How to start a business in Alabama in 14 steps (2025 guide)

Whether you’re pursuing a lifelong passion or venturing into new opportunities, Alabama is a great place to begin your entrepreneurial journey. Its affordable cost of living, welcoming environment, and strong workforce are among the plethora of attributes that draw people to Alabama. But if you’re wondering how to start a business in Alabama, our comprehensive guide breaks down everything you need to know to get your business up and running in this southern state, from setting up your business structure to securing funding.

Why start a business in Alabama in 2025?

Alabama is emerging as a dynamic hub for new businesses in 2025, and there are plenty of reasons why. CNBC recognized Alabama as America’s Most Improved State for Business for 2024, thanks to a surging workforce that’s boosting opportunities across the state, especially in Northern Alabama. Huntsville — home to NASA’s Marshall Space Flight Center and major data centers for Facebook and Google — is at the heart of this growth, with a 7% population increase in just three years. The city's blend of a high standard of living, diverse talent, and booming real estate market makes it an attractive destination for entrepreneurs.

But it’s not just Huntsville driving business success in Alabama. The state’s AdvantageSite program links businesses to shovel-ready sites, making it easier to expand. With $2.8 billion in investments and over 7,700 new jobs created, the future looks bright for anyone considering starting a business here. Combine this with Alabama’s low cost of living and competitive 6.5% corporate tax rate, which allows for deductions on federal income tax paid, and you’ll see why the state is becoming a top choice for entrepreneurs.

Here are the topics we’ll cover in this step-by-step guide: 

• 14 steps to starting a business in Alabama
• Step 1: Decide what type of industry is best for your business
• Step 2: Conduct industry research
• Step 3: Create a business plan
• Step 4: Choose your business entity
• Step 5: Secure funds: Alabama small business funding, loans, and grants
• Step 6: Choose your Alabama business name and Alabama DBA
• Step 7: Pick a business location in Alabama
• Step 8: Find an Alabama registered agent 
• Step 9: Get an Alabama EIN and file your tax and employer identification documents 
• Step 10: Register as a small business in Alabama 
• Step 11: Register for your business license and permits in Alabama
• Step 12: Secure insurance for your Alabama small business 
• Step 13: Prepare to pay taxes on your business in Alabama
• Step 14: Set up your business bank account
• Additional resources to get your business started
• Frequently asked questions

14 steps to starting a business in Alabama

So, you’ve decided to embrace entrepreneurship and open your own small business in the state. Whether you’re relocating to a suburb of Birmingham, downtown Huntsville, or a more rural locale, it takes careful planning and access to the right small business resources to set yourself up for success. Here are the steps to get your business started:

Step 1: Decide what type of industry is best for your business 

Start by identifying the niche you want to fill if you don't already have an idea in mind. Consider your skills, interests, and the market demand in Alabama. Research local trends and potential gaps in available services or products. 

Need help getting started? Explore small business ideas for inspiration.

Step 2: Conduct industry research

Once you have identified a general concept, understand the competitive landscape. To do this, you'll need to conduct a competitive analysis to assess the strengths and weaknesses of other businesses in your industry and area. For instance, if you want to start a small accounting firm in rural Bibb County, consider your target market, who else operates in your area, and how much space there will be for your new offering.

Step 3: Create a business plan

Think of your business plan as a road map for success. It outlines your business concept, target market, marketing strategies, financial projections, and funding needs. A well-crafted business plan also can help you secure funding and potentially attract investors — all while staying focused on your goals.

Here’s a breakdown of what to include in your business plan:

• Executive summary: Write a concise overview that highlights the key elements of your business plan.
• Company description: Outline your company’s mission, history, and future goals.
• Market research and potential: Highlight your target audience and industry trends.
• Competitive analysis: Analyze your competitors and show how you differentiate from the competition.
• Products and services: Describe your products or services and how they bring value to customers. 
• Marketing and sales: Explain your strategies for attracting and retaining customers.
• Business financials: Provide income projections and cash flow forecasts.
• Management and leadership: Introduce your team’s expertise and leadership.
• Funding request: Specify your funding requirements and how you'll use the funds.
• Appendix: Include relevant supporting documents, such as market research data and financial statements.

Take the time to flesh out each section of your business plan. Use a free business plan template to get started, and consider reaching out to the Alabama Small Business Development Center for additional help.

Step 4: Choose your business entity: Types of business entities in Alabama

Anyone beginning a business needs to choose a business entity. These business structure types determine your business’ ownership, your taxes, and your personal liabilities. Choose one of these structures for your business:

Sole proprietorship

A business owned and operated by one person, with no legal distinction between the owner and the business.  

General partnership

A business owned by two or more people who share profits, losses, and management responsibilities.

Corporation 

A legal entity separate from its owners, with shareholders who have limited liability for the company's debts and obligations.

Limited liability company (LLC)

A hybrid business structure combining the limited liability of a corporation with the tax flexibility of a partnership. Learn more about LLCs.

Step 5: Secure funds: Alabama small business funding, loans, and grants 

Starting a small business in Alabama—or anywhere—requires funding. Costs like equipment, inventory, insurance, rent, and utilities can quickly add up. Also, depending on your industry, you might need specific permits or regulatory licenses. For example, restaurants require health permits, and construction businesses may need special licenses for their projects. Here are a few of the most common ways to secure funding:

You should also explore state-specific funding options, including:

Innovate Alabama Supplemental Grant Program

This grant program, through the nonprofit Innovate Alabama, opens rounds of funding for small businesses in the state involved in research and technology development. Apply for a grant on the Innovate Alabama website. 

Alabama Credit Union

The Alabama Credit Union offers small business loans to help fund equipment, property purchases, business vehicles, and more.

Alabama Small Business Development Center (SBDC)

The Alabama Small Business Development Center provides a portal to several private-sector grant competitions, including a few specifically for women-owned businesses.

Step 6: Choose your Alabama business name and Alabama DBA

Choose a catchy, memorable name that reflects the essence of your products or services. Once you’ve come up with a few ideas, conduct a business entity search on the Alabama Secretary of State's website to ensure the name is available.

DBA stands for Doing Business As, and it allows your business to operate under a name different from its legal name. DBAs are known as Trade Names in Alabama. A DBA is useful for creating a brand with a catchy name or something more descriptive than your legal business name. The catch in Alabama is this: Unlike most states, you can't reserve a DBA name beforehand. In other words, you must actively use the name in your business operations before you file registration. 

Reserve your business name

Go to the Alabama Secretary of State's website and click the Name Reservation Request Form for Domestic Entities to reserve your business name in the state of Alabama. Print out the form and fill it out. Mail the completed form with a check, money order, or credit card payment for a $25 processing fee. Or pay a $28 fee and submit the form online. 

Filing a DBA or trade name

Alabama uses “trade name” in place of DBA, so make sure you’ve registered your trade name if your business is anything other than a sole proprietorship or general partnership.

Step 7: Pick a business location in Alabama

Choosing the right location is a critical step that impacts every aspect of your Alabama business, including operational costs and customer accessibility. All of Alabama’s cities and counties have zoning ordinances that dictate how spaces can be used. Visit your municipal and county websites to ensure your business meets the designated purpose of the area you’re in. 

• If you’re within the city limits, you may need to purchase a city license and permits and ensure you meet any building code requirements. Your Alabama business may also need to collect city taxes and police jurisdiction taxes. 

You’ll also want to consider your target market in order to determine your best location and check area crime rates with your local police jurisdiction.

Running your business from home could be a cost-effective option, as it can help reduce overhead costs like rent, utilities, and commuting. However, if you’re looking for commercial space in one of the state’s metropolitan areas, keep the following in mind: 

Birmingham

Birmingham is focusing on downtown revitalization, and if you place your business here, you might qualify for tax incentives. Other target areas include the Over the Mountain communities, such as Vestavia Hills, Hoover, Homewood, and Mountainbrook. The Birmingham Business Alliance provides helpful guidance on available sites and buildings across the Birmingham region.

Huntsville 

Huntsville, a growing and tech-forward city, is a prime location, but commercial spaces can be in high demand. If your business is in aerospace, manufacturing, IT, or defense, Huntsville’s Chamber of Commerce initiative can help you secure an ideal space. This initiative is focused on aiding new and expanding businesses, especially in these thriving sectors, to find suitable locations in the city’s competitive market.

Montgomery 

Montgomery, the capital city, has plenty of resources for small businesses, including affordable co-working spaces through the Chamber of Commerce. If your business works with government entities, setting up near the capitol building can be a smart move to stay close to key stakeholders.

Step 8: Find an Alabama registered agent

Every business registered in Alabama needs a registered agent. This individual or service accepts legal documents like lawsuits and important government notices on your behalf. Registered agents must have a physical address in Alabama and be available during regular business hours. The Secretary of State’s office has a list of registered agents, but you can also find an agent in the state, so long as they have a physical location here. You can also appoint yourself as the registered agent for your Alabama business. To do so or to change the name of your registered agent, fill out and mail the following form to the Secretary of State’s office. 

Step 9: Get an Alabama EIN and file your tax and employer identification documents

An EIN (Employer Identification Number) is a nine-digit number the IRS uses to identify your business for tax purposes. Although Wisconsin doesn't require a state EIN, you'll need one to file payroll taxes and federal tax returns, open a business bank account, and apply for loans. You can apply for a free EIN through the IRS website.

Step 10: Register a business in Alabama

Register your small business in Alabama with the Secretary of State. You’ll need to determine your business structure in order to set up everything else — including your federal tax ID number and your business bank accounts. Here are some considerations when registering your Alabama business, depending on the type of business:

Step 11: Register for your Alabama business license and business permits

Obtain the necessary licenses and permits to ensure your Alabama business operates legally. In Alabama, nearly all businesses require at least one type of license or permit to operate legally. They will vary, however, based on your industry, the county, and whether you’re in a city or rural area. 

Here’s a list of some of the Alabama-specific permits you may need, depending on your business. Consult the Alabama Department of Revenue to determine the exact licenses and permits when starting your business.

Business privilege license

This license is mandatory for most businesses and is obtained from your local county probate office. These licenses cover various business activities, from construction to cosmetology.

Business tax registration (seller's permit)

If you sell or lease tangible goods, you'll need this permit from the Alabama Department of Revenue.

Local licenses

Many cities and counties require additional licenses specific to your location.

County licenses

Issued by your local county probate office, these might include specific business categories or fees based on your Alabama business’ location.

City licenses

Alabama cities, including Birmingham, Huntsville, and Montgomery, require additional business licenses specific to your operating area.

Regulatory licenses 

These are issued by state agencies to ensure compliance with regulations in specific industries like healthcare or environmental services.

Food service permits

The Alabama Department of Public Health requires these permits for all restaurants and food-handling establishments.

Alcohol and tobacco licenses

You’ll need to obtain permits and licenses from the Alabama Alcoholic Beverage Control Board for businesses selling or serving alcoholic beverages or tobacco products.

Any other industry-specific licenses and permits

If you’re running a farm business, for example, you’ll need to obtain the right permits for operating an agribusiness from the Alabama Department of Agriculture & Industries. Broadcasting businesses require FCC licensing for radio and television stations. Fishing and wildlife businesses need licenses issued by the Alabama Department of Conservation and Natural Resources.

Step 12: Secure insurance for your Alabama small business

A toilet leaks and floods the office below yours. Lightning strikes your building, and you lose all your electronics. A customer slips and falls while visiting your place of business. Whatever the case, unexpected events, accidents, and lawsuits can disrupt your business operations and cause financial hardship—or sink your business altogether. The right insurance protects your Alabama business from these unforeseen risks. 

Types of small business insurance in Alabama

Here are some common types of Alabama small business insurance:

Step 13: Prepare to pay taxes on your small business in Alabama 

Compared to other states, Alabama has a favorable tax structure that can give your small business a financial advantage. Here’s what you can expect regarding taxes when starting and operating a small business in Alabama.

Here are the most common taxes — and a few tax breaks — you’ll want to take into consideration, depending on your industry, business size, and income. 

State income tax

Alabama has a flat state individual income tax with rates ranging from 2% to 5%, depending on your business income. The corporate rate of income taxation is limited to no more than 6.5%. 

Alabama Business Privilege Tax

Other states may refer to it as the franchise tax, but Alabama's Business Privilege Tax is based on the net worth of your business and has a tiered rate structure. The business privilege tax rates range from $0.25 to $1.75 for each $1,000 of net worth in Alabama.

Payroll taxes

If you have employees, you'll be responsible for federal and state payroll taxes, including Social Security, Medicare, and unemployment taxes. These taxes are similar to what you'd pay in most other states.

Tax credits and incentives for Alabama employers

There are a number of tax credits and incentives for those who locate their small business in the state of Alabama. The Enterprise Zone Credit or Exemption, for instance, offers credits to encourage economic growth in economically depressed areas of the state. The state also offers a $1,000 one-time tax credit for each new employee a business hires. Visit the Alabama Department of Revenue to review potential tax credits or exemptions applicable to your industry. 

Federal taxes

In addition to state and local taxes, all businesses must pay applicable federal taxes, including:

• Federal income tax
• Self-employment tax (for sole proprietors and partners)
• Employment taxes (if you have employees), including the Federal Unemployment Tax Act (FUTA tax)
• Excise taxes (for certain industries)

To ensure you understand your federal tax obligations, check out these IRS resources: Publication 334, Tax Guide for Small Business and Publication 583, Taxpayers Starting a Business and Keeping Records.

Step 14: Set up your business bank account

Keeping your personal and business finances separate is crucial for any small business owner in Alabama. Here’s how to open a business bank account:

1. Make sure you have all your business paperwork, including your EIN, any licenses and permits, and business formation documents, to set up your bookkeeping and open a small business bank account. 
2. Shop around to find a bank or credit union that offers business banking services in the state. Be sure to take factors into consideration, including monthly and transaction fees, minimum balances, loan products, and bill pay services. 
3. Look for business credit cards with rewards programs that benefit your business, whether you use your bank or credit union to open a business credit card or you choose to look elsewhere. 
4. Set up a bookkeeping system by finding the right accounting software for your firm or business. 
5. Consider hiring a qualified accountant as your business grows. This professional can offer invaluable advice about everything from tax credits and exemptions to financial planning.

Additional resources to get your business started 

There are several state and federal resources that can support your business with guidance, training, potential funding and more. 

State resources

Alabama Small Business Development Center (ASBDC): ASBDC offers free consulting and affordable training programs to help small business owners. Whether you need guidance with planning, funding, or marketing, the SBDC provides valuable support to get your business on the right track.

Alabama Department of Commerce: This department promotes the state’s business-friendly environment through its Made in Alabama initiative. They help entrepreneurs connect with resources, grants, and networking opportunities.

Alabama Industrial Development Training (AIDT): AIDT is the state’s go-to resource for workforce development. AIDT helps you recruit, screen, and train your employees—at no cost to your business. They also offer leadership development and on-the-job training to ensure your workforce is prepared for success.

Alabama State Banking Department: This department provides guidance on funding options for small business owners. They oversee state-chartered banks and offer insights on financial services and loan opportunities.

Federal resources 

Small Business Administration (SBA): The SBA supports small businesses through various loan programs, including the 7(a) loan, provides resources for government contracting, and offers counseling and training programs to help entrepreneurs start and grow their businesses.

Grants.gov: This centralized platform simplifies the process of searching for and applying for federal grants across various sectors. It also provides grant writing tips and has a Grants Learning Center featuring the basics of grants, eligibility, and more. 

Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR): SBIR and STTR programs provide research and development funding to innovative tech companies. 

SCORE: SCORE is a national nonprofit organization that partners with the U.S. Small Business Administration (SBA) to provide free mentoring and educational resources to entrepreneurs and small business owners. While not a direct federal agency, SCORE is an independent organization with a network of volunteer business mentors across the United States.   

U.S. Department of Agriculture (USDA): The USDA website lists grants, loans, and other programs and resources for farmers and other businesses serving rural America.

Frequently asked questions

What is required to start a business in Alabama?

Starting a business in Alabama requires a business name; a business structure, whether an LLC, corporation, or sole proprietorship; registration of your business with the Alabama Secretary of State’s office; and securing any state licenses or permits to operate. 

How long does it take to start a small business in Alabama?

Once you have your idea and your business plan and structure, it’s fairly quick to start your small business. Just keep in mind that permitting can take anywhere from a few days to two or three months, depending on the licenses and permits your business needs. 

Do I need a local business license if I only operate online in Alabama?

Most businesses in the state, including online ones, are required to get a business privilege license from the county where they're based. Depending on what you’re selling or doing, you may also need a seller’s permit or other licenses. Check with your local county and city offices to ensure you’re meeting all requirements.

Disclaimer: 

This content is for information purposes only and information provided should not be considered legal, accounting, or tax advice, or a substitute for obtaining such advice specific to your business. Additional information and exceptions may apply. Applicable laws may vary by state or locality. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customer’s particular situation. Intuit Inc. does it have any responsibility for updating or revising any information presented herein. Accordingly, the information provided should not be relied upon as a substitute for independent research. Intuit Inc. cannot warrant that the material contained herein will continue to be accurate, nor that it is completely free of errors when published. Readers should verify statements before relying on them.