For many people, Iowa is the best of both worlds. It’s got the gorgeous sprawl of farmland and the bustle of cities like Des Moines, Iowa City, and Cedar Rapids. Which businesses are most likely to succeed here largely depends on the industry, especially considering Iowa’s small population.
The entire state is home to nearly 3.2 million people, which is less than the population of Los Angeles. Nonetheless, Iowa is a leader in renewable energy, excels in the world of manufacturing, and is one of the most agriculturally productive states, producing a large portion of the country’s corn, oats, and soybeans.
Overall, Iowa is nestled in the heart of the midwest and boasts a whopping $170 billion GDP. If you want to know how to start a business in Iowa, this guide can help.
CNBC ranked Iowa as one of the best states to start a business in the United States, largely because of the price. The state boasts cheaper real estate, utilities, and lower general business costs compared to other states, but the tax rates are still in flux.
At the time of this writing, Iowa has a rather high corporate tax rate, ranging from 6% to 12%. But businesses may be eligible for a federal tax deduction on corporate income taxes. This deduction will be eliminated in 2021, but the maximum corporate tax rate will shrink to 9.8%.
Beyond that, there are a number of tax credits, particularly for research-based or bio-fuel businesses. There is no sales-and-use tax on machinery and equipment purchases, and commercial property taxes are projected to shrink by 40% over the next five years.
Starting a business in Iowa isn’t too difficult if you know how to go about it. While each city you operate in may have slightly different requirements, you’ll be ready to do business throughout the state if you can follow the six main steps that we’ve outlined below.
When starting any type of business in any state — so, not only for Iowa businesses — it’s crucial to put together a business plan. This is one of the main ways startups can raise funding, whether you’re opting for a business loan with the Small Business Administration (SBA) or searching for a qualifying grant. It also helps on the business planning end, ensuring that there’s a clear path to financial stability. Think about including things like:
Choosing a business structure is what makes your company a legal business entity that can pay taxes to the IRS. Though some business owners choose to incorporate or file for nonprofit status, Iowa has one of the highest corporate tax rates in the country, though it’s spread across four brackets.
Those who make more than $250,000 of revenue must pay a state tax rate of 12%. That’s a lot when you consider the fact that other states like Nevada don’t have state-level business taxes. For this reason, limited liability companies (LLC), S corporations, and sole proprietorships are popular. These structures all avoid the so-called “double taxation” of corporations.
There are a couple of key differences between Iowa LLCs and sole proprietorships. Sole proprietors have the least amount of paperwork, whereas LLCs must file a Certificate of Organization with the Iowa Secretary of State. LLCs are also required to appoint a registered agent with a street address rather than a P.O. Box and craft an operating agreement, but the benefits outweigh the startup headache. Both LLCs and S corps offer liability protection on personal assets, which protects business owners in the case of litigation or bankruptcy.
You can file for an LLC online, and it’s a rather speedy process. The Hawkeye State has a small $50 filing fee. On the other hand, to register a sole proprietorship, all you have to do is file for a DBA (doing business as) if you want to operate under a different name, pick a trade name, then apply for an employer identification number (EIN) on the IRS’ website if you want one. Alternatively, sole proprietors may want to use a social security number instead of an EIN, but there is a risk of identity theft. (To combat this, you can apply for an IRS IP PIN.)
Before you can launch your small business, you need to know how much it’s going to cost. Figure out your business costs by adding up fixed expenses (like mortgage, wages, and insurance premiums) with projected variable expenses (like sales taxes and/or manufacturing costs). Also include one-time costs. Those can be for filing fees and equipment, plus a cushion for emergencies.
Depending on the upfront costs, it’s likely you’ll need to find outside funding. Most small business owners aren’t independently wealthy, but business loans can be procured through a bank or the SBA. The SBA has a number of funding resources on their website, as do the Iowa Economic Development Authority and IASourceLink. For smaller, one-time purchases, business owners may want to use a low or no-APR business credit card, though interest will add up if it’s not paid off every month.
In some cases, your business may also qualify for a grant, and Iowa has a number of COVID-19 related relief programs.
A business name can make or break a company. The best names for new businesses are easily recognized on social media and through word of mouth. At the same time, it has to be unique enough that there’s an available domain name and you’ll stand out from your competitors. Something too similar will be undeniably confusing. At worst, accidentally adopting a name that’s already taken can lead to legal issues.
Before you name your LLC, check with local business registrations and on social media to make sure it’s wholly original.
The last step before you launch your startup is registering your business accounts. Interestingly enough, there’s no such thing as a general Iowa state business license. The state licenses are based on industry. For example, most retail businesses need a sales tax permit. There are also separate licenses for professional services, food businesses, restaurants, grocery stores, and bars.
In addition to obtaining the required licensing, you’ll need to:
Most businesses get general liability insurance. It’s smart to look into other specialized insurance, too. For example, a party-planning business may want to get event insurance. If you plan to hire employees, you also need workers’ compensation insurance and unemployment insurance, among others.
Marketing is one of the main ways a new business can attract customers, and you’ll probably want to start online. Consider adopting a broad-based social media strategy across major platforms like Facebook, Instagram, and Twitter. Register your business with services like Google My Business, Yelp, and local registrations. You may also want to put up local billboards or print ads in local newspapers, bulletins, and magazines.
If you’d like help from a marketing partner, see this list of top digital marketing agencies in Iowa.
If you’re opting for a sole proprietorship, your options are kind of limited. These types of businesses are typically small, one-person operations like freelance photographers, writers, musicians, and tutors, or small online stores (like Etsy and eBay shops) and craft-makers.
LLCs have a lot more variation. The most popular businesses in Iowa seem to be related to agriculture and food production, renewable energy, advanced manufacturing, services (including insurance and healthcare), and information and communications technology.
Though Iowa isn’t the state with the most booming economy, it does have classic rural American charm. Despite its small population, the state boasts one of America’s lowest unemployment rates, which makes it a great place to launch a profitable business, particularly if you’re going into manufacturing or agriculture. To get started, you can easily file for an LLC online.
Fees to launch an Iowa business are outlined on the Secretary of State’s website, but it costs about $50 to file Articles of Organization.
Des Moines, Cedar Rapids, Davenport, and Sioux City have the highest populations in Iowa, which makes them great places to launch businesses that are reliant on foot traffic. Iowa City is also home to the University of Iowa, so it’s much more highly populated during the school year, and a great place to launch a business geared towards college students and young adults.
Iowa does not have a general business license, and most businesses only need a sales tax permit. IASourceLink has a complete guide to Iowa business licensing on its website.