If you’re fixin’ on starting a business in Tennessee or wishin’ to learn more about the steps required to start a business in Tennessee and you want to be “right smart” about it, this guide is for you, so hopefully you will eventually be successful and, as the locals like to say, “live in high cotton.”
Besides its southern charm, Tennessee, known as “The Volunteer State” (for all those who were volunteer soldiers in the War of 1812 and thereafter), has many things that are smart about starting a business here, such as:
- Low tax rates: There is no personal income tax. The corporate tax rate is low at 6.5% and the state sales tax is 7%, with optional municipal taxes of up to 2.75% additional.
- Central location: The state is in the center of the eastern part of the U.S., with 70% of the American population within one day’s drive. This is a dream location for logistics with five major interstate highways crisscrossing the state. The FedEx central international hub is in Memphis at the world’s busiest cargo airport. Railway networks include Norfolk Southern and CSX.
- Manufacturing: Big manufacturing names include Bridgestone, Denso, Eastman Chemical, General Motors, Nissan North America, and Volkswagen.
- Talented workforce: The state makes significant investments in workforce development with programs for tuition-free community college and the Tennessee College of Applied Technology (TCAT) system, which trains skilled workers in administration, healthcare, logistics, technology, and manufacturing.
- Innovation: Tennessee boasts of its booming start-up scene with high-tech incubators, ample venture investment funds, research centers at its major universities, and the Oakridge National Laboratory working on cutting-edge technologies, including artificial intelligence (AI) and quantum computing.
- Quality of life: The state’s cost of living is about 10% lower than the national average. There are exciting cities—Chattanooga (smart-city/tech hub), Knoxville (tech/energy), Memphis (logistics/culture), and Nashville (music/innovation)—all with friendly people and southern hospitality. Tennessee, with a population of over seven million, is growing faster (10.9% over the past decade) than the rest of the USA (7.7%).
Now that we have got you excited about the prospects, here is the list of 11 steps we will cover in this guide that you need to take to get your Tennessee business up and running properly.
The steps:
- Fine-tune your business idea
- Create a business plan
- Choose a business name
- Choose a business structure
- Set up banking, credit cards, & accounting
- Get funding for your Tennessee business
- Get insured
- Taxes, permits, & licenses
- Find your team
- Market & grow your business
- Open the doors!
1. Fine-tune your business idea
Fine-tuning your business is creating the difference between rough moonshine and smoothly-flavored, well-aged, Tennessee whiskey. Here are some things to consider in the planning stage.
Ways to find great new business ideas
Look for specific problems that your new business can solve and do the research to determine if people are willing to pay enough for a solution. What are the “pain points” for your customers that your product or service can reduce or eliminate? A pain point does not have to be something bad; it can also be something highly desirable, like finding the perfect wedding dress.
Define your target customer in great detail. Get specific. Be able to point out places on a map where they live and work. Test your assumptions with real human surveys, focus groups, and online surveys. Start your customer contact with a supportive social media group, which you join or create, before you start a business.
If you find it difficult to create a social media group, you do not have a great business idea, or you have not identified who your target customer really is and what they actually need. Don’t be shy, just give it a try.
You must identify customers who have these important needs and ensure there is a sufficient number so that a portion of them in your market area (from local to global) would pay enough to support your new business.
Here are some other considerations when choosing to start a new company based on your great business idea.
How to play to your strengths
It is better to have experience and intimate knowledge of business in a specific niche before trying to start your company. Many small businesses fail because the owners do not have a clue about what they are doing.
A classic example is starting a restaurant. Just because you have eaten in restaurants, you do not know anything about the complex behind-the-scenes work that is necessary to prepare a wonderful meal, as well as make a restaurant popular and profitable. It is far better to have worked in a restaurant and managed one that was successful before starting your own.
On the other hand, if you have certain highly skilled experience in a sector and see a way to make use of it, that may be your best bet. An example of this would be a veterinarian who opens a clinic in a rural community, which has plenty of animals but no vet.
How to make sure that your business idea is viable
Don’t start a business until you find your customers and, even better, make a sale before starting a business. Social media is an excellent resource to help find your customers. There are many social media groups and if your customer base exists, you should be able to find them. Chat with existing groups that have a related interest but are not your competitors.
Let’s say, for example, you are interested in providing in-home nursing care in Knoxville. Look for a similar discussion group in another city, like Nashville. Ask those people to give their opinion about your business startup idea and, if they are cooperative and helpful, reward them by naming them as members on your advisory board.
Many people like to give their opinions and enjoy being recognized (not necessarily needing to be paid). This group may become your biggest supporters and even your first customers.
How to decide between a product-based and a service-based business
A product-based business sells something that can scale without the limitation of your direct involvement of your time. A service-based business sells your time, skill, and expertise in something you do for people. Some businesses are a combination, such as a computer repair shop that also sells computers.
Products can make money while you sleep; services make money while you work. Warren Buffett once said, “If you don’t find a way to make money while you sleep, you will work until you die.” He is a great believer in passive income generated by investments.
How to make it local
Making a locally focused business can be very rewarding. Tennessee is famous for its music, culture, great food, and superb liquor. There are plenty of businesses that thrive on tourism, including music events, outdoor adventures, arts & crafts, restaurants, breweries, and farm-to-table markets.
An example of a local business is making curated gift boxes of local honey, whiskey, jam, candles, and other local crafts. Perhaps you start at the local farmer’s market and then expand your marketing online, while still keeping that down-home feeling of hand-curated local gift selections.
You may not be able to start a restaurant, but instead prefer to become a tour guide for tourists to sample the local fare that you know so well, by being an experienced foodie.
2. Create a business plan
A good business plan is clear, focused, and practical. It’s a roadmap with purpose, proof, and clarity. It tells your story and shows your credentials and expertise. It identifies real problems, explains your unique approach to solutions, and backs up your concepts with solid market research and realistic financials.
It explains what you’re building, why it matters, and how it will make money. Investors and partners want to see a believable path to profit, a team that can deliver, and contingency plans for bumps along the road.
A good business plan isn’t just wishful thinking, based on a wing and a prayer; it’s supported by the following:
Market research
Market research is performed by collecting and analyzing information about your target customers, competitors, and industry. It helps you to understand demand, opportunities, and risks before launching your business.
Financial plan
A financial plan outlines how a business will earn money, cover expenses with cash flows, and manage money to stay profitable while achieving its goals.
Marketing plan
A marketing plan explains how a business will attract, engage, and retain customers by using targeted strategies for promotion, pricing, and distribution.
Choose a location
Location can make or break a business, especially in specific industries that rely on ‘walk-in’ traffic from the street, like food or retail.
Here are five cities in Tennessee which are good locations for starting a new business, and the reasons why they make the top-ten list for consideration:
- Nashville is the state’s economic engine, known for booming tourism, tech growth, and a thriving creative/entrepreneurial community.
- Chattanooga is well-organized for the gig economy with lightning-fast internet, affordable living, and a supportive ecosystem for tech startups and green businesses.
- Knoxville offers access to the University of Tennessee’s research network and has a strong base in energy, manufacturing, and healthcare.
- Memphis is a logistics powerhouse anchored by FedEx, ideal for e-commerce, distribution, and transportation ventures.
- Franklin is a wealthy, business-friendly suburb of Nashville with strong consumer spending and a fast-growing professional services sector.
When considering a location, be sure to do a competitive analysis. Sometimes it is better to go where all the action is concentrated, which is the reason why car dealerships tend to be in one area. For other businesses, like a florist, for example, it may be better to be in a spot with less direct competition and high traffic flow.
Decide if you’re an online-only business
Decide whether you are an online-only business, a brick-and-mortar business, or both. You can also start with one method for your new business and expand to the other style later.
3. Choose a business name
Your business name is your brand. You want it to be memorable, easy to spell, have a website domain for your brand name, and then trademark your brand logo. To find an available domain name, search on a domain registrar.
Don’t be afraid to use a made-up word with a unique spelling. It just has to be different and easy to spell. Brand names like Kleenex or Windex had no recognition when they were first used but now are known worldwide.
To see if your idea for a business name is already in use, you should perform a Tennessee business entity search with the Secretary of State’s online tool.
If you plan to operate under a name different from your legal business name, you’ll also need to register a DBA (Doing Business As). You can file a DBA in Tennessee through the Secretary of State’s website or at your local county clerk’s office, depending on your business structure.
To see if your idea for a trademark or service mark (or something too similar) is already in use, go to the Tennessee Secretary of State Trademark and Service Mark Search online tool.
Specific regulations and naming laws to know about for Tennessee
For a Limited Liability Company (LLC), the name must include one of the approved designators, such as “Limited Liability Company,” “L.L.C.,” “LLC,” or a similar meaning. It also must be distinguishable from all other business entity names in the state.
Since names must be distinguishable from existing business names in Tennessee — that means you can’t simply change the suffix (e.g., “Inc.” vs “LLC”) and claim uniqueness. Punctuation and capitalization differences don’t usually count as making a name new.
The name cannot imply that the business is a government agency or that your company is connected to a charitable or professional organization unless that connection exists and is certified.
4. Choose a business structure
The choices for a business structure in Tennessee include operating your business as a sole proprietorship, a general partnership, a corporation, or a limited liability company (LLC).
Common types of business structures
Under Tennessee regulations, you can conduct business as a sole proprietorship or as a general partnership.
A general partnership is possible; however, there is no liability protection for each partner and no liability protection if you are a sole proprietorship. With these business structures all your personal net worth is at risk if something goes wrong with the business.
A corporation is another alternative that provides liability protection for its owners but has to pay tax on corporate income and the owners have to also pay tax on any distributions.
The recommended option is to start an LLC which provides liability protection for its owners and limits the liability to the amount invested in the LLC, thereby protecting the owner’s personal assets, except for certain circumstances like intentional fraud.
An LLC does not pay taxes and therefore passes its profits/losses through to the owners who pay taxes on the income, thereby avoiding the double taxation that comes from having a corporate structure.
Tax advantages of each option
As a sole proprietorship or general partnership, there is no tax advantage on a federal level, because whatever profits you make are taxed as personal income. There is no personal income tax in Tennessee, so that is an advantage.
A corporation must pay the business tax. Any profit distributions to its owners, such as dividends, are taxed again on the federal level. Personal income does not have any state tax.
An LLC has the advantage of a pass-through of the income to its owners, and they must pay federal tax on it but a no state tax in Tennessee. An LLC avoids the double taxation problem of a corporation.
A Tennessee LLC is the preferred structure for a new business in the state because it may also provide liability protection for its owners.
5. Set up banking, credit cards, & accounting
After you register your business with the Tennessee Secretary of State, you can use the registration documents to open a business bank account with a debit card for you to use.
You may be able to get credit cards in your business name; however, it is common for new businesses to need their owners to give a personal guarantee for any debts, such as credit cards or loans. In the future, as your business becomes more established, you may be able to get unsecured loans and credit cards for the business without needing to give personal guarantees.
From day one of your new business operations, you want to have an accounting system in place to track your income and expenses. You may choose to do this yourself by using accounting software or hire a bookkeeper/CPA to do this for you.
Be sure to save receipts for any business expenses you make, including the start-up costs, so you can use them for your tax calculations and tax filings.
6. Get funding for your Tennessee business
Here are major small business grants Tennessee, loans, and incentives available in the state for businesses, along with regulations, state and federal government support, and local-government initiatives.
State-level programs & incentives
Here are some state programs to consider.
Fund Tennessee (SSBCI 2.0)
Fund Tennessee is administered by the Tennessee Department of Economic and Community Development (TNECD). This is Tennessee’s version of the federal State Small Business Credit Initiative.
It has three components:
- InvestTN (equity investment in startups)
- LendTN (debt financing)
- AssistTN (technical assistance)
The total allocation is about $117 million for Tennessee over a decade.
Ideal for early-stage startups, under-resourced business owners, or businesses needing capital and support.
State incentive & grant programs via TNECD
Through TNECD’s “Incentives & Grants” webpage you’ll find several programs such as:
- FastTrack Infrastructure Program: Grants to local government for infrastructure improvements (road, rail, site development) benefiting businesses.
- FastTrack Job Training Assistance Program: Grants supporting training of new full-time employees at expansion/relocation projects.
- FastTrack Economic Development Fund: Discretionary grants for local governments to offset costs for business expansions/locations.
Tax credit programs
There are some tax credit programs related to job creation in Tennessee, which include:
- Job Tax Credit: For creating net new full-time positions + minimum investment.
- Enhanced Job Tax Credit: Extra credits for locating/expanding in “Tier 2/3/4” counties (distressed or at-risk) in Tennessee.
- Community Resurgence Credit: For creating jobs in census tracts with a greater than 30% poverty rate.
Rural & specific business grants
Through the state site, you can access a searchable grants directory for rural communities, businesses & nonprofits via the Tennessee Department of Rural and Community Development.
Federal USDA programs apply in Tennessee too: e.g., Rural Business Development Grants and Business & Industry Loan Guarantees (for rural business growth via financing + loan guarantee).
Local, city, county programs
The city of Memphis offers “Loans & Grants” for businesses, especially in urban-renewal, historic business districts, or underserved areas.
Many counties and cities in Tennessee have local economic development offices that work in tandem with state programs. They may provide matching local funds, targeting specific industries, or offering incentives like property tax abatements, infrastructure help, or workforce training partnerships.
When you look at a locale you’re interested in, check the city/county economic development website for local match grants, micro-loans, and site-specific incentives.
Key regulations & conditions (things to know)
Most of the big state programs require the creation of new full-time jobs (37.5+ hours/week) and may have capital investment thresholds, such as 25 new jobs and a $500,000 investment in many cases. Businesses must often commit to job creation within a set timeframe (e.g., 36 months) to qualify.
Location matters as counties are designated as Tier 1, 2, 3 or 4 (with Tier 3/4 being higher need). Tennessee programs give larger incentives in higher-need or distressed counties.
Equity or debt capital programs like Fund Tennessee point out that minority/different business-owners who are socially and economically disadvantaged individuals are prioritized.
7. Get insured
Here are the categories of business insurance that a new business owner in Tennessee needs to consider and manage to comply with state, federal, and municipal laws.
If you hire employees, you must have workers’ compensation insurance and unemployment insurance.
Workers’ compensation insurance
Tennessee law requires most businesses to carry workers’ compensation insurance if they have:
- Five or more employees (full-time or part-time)
- Construction businesses must have it even with one employee
- Coal mining businesses must have it even with one employee
- Sole proprietors and LLC members can exempt themselves, but not employees
Worker’s compensation insurance covers medical costs, lost wages, and injuries for employees hurt while on the job.
Unemployment insurance
If you pay more than $1,500 in wages during a calendar quarter or have one or more employees for more than 20 weeks, you must register and pay the Tennessee Unemployment Insurance Tax.
Commercial vehicle insurance
If your business owns vehicles or employees regularly drive for your business, Tennessee law requires that you have at least the minimum liability coverage for the type of vehicle.
For example, minimum liability coverage in Tennessee requires light commercial motor vehicles to carry at least $300,000 in liability insurance coverage for bodily injury and property damage, and $750,000 for heavy commercial vehicles, which is consistent with federal requirements for most freight trucks over 26,001 pounds.
Additional commercial insurance coverage is recommended for deliveries, transport, or hauling equipment. Work with a qualified insurance expert to have adequate coverage.
Professional liability insurance
Workers in specific professions are required to have errors and omissions (E&O) insurance, including contractors, healthcare providers, attorneys, real estate brokers, and financial professionals. Contractors also need general liability insurance and bonding.
Other recommended insurance
Although not legally required for all businesses, here are the types of insurance that are recommended for a business to have:
- General liability insurance: Contractors must have this insurance. Other business types should have it to protect against lawsuits for customer injuries, property damage, advertising harm, and accidents on your premises. It is usually required by landlords.
- Commercial property insurance: This covers equipment, inventory, buildings, tools, and supplies. It is usually required by lenders.
- Cyber liability insurance: Recommended for online businesses, eCommerce, and any business storing customer data.
- Business interruption insurance: Covers lost revenues due to natural disasters and other events that keep a business from operating.
8. Taxes, permits, & licenses
Be sure to comply with tax filings, follow local zoning rules, obtain any necessary Tennessee business license and permits if needed, and have any required licenses that you keep in good standing. Consult with an accountant and other professionals as needed.
Federal income tax
After you register your business (and DBA, if you will use one) with the state, get a Federal Employer Identification Number (EIN).
Each year, if required for your type of business, file an annual federal income tax form and pay any estimated taxes due on a quarterly basis before you file to avoid penalties.
Tennessee taxes
Make sure you comply with Tennessee’s state and local tax requirements. Almost every business operating in Tennessee must have a Business Tax License and register with the Tennessee Department of Revenue for sales and use taxes (state and local sales tax), unless specifically exempt.
This includes online businesses, home-based businesses, services, retailers, wholesalers, and pretty much all businesses.
There are two types of Business Tax Licenses, which are:
- Standard Business License: Required if your gross annual receipts are more than $10,000.
- Minimal Activity License: Required if your business makes between $3,000 and $10,000 per year.
Businesses earning under $3,000/year may be exempt in most counties, but some cities still require registration.
Tennessee specific regulations
Here are some regulations that you must follow to operate certain types of businesses in the state.
Professional & occupational licenses
Tennessee regulates many professions. Search the Regulatory Boards to find out if this requirement applies to your business.
Zoning & building permits
Get the required permits from the city or county zoning office if you open a new physical location, change the use of a building, undergo renovation, put up signage or operate in a commercially zoned area.
Health department permit
Required for any business involving food, drink, or lodging.
Fire safety inspection & occupancy permit
Required for all commercial properties to confirm your building meets safety and occupancy requirements.
Home occupation permit
Many Tennessee counties and cities require a home business permit to ensure compliance with zoning laws and that there is no excessive traffic, no signage, and no hazardous materials.
Tennessee alcohol license
An alcohol license from the Tennessee Alcoholic Beverage Commission and the appropriate local beer board is required for businesses serving or selling alcohol, including bars, restaurants, and event venues.
Industry-specific permits
Additional permits may be required for the following: to operate a child day care center, adult care or assisted living, waste management, for environmental impact, manufacturing/industrial, having a boiler, needing weights and measurement certification, and for special events.
9. Find your team
Surrounding yourself with the right people can make or break your business. From consulting with an experienced accountant, turning to a fellow business owner to get start-up tips, or hiring employees, finding the right people to help you is key.
People are the backbone of your business
Your employees build the business reputation when they communicate with customers, and how they operate will be the face and heart of your business.
Comply with Tennessee payroll regulations
Employers in Tennessee that meet the minimum requirements must have workers’ compensation insurance and pay Tennessee unemployment insurance.
Tennessee does not have a state minimum wage, so the federal minimum wage of $7.25 per hour applies. Employers must pay employees at least twice per month.
All Tennessee employers must report new hires and rehires within 20 days to the Tennessee New Hire Reporting Program. This helps with child support enforcement and fraud prevention.
Tennessee follows federal child labor rules (minimum age 14 and hour restrictions for workers under 16).
If an employee quits or is fired, the employer must pay the final paycheck with the next regular payday or no longer than 21 days after termination.
Payroll deductions are allowed only if required by law, authorized in writing by an employee, and for a valid business purpose. There is no state personal income tax needed to be withheld. Employers must keep payroll records for at least three years.
Hire independent contractors
Even a “one-man (or woman!) show” does not really operate alone. You will still want to hire independent contractors (i.e. freelancers) to help you with specific tasks. For example, you may need to hire an accountant to help you manage your finances and tax compliance.
10. Market & grow your business
Marketing your business in Tennessee means building authentic relationships, getting involved locally, and sharing your story consistently both online and offline. Strong marketing isn’t just about ads, it’s about trust, visibility, and word of mouth. Use these proven tactics to connect with customers and grow steadily in the Volunteer State.
Invite customers to opt in to a mailing list or newsletter
Start building your audience early by collecting email addresses from interested customers. Offer a simple incentive, like early access, discounts, or helpful tips, to encourage sign-ups. Use your newsletter to share updates, showcase new products or services, and highlight local partnerships. Consistency is key: send emails regularly, but keep them valuable and short enough to read quickly.
Consider making special offers to attract your first customers
When you first open your doors, consider offering a limited-time promotion to bring people in. Early-bird specials, referral discounts, or small loyalty rewards can turn first-time visitors into repeat customers. This is especially effective in Tennessee’s tight-knit communities, where a good deal paired with friendly service travels fast.
Look for local businesses or brands to collaborate with
Partnering with other Tennessee businesses helps you expand your reach and credibility. For example, a Nashville coffee shop might collaborate with a local bakery for cross-promotions, or a Knoxville fitness studio could team up with a wellness brand for a joint event. Collaboration strengthens your network, builds community support, and can even reduce your marketing costs.
Invest in word of mouth (happy customers attract each other)
Nothing beats a personal recommendation. Delivering great service and a memorable experience is your best advertising. Every satisfied customer becomes an advocate who spreads the word to family, friends, and coworkers. Focus on quality, follow-up, and genuine gratitude—these small gestures create loyal customers who do your marketing for you.
Pay attention to online reviews and ask happy customers to review you
Online reviews can shape your reputation before customers ever walk through the door. Politely ask satisfied customers to leave reviews on Google, Yelp, or Facebook. Always thank reviewers—both positive and negative—for their feedback. Responding with professionalism shows that you value your customers and are committed to improving their experience.
Create unique, helpful content to showcase your activity
Share what makes your business special through authentic, engaging content. Post behind-the-scenes videos, tutorials, or customer stories on your website and social media. Highlight local pride by featuring Tennessee events, landscapes, or community initiatives. The goal is to show your expertise and personality so potential customers feel connected long before they buy.
11. Open the doors!
Now that you’ve completed all the steps, all that is left is to open the doors or publish your website and start managing your dream Tennessee business.
Plan a successful launch event
Any people-facing business, such as a retail storefront or a retail website, can drum up some support by creating a successful launch event. This event is your chance to introduce your new business to the community and/or the online social media groups that are interested in what you are doing.
Land your first sale
Making your first sale is exciting, and it is best to do this as soon as possible to keep your mind focused on generating cash flow. Your new business will live and thrive based on your ability to generate steady and increasing cash flow.
Take a deep breath, stay focused, and remember that operating a new business, to get it to the point of sustainable growth, is a marathon, not a sprint.
FAQ
Yes, nearly every business needs a Tennessee Business Tax License (and a county or city license depending on where your business is located). If you earn over $10,000 per year, you need a Standard License; $3,000 to $10,000 requires a Minimal Activity License. Under $3,000 per year is exempt.
You must file an annual Business Tax return with the state and pay your federal taxes to the IRS. Those selling goods or services must collect sales and use tax.
Many Tennessee businesses also need a Sales & Use Tax Permit, zoning approval, or a Home Occupation Permit.
Regulated professions require state-issued professional licenses, and food or alcohol businesses need the health department and Tennessee Alcoholic Beverage Control (TABC) permits.
Most startups require at least one additional permit beyond the general business license.