner stores where your products can be sold. You can sell both online and directly but focus your efforts on the channel that matches your target market’s buying behavior.

If you’re selling to businesses, your sales channels may be online or they may involve direct sales calls. Again, understand the buying behavior of the decision-maker within the business.

Grow with Marketing

Help clients find you more easily by placing your marketing where they are likely to find it. The following options are a good start:

  • Use eye-catching signage that clearly advertises your services
  • Advertise near key establishments where your target customers go
  • Make sure your website is SEO-compliant
  • Add a listing on Google My Business to drive engagement
  • Place ads on social media sites your target customers use
  • Craft and publish a press release announcing your launch!

You’re now ready to begin your entrepreneurial journey in Kentucky, though you might want to bookmark this page, just in case.

FAQs About Starting a Business in Kentucky

How much does it cost to start a business in Kentucky?

The overall cost of your Kentucky business will depend on the type and size of business you want to launch. Administratively, the filing fee for business registration ranges between $8 to $40 depending on the business structure you choose plus the registered agent fee. 

If you’re looking to launch a sole proprietor from the comfort of your home, your main costs would most likely be marketing materials and the operational expenses needed to acquire your products or services. Typically, these can be done with modest capital.

However, if you’re leaning toward a bigger venture that deals with a significant amount of infrastructure, employees, marketing campaigns, and equipment, then you can expect your costs to set you back a couple of thousand dollars.

On top of this, you can also expect to pay additional fees for local permits and licenses required by the county where your business is located. So, it’s best to launch a business that fits your budget.

Does Kentucky require a business license?

The Commonwealth of Kentucky does not require a statewide business license, however, you may need a special license or permit depending on the type of business you’re going to launch. There are cases when more than one license is required. 

The most common permits and licenses you might encounter are:

  • Federal licenses
  • Environmental permits
  • Local zoning permits
  • Sales tax permits

To determine which license is applicable for your business type, it’s best to visit the Kentucky One Stop Portal and search the database.

How do I change my business name in Kentucky?

Changing your business name in Kentucky is pretty easy. Just head over to the Kentucky SOS website, accomplish the Articles of Amendment, and submit it to the Secretary of State. The mailing address and filing instructions can be found on the form.

How do I file Articles of Incorporation in Kentucky?

There are two ways to register a corporation in the Commonwealth of Kentucky.

There is a $40 filing fee for your Articles of Incorporation, plus a Corporation Organization Tax based on the number of shares. You can see the complete list of fees on the Kentucky Secretary of State website.