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How to start a business in Hawaii? A step-by-step guide from a Hawaii business owner

How to start a business in Hawaii? – if you ask yourself this question I’m guessing you are planning to move to Aloha state or you are already here. Bold move! And I’m happy that you’ve made this life-changing decision or planning to do so. The cost of living in Hawaii is at least twice more expensive as compared to other states in the US. And if you don’t want to work 8 – 10 hours a day, six days a week to survive, starting a new business can be a solution. But how easy is it?

Registering a business in Hawaii is simple. I will release a detailed article on how it’s done and leave a link above. Apart from the official part – company registration, taxes, and opening bank accounts, it’s important to know that Hawaii has a number of differences you need to account for before starting your small business. Let’s take a look at some of them.

How to start a business in Hawaii – headwinds.

Shipping cost. It’s not a secret to anybody that Hawaiian islands are located remotely from any continent. For most businesses, this creates an additional obstacle – shipping. It doesn’t matter if you need to ship to Hawaii products to sell, or you need to ship to the mainland or another country, shipping costs a lot. And unless you are using air freight, it can take a couple of weeks to get to the destination point. You would need to think twice before starting selling on amazon or starting an online store. Because shipping costs from or to Hawaii can make your business uncompetitive even before you start it.

Time-consuming and licensing, permitting, and certification. In Hawaii, almost every business you start will require a license, a permit, or some kind of certification. From what I was told by my business consulting customers, it’s twice easier and faster to get the same state approval documents in any other state compared to Hawaii. For example, it took one of my friends almost two years to get a general contractor’s license, compared with the two weeks he received the same license in California. Also, keep in mind that most licenses, permits, and certification is not transferable from other states or countries to Hawaii. You would need to confirm them here or re-apply.

Unfavorable taxes. Hawaii state is closer to the bottom in the list of most tax-friendly states. As a business owner you would need to pay at least three taxes:

  • GET aka General Excise Tax. Which for most businesses on Oahu is 4.5% of any income. To learn more about GE visit the State of Hawaii Department of Taxation website, section General Excise Tax.
  • Hawaii Income Tax. Accordingly to TaxSlayer rates vary from 1.4% to 11% depending on your taxable income. 
  • Federal Income Tax. According to NerdWallet depending on your tax bracket and filing status tax rates may vary from 10% to 37%

Choosing a proper island. As you know, Hawaii consists of a number of islands. The most populated island is Oahu, then there is also Maui, Big Island, Kauai, and Molokai. Depending on what island you choose, your business options may be different. Each island has its own vibe, advantages, and opportunities. If you plan to grow something or you need a lot of land, I would choose Big Island. But if you need to be in the middle of all the action, then it’s definitely the capital – Oahu island. 

Terrible banking. To this time I can’t figure out the reason why, but in Hawaii, you will find only Hawaiian banks. There are no banks that the other 48 states use and there is no Chase or Bank of America. To run a business you will be forced to open an account in one of the local banks, for example, Bank of Hawaii or First Hawaiian Bank. This creates additional questions for business owners when transferring funds, withdrawing or depositing cash, or making transactions with customers. And by the way, you will be surprised with the quality and speed of banking services in Hawaii when there is no competition.

Expensive commercial lease. Do you believe you saw everything in this life? I can guarantee that you haven’t seen such rent and purchase prices for a commercial property like Hawaii. It’s 3-10 times higher compared to the other 49 states. This phenomenon is caused by the lack of land on Oahu island. But the best part is that even if you have money to pay and you agree with the prices, there are not many available spaces to choose from. Most small businesses start from the spaces they don’t really like in order to relocate over time. Because the best commercial properties will be rented out before they will be listed on the market.

Nobody wants to work. Hawaii is heaven for an unforgettable vacation. But at the same time, it’s hell for hiring people. I know that currently in the US we have a workforce crisis, but in Hawaii, this was a problem before the crisis started. And now it’s on a completely different level compared to any other place in the world. I believe it’s due to the vacation vibe and general chill mood that it’s so hard to find any worker. And it’s ten times harder to find a reliable worker even for unqualified and simple jobs. And in most cases even if you find someone who has the motivation to work he will be not punctual, irresponsible, or lax. I’m not stating that every person is like this, but I hear this problem from almost every business owner in Hawaii. Nobody wants to work, everyone wants to chill on the beach and drink mojitos. You are in Hawaii, baby!

Poor choice and stock. If you saw Hawaii islands on the map, you would know that they are located in the middle of the ocean. Almost nothing is produced in Hawaii. This means that any product you buy in the store or supermarket is shipped here from the mainland or another country. This leads to a number of facts:

  • Almost all products in Hawaii cost more than on the mainland (because vendors need to pay for the shipping)
  • There is no quick solution for restocking (if the demand spikes for a specific item, the shelf will be empty for a while)
  • Poor product choice (because it’s much easier to sell in 48 states than take a risk with one, many vendors avoid Hawaii, which leads to low competition level) 

Weak business representation. Because Hawaii is:

  • Isolated location
  • Have a unique business environment
  • Expensive commercial rent

Many supportive businesses that you use to run your business in other 48 states never opened a branch here or already closed all. For example, if you decide to start a Fulfillment by Amazon (FBA) business, you would pay an arm and a leg for the shipping to the amazon warehouse due to the fact that there is no local amazon warehouse and because shipping from Hawaii is expensive. And God saves you from a decision of shipping back to Hawaii which wasn’t sold by FBA.

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How to start a business in Hawaii – tailwinds.

I know that there are a lot of downsides that I’ve mentioned above. But don’t get me wrong, I’m not trying to dissuade you from organizing a business in Hawaii. My task is to warn you about the problems that you will face in the process of organizing a business. I, like no one else, want as many new businesses as possible to open in Hawaii. The truth is – Hawaii is a hard place to start a business, and now you know why.

Even though there are so many downsides in the Hawaii business environment, there are still a lot of upsides that we have. Let’s take a look at the most crucial.

Tourism. Needless to say what Hawaii islands are famous for – it’s one of the world’s most famous tourist destinations. This creates perfect conditions to create a start-up for any tourism-related businesses, this includes but is not limited to:

  • Vacation rental
  • Car rental (vehicle rental)
  • Airport transfer
  • Retail business: souvenirs, beachwear, sunglasses, sunscreens, etc.
  • Tour business: luxury yacht charters, sightseeing tours, etc.
  • Food business: bars, restaurants, food trucks, etc.

Military population. At least 10% of Hawaii’s population are military personnel. Most of them are here only temporarily. Military personnel on average have a higher income compared to regular citizens. Also, their constant relocation opens additional business options, such as:

  • Move-in/move-out housecleaning
  • Moving services

Environment consideration. Apart from tourists and military personnel, according to Wikipedia in Hawaii, there are 1.4 million people living. All those people need to fulfill normal living needs, and the supply of quality services and products is very limited in Hawaii. And if you take into consideration the facts that I’ve mentioned above: nobody wants to work, weak business representation, unfavorable taxes, expensive commercial lease, etc. This creates a huge tailwind for any business:

  • Cleaning: vocational, move-in/move-out, regular, etc.
  • Construction: painting, renovation, masonry, etc.
  • Auto business: car rental, car sales, detailing, etc.
  • Local wholesale or/and retail business

Also, in 2018 Hawaii state started to issue dispensary licenses, and the cannabis business started to gain momentum.

Starting your own business has two major aspects.

The first aspect is registering a company. To consider your business legal in Hawaii you need to meet at least two conditions:

Condition 1. Have a registered business entity

There are a number of business entities you can register, some of them are: sole proprietorship, partnership, limited liability company, and corporation.

Even so, registering and servicing a sole proprietorship (SP) is much easier, but I would still go with a limited liability company (LLC). Because the sole proprietor is responsible for his liabilities with all his property, including personal. And limited liability company is responsible only with the company property.

Condition 2. Get a General Excise license

Every business entity registered and doing business in Hawaii must obtain a general excise license and pay general excise tax. It’s a tax that is channeled to the state for every service provided or product sold by a customer to the business, similar to sales tax in other states.

In case you are planning to hire employees, you would also need to register with:

  1. Internal Revenue Service (IRS) to obtain an Employer Identification Number (EIN) aka Federal Employer Identification Number (FEIN). Here is how to apply for an Employer Identification Number (EIN) Online.
  2. Department of Labor and Industrial Relations on the Hawaii State website as an employer.

Notice! Depending on the business that you do, you might need to also get licenses, certificates, and permits. For more information, I suggest contacting another division of DCCA that is responsible for this – the Professional and Vocational Licensing Division (PVL).

How to register a company in Hawaii and get a general excise license?

Getting both is easy. All you need is to visit a Department of Commerce & Consumer Affairs (DCCA) website, go to Business Registration Division (BREG), and go to Register a Business Online section.

After you press start, the website will take you to a login page. Where if you don’t have an account you will need to create one. After you do and log in, you will be offered an option to “register a new business in Hawaii and obtain a Hawaii GE Tax License from the Department of Taxation”. Choosing this option will kill two birds with one stone.

Also, it’s not a must, but I still highly suggest you open a bank account. This helps a lot to run your business and to separate your personal expenses from the business.

How to choose a business niche.

The second aspect is choosing a business niche. The easiest and most popular way to start a business is to copy an existing business. Before you do, let’s take a look at what businesses other people start in Hawaii based on my past experience:

  1. Detailing
  2. Buying and selling cars
  3. Car rental and car-sharing on Turo
  4. Vacation rental
  5. Handyman
  6. Photography
  7. Cleaning services
  8. Yoga lessons
  9. Mobile mechanic
  10. Consultancy: life coaching, weight control, business consulting, etc.

Most businesses listed above: 

  • Require minimum to no licensing
  • Needs small initial investment to start 
  • Offer high profits

I encourage everyone before doing any steps towards opening their own business in Hawaii, to do their own due diligence. By the way, a part of good due diligence work is participating in one of our free seminars on the topic how to start a business. This can save you time and money by listening to local business owners. Also, I suggest you google “business for sale in Hawaii” to see if you can buy an already existing business and save a ton of time, instead of starting from scratch.

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