Starting a Business in Hawaii

Have you been wondering: just how do I start a business in Hawaii? And more importantly, can I do so no matter what the economic conditions are? Can I start a new business in Hawaii during a recession?

Hawaii New Business Advantages and Disadvantages

Business Insider called Hawaii the worst state to start a new business in, for the whole country, per a 2016 article. High costs and a burdensome cost of living were the main reasons.

Plus the potential employee education level ranks near the bottom of the 50 states. But Hawaii ranks well in its opportunity share of new entrepreneurs. This is the percent of new business owners employed before starting their businesses. It means they were more likely to start because they saw new opportunities.

Hawaii’s remoteness and unique time zone do not help, either.
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The “Hawaii Open for Business” initiative was created as a Hawaii business resource. It creates a more competitive environment within the state. As part of Hawaii’s “Five Point Economic Plan,” this initiative is aimed at creating and retaining new jobs. The idea is also to bring new industries to the islands.

Tourism has always been a mainstay of the Hawaiian economy. However, increasingly the state has been looking to reform business rules and regulations in order to attract outside capital and create new jobs.

Recent Changes?

Well, the only place to go was up.

In 2018, Forbes named Hawaii to its 46^th slot. Also in 2018, Fit Small Business clocked in Hawaii at number 29. Keep in mind, the methodologies of all three sites are different.

But still, what gives?

Fit Small Business praises Hawaii for a great labor market and an above average quality of life, and decent costs of starting a business. Labor market is a measure of both the desirability of an area (of course Hawaii did well here), coupled with the number of people who have bachelor’s degrees.

Taxes and startup activity were decent. Yet access to capital was below average. And the worst was the cost of living – as in, 50^th in the nation.

Forbes says Hawaii has a pretty average economic climate and labor supply. Quality of life was below average (some of the discrepancy with Fit Small Business is due to there being some subjective factors for this area). But the economic climate, the regulatory environment, and the business costs ranking were all in the worst ten.

Paradise is costly – and there might not be a good number of potential workers to choose from. And expect costs in all sorts of places. Only you can decide whether it’s worth it to open up shop in Hawaii.

Start a New Business in Hawaii – Initiatives

Part of that strategy includes the “Hawaii Clean Energy Initiative,” tasked with achieving 70% clean energy consumption for the state by 2030. Hawaii has some of the highest energy costs in the nation. By finding alternative energy sources, Hawaii hopes it can expand opportunities for business growth while greatly reducing the $7 billion a year in state wealth exported just to buy foreign oil.

The “Hawaii Innovation Initiative” is intended to build capacity in the state’s creative and entrepreneurial workforce to compete in the global economy. The “Global Links” effort is attempting to increase the range and value of goods and services exchanged between Hawaii and its export markets.

Industries targeted for attention fall under three primary groups: creative industries, technology, and agribusiness. Creative industries include computer and digital media, engineering research and development, and architecture/design services. The technology sector includes biotechnology, computer and engineering services, and technical consulting services.

And agribusiness, which along with tourism has generally made up the majority of Hawaiian business resources, includes agricultural packaging, warehousing, processing, and aquaculture.

Here’s how to start business in Hawaii.

Start a New Business in Hawaii – Hawaii New Business Secretary of State Requirements

Register a Business Name

In Hawaii, an entrepreneur can operate a business using a fictitious name, also known as “Doing Business As” or DBA. A DBA filing allows them to create a name for the business that is different from a personal name, but still unique to all others. A DBA does not have to include the names of any partners or the officially registered name of an LLC or corporation. Search a database of Hawaiian company names.

Business Permits and Licenses

Check out the state Professional and Vocational Licensing page.

Local Permits and Licenses

The easiest way to get local licensing and permits in Hawaii is to use their Professional Business License Service Center.

Business Registration

Use the Hawaii Online Business Registration website as a guide to setting up your business. Forms are with the Department of Commerce and Consumer Affairs.

Tax Registration

The online registration will take care of this. And in case you registered another way, you can also start tax registration when you file a BB-1 Form.

Start a New Business in Hawaii – Virtual Offices

As should be expected, Alliance offers Hawaii virtual business office space in Honolulu, which is fortunately close to Oahu. However, an extensive search does not turn up virtual office space in Maui or Molokai by any of the major players. Entrepreneurs searching for virtual office space on any of the other islands would do well to talk with local business owners or maybe computer user groups to see about a referral. For Kapolei, DaVinci has Hawaii virtual office space.

Start a New Business in Hawaii – Build Business Credit

Small business credit is credit in a company’s name. It doesn’t link to a business owner’s consumer credit, not even when the owner is a sole proprietor and the sole employee of the company.

As such, an entrepreneur’s business and consumer credit scores can be very different.

The Advantages

Because small business credit is separate from individual, it helps to secure a small business owner’s personal assets, in case of a lawsuit or business bankruptcy.

Also, with two distinct credit scores, a small business owner can get two different cards from the same vendor. This effectively doubles purchasing power.

Another advantage is that even startup businesses can do this. Going to a bank for a business loan can be a formula for frustration. But building small business credit, when done the right way, is a plan for success.

Individual credit scores depend upon payments but also other elements like credit usage percentages.

But for company credit, the scores really just hinge on whether a small business pays its invoices promptly.

Learn more here and get started toward building business credit attached to your company’s EIN and not your SSN.

The Process

Building small business credit is a process, and it does not occur without effort. A company needs to actively work to develop company credit.

Nonetheless, it can be done readily and quickly, and it is much more rapid than building individual credit scores.

Vendors are a big aspect of this process.

Undertaking the steps out of sequence will result in repetitive denials. No one can start at the top with small business credit. For instance, you can’t start with retail or cash credit from your bank. If you do, you’ll get a rejection 100% of the time.

Start a New Business in Hawaii – Business Fundability

A small business must be fundable to lending institutions and vendors.

That’s why, a small business will need a professional-looking web site and e-mail address. And it needs to have website hosting from a company like GoDaddy.

And, company phone and fax numbers ought to have a listing on ListYourself.net.

Also, the company phone number should be toll-free (800 exchange or the like).

A company will also need a bank account devoted solely to it, and it has to have all of the licenses essential for operating.

Learn more here and get started toward building business credit attached to your company’s EIN and not your SSN.

Start a New Business in Hawaii – Working with the IRS

Visit the IRS website and get an EIN for the small business. They’re free of charge. Choose a business entity like corporation, LLC, etc.

A company can begin as a sole proprietor. But they will most likely wish to switch to a kind of corporation or an LLC.

This is in order to lessen risk. And it will optimize tax benefits.

A business entity will matter when it pertains to taxes and liability in case of litigation. A sole proprietorship means the business owner is it when it comes to liability and taxes. Nobody else is responsible.

Sole Proprietors Take Note

If you run a business as a sole proprietor, then at the very least be sure to file for a DBA. This is ‘doing business as’ status.

If you do not, then your personal name is the same as the business name. Hence, you can wind up being directly liable for all small business debts.

Additionally, per the IRS, using this arrangement there is a 1 in 7 probability of an IRS audit. There is a 1 in 50 possibility for corporations! Avoid confusion and drastically decrease the odds of an IRS audit as well.

Start a New Business in Hawaii – Starting the Business Credit Reporting Process

Begin at the D&B web site and get a free D-U-N-S number. A D-U-N-S number is how D&B gets a business into their system, to produce a PAYDEX score. If there is no D-U-N-S number, then there is no record and no PAYDEX score.

Once in D&B’s system, search Equifax and Experian’s websites for the company. You can do this at fastcs.wpengine.com/reports. If there is a record with them, check it for correctness and completeness. If there are no records with them, go to the next step in the process.

By doing so, Experian and Equifax will have something to report on.

Vendor Credit Tier

First you must establish trade lines that report. This is also referred to as the vendor credit tier. Then you’ll have an established credit profile, and you’ll get a business credit score.

And with an established business credit profile and score you can begin to acquire credit in the retail and cash credit tiers.

These varieties of accounts tend to be for the things bought all the time, like marketing materials, shipping boxes, outdoor work wear, ink and toner, and office furniture.

But first off, what is trade credit? These trade lines are credit issuers who will give you initial credit when you have none now. Terms are ordinarily Net 30, rather than revolving. Therefore, if you get approval for $1,000 in vendor credit and use all of it, you need to pay that money back in a set term, such as within 30 days on a Net 30 account.

Details

Net 30 accounts must be paid in full within 30 days. 60 accounts need to be paid completely within 60 days. In comparison with revolving accounts, you have a set time when you have to pay back what you borrowed or the credit you made use of.

To launch your business credit profile the right way, you should get approval for vendor accounts that report to the business credit reporting agencies. When that’s done, you can then use the credit.

Then pay back what you used, and the account is on report to Dun & Bradstreet, Experian, or Equifax.

Vendor Credit Tier – It Makes Sense

Not every vendor can help like true starter credit can. These are merchants that will grant an approval with minimal effort. You also want them to be reporting to one or more of the big three CRAs: Dun & Bradstreet, Equifax, and Experian.

You want 5 to 8 of these to move onto the next step, which is the retail credit tier. But you may have to apply more than one time to these vendors. So, this is to verify you are responsible and will pay on time.

Retail Credit Tier

Once there are 5 to 8 or more vendor trade accounts reporting to at least one of the CRAs, then progress to the retail credit tier. These are businesses such as Office Depot and Staples.

Just use your Social Security Number and date of birth on these applications for verification purposes. For credit checks and guarantees, use the business’s EIN on these credit applications.

One such example is Lowe’s. They report to D&B, Equifax and Business Experian. They need to see a D-U-N-S and a PAYDEX score of 78 or more.

Fleet Credit Tier

Are there 8 to 10 accounts reporting? Then move to the fleet credit tier. These are businesses like BP and Conoco. Use this credit to purchase fuel, and to repair, and maintain vehicles. Only use your SSN and date of birth on these applications for verification purposes. For credit checks and guarantees, make sure to apply using the company’s EIN.

One such example is Shell. They report to D&B and Business Experian. They need to see a PAYDEX Score of 78 or better and a 411 business phone listing.

Shell may say they want a specific amount of time in business or revenue. But if you already have sufficient vendor accounts, that won’t be necessary. And you can still get an approval.

Learn more here and get started toward building business credit attached to your company’s EIN and not your SSN.

Cash Credit Tier

Have you been responsibly handling the credit you’ve gotten up to this point? Then progress to the cash credit tier. These are companies like Visa and MasterCard. Just use your SSN and date of birth on these applications for verification purposes. For credit checks and guarantees, use your EIN instead.

One example is the Fuelman MasterCard. They report to D&B and Equifax Business. They need to see a PAYDEX Score of 78 or higher. And they also want you to have 10 trade lines reporting on your D&B report.

Plus, they want to see a $10,000 high credit limit reporting on your D&B report (other account reporting).

Also, they want you to have an established business.

These are companies like Walmart and Dell, and also Home Depot, BP, and Racetrac. These are usually MasterCard credit cards. If you have 14 trade accounts reporting, then these are doable.

Start a New Business in Hawaii – Monitor Your Business Credit

Know what is happening with your credit. Make sure it is being reported and fix any mistakes ASAP. Get in the habit of taking a look at credit reports and digging into the particulars, and not just the scores.

We can help you monitor business credit at Experian and D&B for 90% less than it would cost you at the CRAs. See: fastcs.wpengine.com/monitoring.

Update Your Information

Update the details if there are errors or the data is incomplete.

Start a New Business in Hawaii – Fix Your Business Credit

So, what’s all this monitoring for? It’s to challenge any problems in your records. Mistakes in your credit report(s) can be corrected. But the CRAs generally want you to dispute in a particular way.

Disputes

Disputing credit report errors typically means you send a paper letter with duplicates of any proof of payment with it. These are documents like receipts and cancelled checks. Never mail the original copies. Always send copies and retain the original copies.

Fixing credit report mistakes also means you specifically detail any charges you challenge. Make your dispute letter as understandable as possible. Be specific about the concerns with your report. Use certified mail so that you will have proof that you sent in your dispute.

Start a New Business in Hawaii – A Word about Building Business Credit

Always use credit smartly! Don’t borrow beyond what you can pay off. Keep an eye on balances and deadlines for repayments. Paying off promptly and fully will do more to elevate business credit scores than pretty much anything else.

Establishing company credit pays off. Excellent business credit scores help a business get loans. Your credit issuer knows the business can pay its debts. They know the business is bona fide.

The small business’s EIN connects to high scores and credit issuers won’t feel the need to ask for a personal guarantee.

Business credit is an asset which can help your small business for many years to come.

Learn more here and get started toward opening a new business in Hawaii.

Want to start a new business someplace else in America? Then check out our handy guide to starting a business in any state in the country.

Hawaii’s Response to COVID-19

Here’s what Hawaii is doing about the novel coronavirus. Hawaii’s House Resolution No. 54 established the House Select Committee on COVID-19 Economic and Financial Preparedness. The committee will work with representatives from local and state government, private industry, and nonprofit agencies and organizations to inform the House of Representatives on the State’s economic and financial preparedness. 

The Select Committee is tasked with examining economic and financial issues including identifying the potential economic and financial impact to the State; developing short-term and long-term mitigation plans; and Monitoring COVID-19 conditions and outcomes. 

Due to Hawaii’s unique position in reliance on tourism, it is expected this committee’s mandate will broaden. 

See:  capitol.hawaii.gov/specialcommittee.aspx?comm=cov&year=2020