One of the most common goals for Americans, especially early in the year, is to finally start their own business. To help set up our readers for success, Business News Daily is reporting on the small business environment in every state in the United States. In this installment, we cover the economic and small business environments in Ohio. We asked a few of Ohio's roughly 1 million small business owners about the challenges and opportunities of operating in their state.
Ohio's economy has had its ups and downs over the years, experiencing decline long before the rest of the nation felt the effects of the 2008 financial crisis. However, since then, Ohio has ranked as one of the top 10 locations for business in the U.S. As employment rises, so does the demand for skilled and experienced labor, and business owners find it progressively difficult to hire the employees they need at the cost they want.
Ohio entrepreneurs can expect a ringing endorsement from their local communities for opening up shop in the state. Entrepreneurs report that, once a small business is established, it's easy to attract and retain Ohio customers, as long as the business is reliable and professional. The small business owners we spoke with said the prevailing mentality is to "buy local in Ohio."
"I tell people, 'I'm going to die printing in my shop, and it will remain in Columbus because of the community,'" said Zachary Traxler, CEO and founder of Traxler Printing. "In Ohio as a whole, you'll see people speak highly of local businesses. They're going to seek a local business before they go to one that's based out of state."
In addition, there are numerous opportunities to network and find support from other businesses. With scores of incubators and accelerators scattered throughout the state, some of which are located on one of Ohio's many college campuses, entrepreneurs are never hard-pressed to find useful resources and mentorship nearby.
"Business is all about relationships, and the one thing Ohio has going for it is that we are a very friendly, large community," said Sue Grabowski, owner of tech platform Squawqr and marketing firm Desidara. "If you do good work and are a good partner, you can retain your local business very easily."
Fledgling tech industry
When people from other U.S. regions think of the Midwest, they might not envision a tech hub. But Ohio, by all accounts, is an up-and-comer in the tech world. From small tech startups and accelerators to large aerospace companies, Ohio has seen a recent surge in the level of technology being produced in-state. The big players rely on small businesses for support and professional services, as well as help to raise the level of disposable income in a given area.
"There's a lot of technology-related business happening here," said Roger Riddle, vice president of marketing and brand management at United Way of Summit County and former chief curator at Unbox Advantage (then called Unbox Akron).
Although Ohio has lost a big chunk of its manufacturing economy over the years, this historically Rust Belt state began reinventing itself out of necessity. Now, manufacturing is coming back, but this time, it's geared up for the 21st century. The tech startups and accelerators Riddle mentioned complement this emerging high-tech manufacturing sector in Ohio.
"Traditional manufacturing was hollowed out, but now, there's more growth in high-tech manufacturing, which needs a lot of small businesses to support," said Rohit Arora, co-founder of Biz2Credit. "There's not a lot of employment [in high-tech manufacturing] – but they generate good salaries, and that whole demographic of manufacturing is completely changed."
Manageable taxes and regulations
Another advantage of operating in Ohio is that the state government tends to give small businesses the breathing room they need to succeed. The Ohio entrepreneurs we spoke with agreed that they don't feel hampered by state-level regulations and that the amount they pay in taxes is far from onerous.
"[Taxes and state regulations are] 100% manageable," said Konrad Billetz, whose Cincinnati-based eyewear company, Frameri, was featured on Shark Tank. "All of the benefits definitely outweigh any difficulty that there might be, and I can't think of any specific difficulties."
Ohio does not levy a corporate income tax. The top marginal rate for individuals is 4.997% on income over $208,500.
"They've streamlined the tax process a lot; they've cut taxes hugely," said David Watkins, vice president of Watkins Heating and Cooling. "We pay tax on profits to the federal government, but almost nothing to the state as far as income tax."
But Ohio's sales-and-use taxes can be on the high end. Most counties in the Buckeye State charge a 5.75% sales tax, and in at least one county, the rate is as high as 8%.
In Ohio, it can be tough to get your brand name out to the broader public. Widespread internet access has made that easier, but when you're a brand-new startup with a limited reach, it's a challenge to gain a foothold, entrepreneurs said.
"When you're a New York startup, 10 million people might know about you right away," Billetz said. "Kind of getting your name out in Ohio can get difficult. And as a consumer product [like Frameri], you want as many people to know about you as you can."
Loyal community support is all the more important when it can take so long to build brand recognition. For Unbox Akron, it wasn't easy to expand beyond its original locality, Riddle said. The company wanted to bring a taste of local Akron businesses and culture to other residents in the state.
"One of the challenges that I see is reaching a wider audience," Riddle said. "We have a following of people here who love Akron … but it's a bit harder to reach other people, and that's been a challenge for us."
According to some entrepreneurs, the state itself has a branding problem. For those unfamiliar with Ohio, they said, it seems that stereotypes prevail.
"It's a challenge getting people to think that the state of Ohio is more than just a farm," Grabowski said. "There is a lot of farmland, of course; however, there are some very progressive areas, and the cities and suburbs here are thriving. The perception that Ohio is just all rural might be an obstacle."
Lack of economic diversity
Any investment advisor worth their salt will tell you to diversify your portfolio to mitigate risk. In Ohio and much of the Midwest, the economy at large is relatively reliant on just a few industries. When much of the activity in a given region is built around the demands generated by a handful of large companies or one segment of the larger economy, it's easier for setbacks to send shockwaves throughout the state.
"One of the key challenges in the Midwest compared to coastal areas is that economies are not very diversified," Arora said. "[W]e find, in the Midwest, one of the challenges is that … these economies are pretty dependent on one or two industries, and if something happens in those industries, that impacts small businesses pretty quickly. There's very little backup."
The same is true when a few third-party vendors dominate the small business landscape. Frank Campagna, managing director at Cleveland-based CBIZ Risk & Advisory Services, said small businesses often put all of their eggs in one basket when it comes to third-party vendors, breeding a potentially unstable environment.
"A lot of these smaller businesses rely very heavily on a few key vendors, and you're at risk, at that point, of something happening to that vendor," Campagna said. "In a volatile climate like we're in right now, anything can happen to your vendor."
Tight labor market
Of course, it depends on the industry, but many Ohio entrepreneurs are seeing a lack of available employee prospects as the employment rate ticks up. Moreover, Ohio's labor force is at a significantly low point compared to its recent history, restricting the job market and keeping things competitive despite the abundance of colleges and universities in the state.
"Even my practice is hiring big time right now, and there is a lack of workers," said Campagna. "We can't find good workers because everyone is employed right now. Large companies recommitting to the area, professionals coming out of school – everyone appears to be working."
But there is reason to be optimistic. Watkins said there isn't enough skilled labor in his field to fill his company's needs, but the state's funding efforts and the retraining programs offered by some large companies, like General Motors, have him looking to the near future.
"I think [the state-backed program] Ohio Means Jobs is doing a good job of providing a lot of tools for employers," he said. "The state and GM have been funding guys to go back to school to learn new trades, too. It's a few years away, though, so for my industry right now, it's competitive."
How to become a licensed contractor in Ohio
According to the General Contractors License Guide, the Ohio Construction Industry Licensing Board requires the following trades to hold a state-level Ohio contractor license:
- HVAC contractors
- Hydronic technicians
- Refrigeration installers
Other contractors, specifically general contractors, must apply for and be granted an Ohio contractor license and/or registration at the local level. Each city has specific requirements for Ohio contractor licenses to hire and supervise other contractors; however, a business license to supplement your contracting business is managed at the state level. To look up the specific licensing requirements for your city, refer to the General Contractors License Guide.
Frequently asked questions about starting a business in Ohio
How much does it cost to set up an LLC in Ohio?
The basic cost to file the articles of organization to start up your LLC is $99. However, if you choose to have ZenBusiness or LegalZoom (or a similar professional service) file the LLC for you, it will cost $39 or $149, respectively, plus state fees. It can take up to seven business days to file the articles of organization, but the processing time can vary by number of filings received. Expedited filing is available for an additional fee.
How do you set up an LLC in Ohio?
Setting up an LLC in Ohio begins with naming your LLC – which may seem obvious, but Ohio has specific naming requirements. These include incorporating the phrase "limited liability company" or its abbreviations and avoiding words that could confuse your LLC with a government agency (FBI, treasury, state department, etc.). Restricted words such as "bank," "attorney" and "university" may require additional paperwork and a licensed professional, such as a doctor or lawyer, to be part of your business.
To ensure the name you want isn't already taken, you can perform a search on the state of Ohio's website. Most LLCs don't need a DBA (a "doing business as" name), but you may consider registering for one if you're going to conduct business under another name. You can visit this site to learn more about filing for a DBA in Ohio.
The state of Ohio requires you to nominate a statutory agent (or a registered agent) for your LLC. A statutory agent is an individual or business entity responsible for receiving important legal documents on behalf of your business and act as your business's main point of contact with the state. The statutory agent must be a resident or corporation, such as a registered agent service, of Ohio.
While not mandatory in Ohio, creating an operating agreement – a legal document outlining the ownership and operating procedures of your LLC – is a good idea. You can read more about operating agreements here.
You'll also need to register for an Employer Identification Number (EIN) to identify your business entity with the IRS. You'll need this number to open a business bank account, for federal tax purposes and to hire employees.
Depending on what type of business you're opening, you may need to register for one or more forms of state tax. These include sales tax, employer tax (which includes unemployment insurance tax and employee withholding tax) and commercial activity tax. In Ohio, LLCs with gross receipts exceeding $150,000 per year must pay a commercial activity tax, which you can file for online or download the form to mail in. There's no fee to file the form, but it does need to be submitted by May 10 of the current tax year, or you'll be charged a penalty of either $50 or 10% of the tax due (whichever is greater).
Do you need a business license in Ohio?
To operate your LLC, you must comply with federal, state and local government regulations. The details of the specific business licenses and permits needed vary by state. If you're a first-time entrepreneur, you might consider hiring a professional service to research your business's licensing requirements. You can research which licenses and permits you'll need in the U.S. Small Business Administration guide and on the state of Ohio's License & Permits webpage. You'll need to contact your county clerk to ask about local licenses and permits.
Resources for small businesses in Ohio
If you're a small business owner in Ohio looking for resources to help you move forward, here are a few organizations you might want to learn more about.
The volunteers at SCORE are professionals and experts mentors who counsel and guide entrepreneurs looking to start or expand their businesses. The services are entirely free and volunteer-driven. Here are some of the chapters in Ohio:
U.S. Small Business Administration district offices
The U.S. Small Business Administration (SBA) offers financing and grants as well as consultations and counseling services. There are also opportunities to apply for federal government contracts through the SBA, and avenues for obtaining assistance in the wake of natural disasters.
Ohio Small Business Development Centers
Ohio's development centers for small business are dedicated to supporting the development and retention of small businesses, helping entrepreneurs do everything, such as crafting business plans and navigating the state's tax codes. You can find your region's Small Business Development Center at the link above.
Launch League is a startup community that helps entrepreneurs and early-stage companies connect with talent, financing, and networking opportunities. With marketing assistance, a network of private investors and monthly events, Launch League aims to bring small businesses in the Akron community closer together.
Ohio Means Jobs
Ohio Means Jobs is a cross between a jobs board and a resource center for both employers and workers. Part of the statewide initiative to assist small businesses and Ohio-based workers, as well as to attract new businesses to the state, Ohio Means Jobs serves as a linchpin between employer and employee.
Adam Uzialko contributed to the reporting and writing in this article. Some source interviews were conducted for a previous version of this article.