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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 start a business, Iowa may fit your needs. This guide can help.
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. A good business plan also helps on the business planning end, helping ensure that there’s a clear path from a business idea to financial stability. Think about including things like:
Choosing a formal business structure is an important decision that, among other things, determines how you’ll pay taxes to the Internal Revenue Service (IRS). For business owners who choose to incorporate, 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.
Iowa LLCs and sole proprietorships have some key differences. 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, but the benefits outweigh the startup headache for many business owners. Both LLCs and corporations offer liability protection, which can protect business owners’ personal assets in the case of litigation or bankruptcy.
You can file for an LLC online. The Hawkeye State has a small filing fee. On the other hand, a sole proprietorship doesn’t need to register the business with the state unless the owner will be operating under a name other than their own personal legal name. In that case, they would need a DBA (doing business as) name, also known as a trade name in Iowa.
Certain business entities, including those with employees or multiple business owners, may be required to apply for a federal employer identification number (EIN) with the Internal Revenue Service.
Before you can launch your small business, you need to know how much it’s going to cost. Figure out your own 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 possible you’ll need to find outside funding. Most small business owners aren’t independently wealthy, but business loans can sometimes 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.
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 distinct enough that there’s an available domain name so 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.
Any legal business entity that registers with the state (such as LLCs and corporations) has to have a business name that isn’t already claimed by another Iowa business. You can conduct an Iowa business name search online to see whether your desired name is available. If it isn’t, your filing will be rejected, which will delay the launch of your business.
Business name availability
Check if the name you want is still available
If you’re starting a business entity like an LLC or corporation, the next step is to file the formal business formation paperwork with the Iowa Secretary of State. You may also need to take some other steps to operate legally.
Iowa doesn’t require a statewide general business license, but you may need other licenses and permits. Some 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.
Business licenses and permits can be needed on the federal, state, and local levels. Because there’s no central place to confirm whether your business has every license and permit needed to operate legally, you’ll have to do some research. Our business license report can do the work for you.
In addition to obtaining the required licensing, you may want or need to do the following:
In addition to the paperwork an LLC or corporation must file to register with the state of Iowa, many businesses are required to get a federal employer identification number (EIN), which is your federal tax ID that you also use to hire employees. Note: If you’re a sole proprietor with no employees, you may be able to use your Social Security number as your tax ID, though many experts recommend obtaining an EIN to help avoid identity theft.
Many 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.
To help customers locate you, you can 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, consider hiring an Iowa marketing firm.
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.
Beyond that, Iowa offers a number of tax credits, particularly for research-based or bio-fuel businesses. There’s 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.
If you’re a solopreneur (a one-person business), you have options like freelance photography, freelance writing, music, and tutoring, small online stores (like Etsy and eBay shops), and craft-making.
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 file for an LLC or corporation online. We can help.
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
Fees to launch an Iowa business are outlined on the Secretary of State’s website, but the costs will depend on many factors, such as your business structure, your industry, and your location.
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 statewide business license, but you may need other licenses based on your business location, industry, profession, etc.
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