This content doesn’t contain and isn’t meant to provide legal, tax, or business advice.*
Illinois is the sixth-most populous state in the nation and home to the country’s third-largest city, Chicago. It boasts both urban and rural regions, and industrial and agricultural sectors. In short, it can be a dynamic market for starting a business.
In this guide, you’ll gain an understanding of what it takes to set up shop in the state of Illinois.
Start a business in Illinois
- Choose a business idea
- Name your business
- Create a business plan
- Choose a business structure and get started
- Obtain a federal employer identification number (EIN)
- Obtain business licenses and permits
- Examine insurance options in Illinois
- Make financial projections
- Market your business
1. Choose a business idea
Choosing a viable business idea involves thorough planning. Part of that is figuring out what you’re trying to sell: A product? A service? Both? But that’s only the beginning. There are a number of considerations that come into play when devising an idea for your Illinois business.
A couple of key questions to ask yourself are:
Who are my customers?
A workable business idea means knowing and understanding your target customer. You can learn who your customer is by conducting a competitive analysis of other businesses in your market, looking at marketplaces where similar products or services are sold, going out and speaking to potential customers, and researching industry trends.
What is my projected profitability?
Try to determine the potential profitability of your business by looking at pricing, packaging and distribution options, business models, and consumer demand. With this information in hand, work through how many products or services must be sold to at least cover your business’s overhead.
2. Name your business
In a packed market like Illinois—with some 1.3 million small businesses—a name has to effectively communicate your company’s purpose and mission in a memorable way.
When you’re at the naming stage, keep these considerations in mind:
Is my company an LLC or a corporation?
In Illinois, there are specific business naming rules you have to follow, depending on whether your company is a formal or informal business structure. Formal business structures include corporations and limited liability companies (LLCs). If you form an LLC, the company name must include the phrase “limited liability company” or one of its abbreviations, “LLC” or “L.L.C.” Similarly, Illinois corporation names must contain the word “corporation,” “company,” “incorporated,” or a proper abbreviation of those terms.
Is my company a sole proprietorship or partnership?
In Illinois, a sole proprietorship must operate under the surname of the sole proprietor, and the sole proprietor must file for a DBA (doing business as) to operate under any other name. An Illinois partnership must include the surnames of the partners. The same DBA rules that apply to sole proprietorships apply to Illinois partnerships.
Is the domain name available?
Before finalizing your company’s name, check whether a domain name is available that adequately aligns with your business name. If nothing is available that conveys your business’s identity, you may want to reconsider your choice.
Using a DBA in Illinois
Using a DBA allows your business to operate under a different name than the one to which it’s legally registered. This means that, for example, a sole proprietorship can have a name other than that of its owner, or a company can operate publicly without including “LLC” or “Inc.” after its name.
To set up a DBA in Illinois, you must file a Certificate of Assumed Name form with the county clerk in the county where your business is located. This process will vary county to county, but the instructions for filing a DBA in Chicago (in Cook County) are typical.
A requirement is to ensure your DBA is unique from any other business name in the state. You can run a search of existing Illinois company names at the Illinois Secretary of State’s website.
3. Create a business plan
A solid business plan is a vital part of successfully starting a business in Illinois. A comprehensive plan will include the following sections:
- Executive summary
- Detailed company description
- Thorough market analysis
- Outline of the business entity’s organizational and managerial structure
- List of products and services
- Customer segmentation report
- Marketing plan
- Logistics and operations plan
- Financial plan
4. Choose a business structure and get started
Choose between four business structures when setting up your business:
Sole proprietorships
Sole proprietorships are owned and run by a single individual and profits are taxed once as the owner’s personal income—but there is no legal separation between the owner and business.
The owner of the sole proprietorship is fully liable for any of the business’s debts and potential legal damages. Sole proprietorships must pay self-employment taxes—15.3% in Illinois.
Partnerships
General partnerships are formed by two or more owners and are taxed the same as a sole proprietorship, with the profits split between partners. Like sole proprietorships, there is no legal distinction between the owners and the company itself. Partners pay self-employment taxes at the same rate as sole proprietors.
Corporations
Corporations are entities that are legally separate from the individuals who own them. This protects the owners’ personal assets in the event the company fails or is subject to a lawsuit.
A corporation’s income can be taxed twice: once on corporate income and again on an owner’s personal income from the business entity. Corporations are required to file a corporate income tax return with the state. Corporations must file articles of incorporation to do business in Illinois.
LLCs
Limited liability companies (LLCs) marry some of the benefits of partnerships with those of corporations. While they are similar to partnerships in structure (being made up of one or more owners, or members), they enjoy the liability shield typically applied to corporations. They can either be taxed like a partnership or corporation, depending on which option the LLC elects. LLCs must file articles of organization in Illinois.
5. Obtain a federal employer identification number (EIN)
After deciding what type of business to start, the next step is applying for a federal employer identification number (EIN). This can be done on the IRS website.
A nine-digit number assigned to businesses by the IRS for tax purposes, an EIN functions similarly to a person's Social Security number. Illinois state tax authorities will identify your business by its EIN. Having one not only makes it easier to file federal and state taxes, but it also helps with securing business lines of credit and getting business credit cards.
6. Obtain business licenses and permits
To operate lawfully in the state of Illinois, a business needs to acquire the necessary business licenses and permits. This depends on the industry or location in which the business operates:
Certificate of Registration
This is necessary for businesses in Illinois classified as retailers, resellers, or providers of goods or services to which sales tax is applied. You can apply online or mail a Form REG-1 to the Illinois Department of Revenue.
Professional or occupational license
Some businesses—such as those selling liquor, tobacco, or firearms—require licenses through certain state boards. You can find more information through the state’s Department of Financial and Professional Regulation.
Local licenses
Specific cities, counties, or towns may also require their own local licenses. Check out your county and town’s government websites to find out if these might apply to your business. Information on applying for business licenses in Cook County can be found on the county government’s website.
7. Examine insurance options in Illinois
Unforeseen catastrophes can take a toll on a new business. If the event is severe enough, it could wipe out a fledgling venture entirely. Consider purchasing business insurance to shield yourself and your company from legal action.
Also, if intending to hire employees in Illinois, it’s necessary to purchase workers’ compensation insurance. The federal Small Business Administration maintains a list of forms of insurance your new Illinois business may need.
8. Make financial projections
Your start-up costs could include rent toward a brick-and-mortar retail space as well as expenditures for a professionally designed website, ad placements, equipment, and software.
When making financial projections for your business, start with the sales forecast. This is the advice you’ll find from the Illinois Department of Commerce & Economic Opportunity in the Starting Your Business in Illinois Handbook.
It states that, often, entrepreneurs make the mistake of starting at the production cost level with the assumption that everything produced can be marketed for a profit. It recommends starting with a sales forecast to help define how much cash will come from operations and when it will be coming in.
The guide also urges businesses to explore various financial considerations by completing a feasibility checklist answering questions such as:
- Are there any extraordinary circumstances that would make financing hard to obtain?
- Are there conditions or trends that could change your forecast of total sales?
- Do you know your necessary expenses: rent, wages, insurance, utilities, advertising, interest, etc.?
- Is the price of your product or service important to your target market?
- Are you aware that there is less than a 50% chance that you will be in business two years from now?
9. Market your business
A solid marketing plan for your Illinois small business will include several key elements:
- Market research. Market research helps you to better understand your company’s target customer.
- Advertising and promotion. Get the word out about your product through paid advertising either by buying it yourself or hiring an agency. Chicago is an advertising hub, so there are many local companies from which to choose.
- Social media. Most successful businesses have a robust social media presence across multiple platforms. By publishing content that aligns with your brand, your company builds stronger brand awareness.
- Public relations. Leverage public relations to identify and cultivate relationships with media outlets—both in Illinois and nationally—that can increase your visibility organically.
- New business and customer retention. Build genuine relationships to gain repeat customers who spread the word to friends, family, and colleagues.
Get ready to start your business in Illinois
Following these steps can lay the groundwork for building your business in Illinois. But before setting up shop in the Prairie State, consider giving careful thought to whether your business goals align with what Illinois has to offer new business owners.
Research the state’s demographics, business laws, and infrastructure—which can vary greatly from the city of Chicago to the rural areas and pastures of downstate. Considering all these factors can help ensure your business venture fits seamlessly into the Illinois economic ecosystem—and is poised for growth.
*This post is for information only. You are responsible for reviewing and using this information appropriately. Requirements are updated frequently and you should make sure to do your own research and reach out to professional legal, tax, and business advisers, as needed. Businesses outside of Illinois will have different steps and requirements. To sell products using the Shopify platform, you must comply with the laws of the jurisdiction of your business and your customers, the Shopify Terms of Service, the Shopify Acceptable Use Policy, and any other applicable policies.
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