How to Start a Business in Illinois: The Complete Guide

Illinois is home to the first McDonald’s, Route 66, deep dish pizza, and 90% of all US pumpkins.

So, there’s a lot to love about the land of Lincoln.

But is it any good for business?

With living costs lower than the national average, a 4.95% flat income tax rate regardless of income level, and 80% of Illinois start-ups surviving beyond their first year, the Prairies state offers start-ups a strong economy to do business in.

Starting a business can seem daunting, especially if you’re planning your first steps. We created this guide to help you navigate the first steps of planning your dream business with ease.

Here’s everything you need to know about how to start a business in Illinois:

1. Fine-Tune Your Business Idea
2. Create a Business Plan
3. Choose a Business Name
4. Choose a Business Structure
5. Set up Banking, Credit Cards, & Accounting
6. Get Funding for Your Texas Business
7. Get Insured
8. Obtain Permits & Licenses
9. Find Your Team
10. Market & Grow Your Business
11. Open the Doors!

Step #1: Fine-tune your business idea

Your goal as an entrepreneur is to identify a market niche with a problem, create a product or service, and provide a profitable solution.

Here’s how it looks:

• Common problem + simple solution = Common problem + simple solution = successful business idea = $$$ business idea = $$$

Airbnb, Uber, and Netflix show how simple solutions can solve global problems. Okay, these are big examples. But a small idea can become a billion-dollar business when it solves a common problem, like Spanx.

• In 1998, Sara Blakely had a problem. She was going to a party, but her underwear didn’t suit her white pants. A common problem. Sara cut her control-top pantyhose to suit, revolutionizing women’s underwear. A simple solution.

Today Spanx sells in over 50 countries and is worth $1.2 billion.  

You can do the same by fine-tuning your business idea to determine its demand and viability, beginning with:

Playing to your strengths:

Sara Blakely played to her strengths by using her innate talent to solve a problem. 

You could too.

Consider your passions, interests, professional expertise, skills, knowledge, and experiences. Do they combine and make a recipe for a great business idea? 

Can you use them to solve a common problem and provide value to the Illinois community? 

Let’s look at some popular Illinois business ideas:

Be sure your business idea fits the needs of people in Illinois:

It makes sense for future Illinois brick-and-mortar business owners to choose a niche popular with the locals.

To cater to local interests, embrace the local flair by exploring its vibrant communities, cultural heritage, and regional specialties, then incorporate them into your business idea.

Some Illinois business ideas include: 

• Open a Chicago-style food business: Famous for its unique culinary offerings like Chicago-style deep-dish pizza, Chicago-style hot dogs, and Italian beef sandwiches, Illinois suits food truck and restaurant entrepreneurs.
• Art and culture experiences: Illinois has vibrant art scenes, museums, and cultural events. Great for businesses offering art classes, gallery and culture tours, or workshops catering to the artistic community.
• Outdoor adventure and nature tourism: With beautiful natural landscapes, Illinois is perfect for an outdoor adventure business offering hiking tours, kayaking or canoeing trips, camping excursions, or nature photography workshops.
• Farm-to-table and locally sourced products: A robust agricultural industry makes Illinois perfect for farm-to-table restaurants, organic farms, or farmers’ market stalls selling local produce, meats, and artisanal products.
• Tech and innovation start-ups: Illinois has a thriving tech and start-up ecosystem, with state incubators and accelerators for tech-related business ideas or innovative product designs.

Validate your business idea:

Let’s say you have a business idea; now, you must validate it to confirm the demand for your solution, how much people will pay for it, and what it’ll cost to enter the market. 

• Confirm consumer demand: The most important step in your entrepreneurial journey is one of the first, using market research to confirm consumer demand for your business idea.
• Validate your market: Use trends.Google.com to confirm whether your niche is growing.
• Consider the costs: Calculate your start-up costs, ongoing expenses, projected revenue, and break-even point to determine whether you have enough funds to make your idea a reality.
• Check the regulations: The least exciting job, but essential to ensure your niche is viable for your location. We’ll look closer at these later in the post.  Once you have your idea, it’s time to create a business plan.

Step #2: Create a business plan

A business plan helps unlock your idea’s potential by outlining your goals and choosing strategies to achieve them. And it also communicates your vision to potential investors who can help make it a reality. 

You’ve two business plan choices, a traditional and a one-page plan, but both include the following critical elements:

Market research

Market research helps you gain insights into your target audience’s preferences, analyze your competitors, and evaluate the potential demand for your products or services. 

• Use online tools like Spyfu and Google Keyword Planner to confirm the keyword search volume.
• Research Amazon to see where your product idea ranks.
• Monitor Facebook campaigns to gauge users’ interest.

Financial planning

A financial plan analyzes your start-up costs, pricing strategies, revenue projections, and economic forecasts to determine whether your business idea is worth your investment.  

And any business that requires funding will need a financial plan to secure it. 

Marketing strategy

A marketing plan outlines strategies and tactics to promote your brand awareness, differentiate it from competitors, reach your target audience, and drive customer engagement. 

Your key marketing strategies include branding, advertising, and your online presence, like your website and social media platforms.

Pro tip:

You can begin with a one-page business plan using a free template and upgrade to a traditional one when you need funding. 

Choose a location

Your location can make or break your business, especially if your niche relies on ‘walk-in’ traffic from the street, like food or retail. 

So, looking for popular city neighborhoods or districts like Chicago, Springfield, or Peoria that match your target market and industry is important. 

But other considerations come into play when choosing the perfect location for your new business, such as:

Zoning laws and regulations:

Research Illinois zoning regulations as they decide which types of businesses are allowed where and any special requirements or limitations.

Accessibility and visibility: 

Make it easy for people to visit your business and ensure there are nearby highways, public transportation, and parking. Also, consider how visible your business will be from the street to attract potential customers.

Target audience and demographics: 

Choosing a location that aligns with your target market increases your chances of attracting and keeping customers. Research the area’s demographics to confirm it matches your target audience and has adequate population density and income levels. 

Competitor analysis:

Look at similar businesses in your chosen location and see what they offer and their reputation to determine if there’s room for your brand to stand out.

Local amenities and infrastructure: 

Consider utilities, internet access, and your location’s infrastructure to ensure it’s right for your brand. Also, take note of nearby amenities such as shopping centers, restaurants, and entertainment venues, which can attract customers and enhance the appeal of your location.

Decide if you’re an online-only business

Brick-and-mortar businesses are more expensive to start than most online ventures, as it removes location from your start-up costs.

If you can begin online and expand to a physical location as your business grows, that’s a bonus for your bottom line. 

For an online business:

• Create a website that’s user-friendly, visually appealing, and informative about your products or services to engage your target audience. Also, optimize it for SEO to rank high on search engines.
• Build a social media presence to connect with your target audience, raise brand awareness, and engage potential customers.
• Develop a supply and distribution plan if you will sell products.
• Familiarize yourself with industry-specific tax obligations and comply with Illinois tax regulations.
• Consider Illinois-specific regulations about licensing, permits, and compliance obligations relative to your niche.

Step #3. Choose a business name

Your business name plays a significant role in establishing your brand identity. It must resonate with your target audience, convey the essence of your business, and comply with Illinois requirements.

Consider the tone and personality you want to project to create a memorable and distinctive name.

Illinois naming requirements:

• Uniqueness: Your business name must differ from existing Illinois businesses; do an Illinois business search with the SoS search tool to ensure it does.
• Entity Identifiers: When you form a limited liability company, you must use specific abbreviations, such as LLC, to ensure consumers know your business in an LLC.
• Restricted Words: You can’t use certain words or terms for a business name in Illinois; these include Bank, Incorporated, Inc., Insurer, Insurance company, Trustee, Trust, and Corporation.

Step #4: Choose a business structure

There are two types of business structures: informal and formal. 

Informal structures are sole proprietorships and general partnerships; formal structures are LLCs, limited partnerships, and corporations.

Your structure choice depends on the type of business you want to start, whether you’ll have employees, and your risk appetite!

Let’s look closer so you can choose the right structure for your business:

The common types of business structures

• Sole proprietorship: A sole proprietor is an informal business structure, meaning you do not register with your state and can trade immediately. You have complete control over your business and its profits. However, you have no separation between you and your business, so you’re responsible for any liabilities and debts.
• General partnership: Similar to a sole proprietorship but with two or more people. Each partner contributes to the business and shares profits and losses relative to their investment or internal agreement.
• Limited liability partnership (LLP): A formal business that provides partners liability protection, shielding them from personal responsibility for the business’s debts or cases of litigation.
• Limited liability company (LLC): LLCs come in 2 forms, sole proprietor single-member, and sole proprietor multi-member; both combine a corporation’s liability protection with a partnership’s simplicity.
• S corporation: An S corporation provides limited liability protection, allows for pass-through taxation, and shareholders can sell stocks, making it an attractive option for entrepreneurs wishing to raise capital.

The tax advantages for each business structure

• Sole proprietorship and general partnerships: Both are pass-through entities with profits and losses passing to the owner/partners, removing the need for separate tax filings.
• Limited liability company and limited liability partnerships: LLCs and LLPs have no Illinois tax requirements, avoiding double taxation, and members can reduce their tax bills by deducting certain business expenses.
• S corporation: An S corporation allows for pass-through taxation avoiding corporation tax, while also enabling shareholders to receive tax-free dividends and avoid self-employment taxes on some business profits.

For further information on which business structure you should choose, check out the Illinois Department of Commerce’s step-by-step business guide. 

Check out this guide about LLC taxes for a deep dive into navigating your business’s taxes. Creating a smart tax plan is key for business success. 

Step #5. Set up banking, credit cards, and accounting

Most businesses need three things to run smoothly: business banking to separate finances, credit cards for additional credit lines, and accountants to ensure IRS tax compliance.

All three offer different advantages and have certain regulations in Illinois; here’s what you need to know:

Business banking:

Entity owners (like LLCs and LLPs) need separate business bank accounts to avoid breaking the corporate veil (mixing business and personal finances), which can lead to losing liability protection.  

While general partnerships and sole proprietors can trade without a business account, using one simplifies bookkeeping and adds credibility to their brand. 

To open a business bank account in Illinois, you might need the following:

• An Employer Identification Number (EIN) (or a Social Security number SSN for sole proprietors)
• Your business’s formation documents
• Business License

Business credit cards:

Often an essential credit line for many small business start-ups, you can use them to build your business credit history score. 

You’ll need a favorable personal credit score to get a business credit card in Illinois, and some card suppliers also require proof of income. 

New business owners who can’t get a credit card can opt for a secured business credit card, which requires a deposit as collateral.

Business accounting:

Good accounting and bookkeeping are essential when running a business. An experienced Illinois accountant can ensure you comply with all state requirements and accountancy software or apps for your daily bookkeeping needs.

Visit the Illinois Department of Revenue website for information on Illinois tax policies.

Step #6. Get funding for your Texas business

All businesses require funding from family and friends, banks, or other alternatives. 

Let’s look at your Illinois funding options. 

The first place many small businesses look for loans is the Small Business Administration, which backs loans with longer repayment times and lower interest rates. 

Loans include:

• SBA 7(a) Loans
• SBA 504 Loan
• SBA Express Loans

Contact the Small Business Administration in your area to find out what’s available. 

State-Specific grants and loans:

Illinois offers grants and loans to support small businesses in certain industries, including:

• Illinois Small Business Development Center (SBDC): SBDCs offer support for start-ups and existing businesses, assist you with funding options, and connect you with potential investors.
• Illinois Finance Authority (IFA): The IFA offers capital access through loan programs, bond financing, and other financial resources.
• Advantage Illinois Program: AIP offers financing options, including loans, loan participation, and capital access programs for small businesses.
• Illinois Department of Commerce & Economic Opportunity: helps you access low-interest business loans.

Illinois Angel investors and VCs:

Angel and VC investors offer alternative ways for small businesses to access funding.

VCs invest in larger businesses in exchange for a percentage of ownership and control over how the company runs. In contrast, Angel investors invest in smaller firms to help them start. They typically receive a percentage ownership, but generally take no part in running the business. 

Illinois VC and angel investor options:

• Central Illinois Angels: CIA (not the government department) invests in businesses with strong management and profitable investor exit strategies.
• Hyde Park Angels: HPA uses its operating expertise and powerful business network to assist start-up business success.
• Chicago Media Angels: CMA specializes in investing in the media, film, and documentary industries.
• Illinois Ventures: IV’s mission is to make the world a better place and provide funding to start-up businesses within the University of Illinois system.

When choosing a loan, consider the repayment terms to ensure you can afford it, and with Angel and VC investors, be sure that what you’re gaining is worth what you’re giving away. 

Step #7. Get insured

Insurance is crucial in safeguarding your Illinois business and provides financial protection against unexpected events and liabilities. And as with all states, Illinois has specific insurance regulations:

 Illinois state-specific insurance regulations:

• Workers’ Compensation Insurance: Illinois law requires businesses with employees to have workers’ compensation insurance to cover medical expenses and lost wages in work-related injuries or illnesses.
• Unemployment Insurance: Employers must pay unemployment insurance taxes to provide benefits to eligible workers who become unemployed.

You can learn more about Illinois insurance requirements via the Illinois Department of Insurance.

Other business insurance policies that many small businesses need include:

• General Liability Insurance: Protects your business from claims of third-party bodily injury, property damage, or advertising injuries, and provides coverage for legal expenses, medical costs, and potential settlements.
• Commercial Auto Insurance: Essential if your business owns work vehicles and covers property damage and bodily injury liability resulting from company vehicle accidents.
• Commercial Property Insurance: Protects your physical assets, including buildings, equipment, inventory, and furnishings, against fire, theft, vandalism, or natural disasters.
• Professional Liability Insurance: Also known as errors and omissions insurance, PLC provides financial protection if a client alleges negligence, errors, or omissions in your services.

Pro-tip:

To ensure compliance with Illinois insurance regulations, consult an insurance professional familiar with the state’s requirements.

Step #8. Obtain permits & licenses

Illinois does not issue a state-level business license. Still, local municipalities often require a business license or permit before you can operate in the state. 

• For instance, if you sell or lease taxable goods, you must get a Certificate of Resale, also known as a seller’s permit.
• Some businesses, such as those selling liquor, tobacco, or firearms, require an occupational license and a Federal license/permit.
• Local Illinois municipalities might require additional permits to ensure compliance, such as health permits for restaurants and accommodation, home occupation permits for home-based businesses, and building permits for renovations or construction.

You can find what licenses and permits your business might need on the Illinois First Stop Business Information Center.

Federal income tax and Illinois local tax

Business taxes come in multiple forms, and which you’ll pay depends upon your business structure, industry, location, and whether you have employees.

Most business owners pay the IRS federal income and self-employment tax. And employees remit 7.47% of any employee’s paycheck and pay an equal share to the IRS for payroll tax (Social Security and Medicare).  

For more information on federal tax, visit the Internal Revenue Service website.

Illinois specific regulations

Businesses also pay state and local taxes; some include: 

• Illinois income tax: Illinois applies a flat rate income tax of 4.95%, which is lower than the national average.
• Corporate income tax: Illinois’s corporate income tax rate is a flat rate of 9.5%. Individuals operating as sole proprietors or partnerships and pass-through structures like LLCs avoid corporate tax.
• Sales Tax: Businesses that sell tangible goods or specific services must collect and remit sales tax. Illinois’s state sale tax is 6.25%, but municipalities can add 4.75%.
• Employer Taxes: Employers must remit income taxes from employee wages and pay unemployment insurance taxes. You can find more information and register for employer taxes on the Illinois Department of Employment Security website.

To learn more about Illinois state taxes, visit the Illinois Department of Revenue website. 

For local taxes, contact your county’s Commissioner of Revenue’s Office.

Step #9. Find your team

Finding and hiring a team to help you run and grow your business is a huge task that involves following regulations and adhering to certain responsibilities as an employer.

For instance: 

• You must register as an employer and get an Employer Identification Number (EIN) from the IRS.
• Apply to the Department of Revenue for a Withholding Tax Number.
• Get an Unemployment Insurance Tax Account Number from the Department of Employment Security.
• Report new employees to the Illinois Department of Employment Security within 20 days of hiring them. 
• Set up payroll taxes and report employee federal income tax using Form W-2.
• Get workers’ compensation insurance from the Illinois Workers’ Compensation Commission to cover medical costs should an employee get injured at work.

People are the backbone of the business:

Employees are the core of your business and vital in shaping your brand’s direction, culture, and success. 

Hiring individuals who align with your company’s vision, values, and goals is essential because surrounding yourself with a talented and dedicated team can enhance productivity, foster innovation, and drive customer satisfaction.

You can also seek advice from experienced professionals, such as accountants or business mentors, to navigate complex financial matters, develop effective strategies, and make informed decisions.

It can be helpful to connect with other business owners who have gone through similar experiences to gain insights into overcoming challenges and maximizing opportunities.

Comply with Illinois payroll regulations:

Comply with Illinois payroll regulations:

When you hire your team, you must also comply with Illinois labor laws and adhere to workers’ rights.

For example:

• Minimum wage: Employers must pay a minimum wage of $13.00 per hour to workers 18 years and older. Workers under 18 may receive a decreased rate of $.50 per hour and overtime pay at times and a half for hours worked beyond 40 hours per week.
• Wage payment frequency: You must pay employees at least twice a month or semi-monthly.
• Withholding taxes: As an employer, you withhold and remit certain taxes from your employee’s wages, including federal income tax, Illinois state income tax, Social Security tax, and Medicare tax.
• Payroll record keeping: Illinois law requires employers to keep these records for 3 years. It’s essential to maintain accurate payroll records for each employee, including hours worked, wages paid, deductions, and tax withholdings.
• And register for employee taxes with the IRS.

Hire contractors:

Hiring contractors can be a smart move to get specialized help for specific tasks on a need-only basis.

For instance, you could hire an accountant on a retainer to assist with managing your finances and ensuring tax compliance or a marketing expert on a project basis to help promote your brand. 

Key points when hiring contractors in Illinois:

• Contractor Agreements: Establish clear agreements outlining work, payment terms, confidentiality provisions, and other relevant terms to avoid disagreements.
• Taxes: Contractors handle their taxes, so ensure they provide a W-9 form for tax reporting purposes.
• Compliance with regulations: Ensure contractors adhere to relevant industry regulations and certifications, especially if their work involves specialized areas such as legal, accounting, or healthcare.

Step #10. Market & grow your business

Marketing promotes your business, helps build brand awareness, attracts consumers, and turns them into lifelong customers.

There are many strategies to choose from. All take time and patience and help you build a solid brand your target audience will become familiar with and trust.

Here are six strategies you can use to help you grow your business:

Invite customers to opt into a mailing list or newsletter

Encourage customers to subscribe to your mailing list or newsletter, allowing you to communicate with them, share updates, and promote new products or services.

To encourage subscribers:

• Offer a free resource, such as an e-book or exclusive content, in exchange for customers’ email addresses.
• Place a prominent sign-up form on your website and social media platforms.

Consider making special offers to attract your first customers

Offer exclusive deals, discounts, or incentives to entice potential customers and generate initial sales to create a buzz around your business and attract a loyal customer base.

How to do it:

• Offer a limited-time discount or buy-one-get-one-free promotion to encourage new customers.
• Provide a referral program where customers can earn rewards for bringing in new customers.

Look for local businesses or brands to collaborate with

Joining forces with other companies and brands enables you to cross-promote each other, tap into new customer segments, and expand your reach.

Interested in learning how to do this?

Then check out our video and discover how to collaborate with other businesses and brands. 

Invest in word of mouth (happy customers attract each other)

Satisfied customers are often a business’s best advocates. Here’s how to get people talking about your business: 

• Provide exceptional customer service to ensure positive experiences and encourage customers to recommend your business to others.
• Offer referral incentives or discounts for customers who refer new customers to your business.
• Encourage customers to share their experiences on social media by creating shareable content and running social media contests.

Pay attention to online reviews; ask happy customers to review you

Online reviews play a crucial role in shaping a business’s reputation, so you need to get and use them to your advantage:

• Encourage happy customers to leave reviews by sending follow-up emails or providing links on your website.
• Share positive reviews on your social media channels and website to increase customer satisfaction and build trust.
• Monitor review platforms like Google, Yelp, and industry-specific websites to respond to customer reviews and address any concerns.

Create unique, helpful content to showcase your activity 

Developing engaging and informative content showcasing your expertise and offering value to your target audience helps establish your business as a trusted resource and builds customer loyalty.

You can:

• Write blog posts or create videos with valuable tips, advice, or tutorials about your industry or products.
• Share success stories or case studies showing how your products or services have benefited customers.
• Offer downloadable resources like guides, checklists, or templates that align with your target audience’s needs and interests.

Step #11: Open the door!

Creating a buzz around your launch is crucial whether you have a physical store or operate online. One effective way to achieve this is by throwing a launch event.

• Choose a date: Select a date for your launch event that allows you enough time to prepare and generates excitement. Consider weekends or evenings when your target audience is likely to be available.
• Determine the Format: Decide on the format of your launch event based on your business type and target audience. For instance, it could be an in-person launch event, virtual, or both.
• Create an Unforgettable Experience: Make your launch event stand out by offering something unique, like special discounts, giveaways, live entertainment, guest speakers, or interactive activities that align with your brand.
• Leverage Social Media: Harness the power of social media to promote your launch event. Create engaging content like teaser posts, behind-the-scenes footage, or countdown updates to build anticipation among your followers.
• Collaborate with local influencers or organizations: Partnering with local influencers, bloggers, or community organizations can help expand your reach and spread the word about your launch event.
• Capture Contact Information: During the event, encourage people to share their contact information, allowing you to follow up with them and continue building relationships.
• Follow Up After the Event: Send personalized emails, offer exclusive post-launch promotions, or request feedback to engage further with your new customers.

FAQ