As a manufacturing hub, the North Star State is home to a wealth of industries, from aerospace and robotics to food production and medical devices, and it’s only growing. IBISWorld reports that the state reached $338.8 billion in gross state product in 2019. Though economic growth is near the middle compared to the United States as a whole, it’s far from stagnant. Some of the highest growth was seen in the realm of finance and insurance as well as arts, entertainment, and recreation.
If you’re wondering how to start a business in Minnesota, this guide can help.
Benefits of Opening a Business in Minnesota
Minnesota state tax can be a bit prohibitive for startups because of a separate business property tax. According to Doug Loon, the president of the Minnesota Chamber of Commerce, the state’s business property taxes is some of the highest in the nation, exceeding neighboring states by as much as 200%. As of 2017, they had the second-highest taxes for rural properties and the seventh-highest for metro properties.
Thankfully, the North Star State does have a relatively low cost of living, which can offset some of the property costs. According to the Minnesota Department of Employment and Economic Development, an hourly wage of just under $19 can cover a single person’s basic needs, which is cheaper than the United States average. The state also has a number of tax incentives for business owners looking to start new companies, including sales tax exemptions and numerous benefits for small businesses in the realm of technology and research and development.
Start an Entity in Minnesota
- Minnesota Limited Liability Company (LLC)
- Minnesota Professional Corporation
- Minnesota Corporation
- Minnesota Nonprofit Corporation
How to Start a Business in Minnesota
Starting a new business in Minnesota is similar to starting a business in any state. You’ll need to keep a sharp focus on business planning, and you may want to consult the state’s small business development centers. The Minnesota Department of Employment and Economic Development also has a number of business resources available online. Beyond that, this step-by-step guide outlines the process:
How to Start a Business in Minnesota Checklist
- Create a business plan
- Choose a business type
- Determine your Minnesota business costs
- Create a name for your Minnesota business
- Register your business and open financial accounts
- Market your Minnesota business
1: Create a business plan
A business plan has a few different purposes. Though many startups and small businesses use the document to land crucial funding, like swaying an outside investor or qualifying for a business loan, it can also map out a company’s path to profitability. Before you get started, consider creating a business plan that includes:
- A clarification of your business idea: Most businesses fail because there’s no market need, so why do Minnesota consumers need your business. What problem is it solving?
- An overview of financial goals: Where are you getting funding, what is your revenue source, how much does your business cost to run, and when will you turn a profit?
- A competitive analysis: Who are your competitors, and how can you improve on what they’re doing?
- A market analysis: Who is your ideal customer in Minnesota or the U.S. at large, and what do they want?
- A pricing scheme
- Potential tax breaks and local grants
For more guidance on writing a business plan, you can check out our complete guide to writing a small business plan.
2: Choose a business type
When you launch your Minnesota business, you’ll have to choose a business structure in order to pay business taxes on your revenue. The popular choices are corporation, sole proprietorship, or a limited liability company (LLC). While the North Star State is home to a number of different corporations, two of the most popular business structures for small businesses are LLCs and sole proprietorships because of their relatively easy formation and maintenance.
LLCs are a popular business entity because they provide a certain amount of liability protection for personal assets. They also have a favorable tax position, effectively avoiding an additional corporate tax and allowing your business’s income taxes to pass through to your personal tax return. There are filing fees for LLCs, and you must file Articles of Organization with the state to receive an LLC’s protections and benefits. For example, filing a Minnesota LLC costs $155 for online and expedited in-person filings (or $135 by mail).
Sole proprietorships are similar when it comes to federal and Minnesota taxes, but they don’t provide the same liability protection. Instead, they’re a bit quicker to launch, have fewer fees, and require less paperwork. For example, there are no required bylaws like a corporation requires and no annual reporting to a regulatory authority or state agency like an LLC.
3: Determine your business costs
Before you can start your Minnesota business, you need to understand how much it’s going to cost. After all, you’re going to probably need funding. To do this, add up fixed expenses (like insurance premiums, rent, and salaries), variable expenses (like inventory costs), and one-time costs (like equipment purchases).
As far as funding goes, there are numerous options. Many small companies opt for a business loan through a bank or the Small Business Administration (SBA). You may be able to use a business credit card for smaller, one-time purchases. Beyond that, you may qualify for a grant or another government resource (particularly during the COVID-19 pandemic).
Minnesota’s Small Business Assistance Office or the SBA can help you find financing options that work for your firm.
4: Create a business name
There’s a lot in a business name. After all, it’s how customers will know you, and it does wonders for word-of-mouth advertising. The name needs to fit your brand’s overall aesthetic while being easy enough to understand in order to establish an online presence. This includes registering a domain and social media profiles.
Overall, your business name must be unique, lest you face legal repercussions. You can check to see if your preferred name is still available through the Minnesota Secretary of State’s online business services portal. You may have to file a Certificate of Assumed Name if you’re using a DBA (or “doing business as”) name rather than your legal personal name or official company name.
5: Register your business and open financial accounts
Once you have your business name, it’s time to finish the paperwork — and there can be a lot of it, particularly in the realm of business registration. During this phase, LLCs and corporations need to register the business with the Minnesota Secretary of State (unless you’re an insurance company, which would need to file with the Minnesota Department of Commerce). You can acquire a state tax ID number from the Minnesota Department of Revenue and a sales and use tax account if you’re a company that collects sales tax. You’ll also need to:
- Register your chosen business structure (if you have an LLC or corporation).
- Open a business bank account.
- For corporations and most LLCs, file for an employer identification number (EIN) so you can pay federal taxes to the IRS.
- Get the proper insurance. Typically this is general liability insurance, but you may also need specialized insurances. For example, if you plan to hire employees, you’ll need disability and workers’ compensation insurance.
- Obtain the necessary licenses and permits.
While many businesses can operate in the state without a special business license or permit, it depends on the type of business. You can browse through requirements on Minnesota’s licensing portal.
6: Market your Minnesota business
No one will know your new business is open if you don’t put yourself out there, and that’s the job of a great marketing plan. In modern times, marketing plans have a heavy focus on digital advertising. Consider a cross-platform strategy on social media using major players like Facebook, Instagram, Twitter, or LinkedIn. You can also try a local approach, signing up for Google My Business, Yelp, and local business registrations. HubSpot has a great guide to getting started, including SEO tactics to boost your search rankings.
Examples of Good Businesses to Start in Minnesota
Manufacturing, technology, and health are big businesses in Minnesota. This includes everything from FinTech and telemedicine to the manufacturing of aerospace equipment and food production. Still, you don’t need to be in one of Minnesota’s largest sectors to succeed.
Some industries in Minnesota are faster growing than others. According to IBISWorld, the arts, entertainment, and recreation sector has seen some of the highest statewide growth out of any industry. You may want to open your own restaurant or even a photography business. Just be wary of the businesses that are currently limited because of the COVID-19 pandemic. You may want to wait to start those endeavors once a vaccine is widely available.
When it comes to opening a business, Minnesota is a solid choice. You can enjoy the hustle and bustle of cities like Minneapolis or St. Paul, or create your own rural paradise. Wherever you open your doors, this guide can help you get started.
Minnesota Business FAQs
How much does it cost to start an LLC in Minnesota?
Initial LLC filings cost between $155 and $135 depending on the method (online and in-person vs. mail).
What is a good city to start a business in Minnesota?
The best city to open a business depends on your business model. Minneapolis, St. Paul, and Rochester are the largest cities, which means there’s much more opportunity in the local market. If you need a lot of land, are working in ecommerce, or plan to go into agriculture, you may want to look towards rural communities because of the cheaper real estate costs.
How much does the average business owner make in Minnesota?
The average small business owner makes $56,613 per year or $27 per hour in Minnesota.
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