How To Start A Business In Iowa
Iowa is emerging as an ideal destination for entrepreneurs looking to launch a successful business. Its strong economy, affordable cost of living, and investment in business resources create a fertile ground for businesses to thrive. As the startup ecosystem continues to evolve, Iowa offers valuable resources, networks, and opportunities that empower new ventures to flourish.
Iowa Small Business Stats
- There are 273,623 small businesses in Iowa, which makes up 99.3% of all businesses in the state. (2022 SBA Small Business Profile)
- Exports by small Iowa firms reached $2.2 billion. (2022 SBA Small Business Profile)
- Small businesses in Iowa employ 644,100 employees, which is 46.6 percent of the total employees in the state, which is more than the national average. (Statistics of US Businesses)
- Iowa was ranked as the #12 best state for business by CNBC, with the cost of living, life, health & inclusion, and the economy being the highest-ranking factors.
- Research from the Kauffman Foundation shows that 83.8% of startups in Iowa survived at least one year, compared to 81.7% at the national level.
- U.S. News & World Report ranked Iowa as the number 1 state for opportunity.
Steps To Start A Business In Iowa
To help break down the process of becoming a small business owner in Iowa, we cover essential aspects such as choosing a suitable business idea, selecting an appropriate legal structure, registering with government agencies, securing financing, and more.
Step 1: Choose a Business Idea
The first step in starting a business in Iowa is having a good business idea. Maybe you already have an idea picked out, or maybe you are still deciding on one.
When searching for the best type of business to start, here are a few steps you can take:
– Begin by thinking about your interests, skills, and experiences.
– Look for opportunities in your community, consider local trends and industries, and identify any gaps in the market.
– Brainstorm different business ideas, and then research and evaluate their potential for success.
– Finally, choose an idea that aligns with your passions and has a strong chance of thriving in the Iowa market.
To help with your research, be sure to check our library of business ideas to get detailed industry information, market research, costs to start, tips, and lots more.
Step 2: Write a Business Plan
A business plan is essential for starting a business because it serves as a blueprint, guiding entrepreneurs through each stage of their venture. It helps clarify the business idea, set goals, and establish strategies for achieving them. A well-crafted business plan also helps secure funding from investors and banks, as it demonstrates the viability and potential of the business.
Not sure how to start? Check out our guide on how to write a business plan
Step 3: Select a Business Entity
The next step in your startup journey will likely be selecting a business entity (which is also called a legal or business structure). A business entity is how the business is structured to legally operate. This choice determines how your business will be organized, taxed, and protected from liability.
The four main types of business entities in Iowa are sole proprietorship, general partnership, corporation, and Limited Liability Company (LLC). Each business entity type has its pros and cons, and the best choice depends on the specific needs and circumstances of the business owner. It’s essential to consider factors such as liability protection, tax implications, and management structure when selecting the right entity for your business.
A sole proprietorship is the most basic form of business entity, where the owner and the business are considered the same legal entity. This means the owner has full control over the business but is also personally liable for all business debts and legal claims. This setup requires minimal paperwork and has few regulatory requirements, but it may not be suitable for those seeking liability protection.
While the sole proprietorship (and partnership) don’t require submitting any formation documents, they will commonly need to register the business name. When the business operates under a name that is different from the owner’s full first and last name, a Registration of Trade Name Certificate will need to be filed with the County Recorder in the county where the business is located.
A general partnership is similar to a sole proprietorship, but it involves two or more people who share business ownership, profits, and liabilities. While it is relatively easy to establish, each partner is personally liable for the partnership’s debts and obligations, which may expose them to significant financial risk.
A corporation is a separate legal entity from its owners (shareholders), which provides them with limited liability protection. Corporations require more formalities and paperwork, including the filing of Articles of Incorporation with the Iowa Secretary of State, holding regular board meetings, and maintaining corporate records.
Related: How to form a Corporation in Iowa
An LLC is a hybrid structure that combines the limited liability protection of a corporation with the tax advantages of a partnership or sole proprietorship. It offers flexibility in management and generally involves fewer formalities than a corporation.
While establishing an LLC is more complex than a sole proprietorship or general partnership, it is often the preferred choice for small businesses due to its liability protection and tax advantages.
Related: How to form an LLC in Iowa
Forming a corporation or LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular formation services include:
IncFile - Great service and free registered agent the first year.
Northwest - Privacy-Focused: Free registered agent and private business address for 1 year!
ZenBusiness - Easy to use and free registered agent for 1 year!
Step 4: Register the Business
In Iowa, the specific business licenses and permits required depend on the type of business you plan to operate, its location, and whether it is regulated by federal, state, or local authorities. Here is a general overview of the common business licenses and registration requirements in Iowa:
Business Licenses – The state of Iowa doesn’t have a general state of Iowa business license; however, many cities require a business license to operate.
Local permits and licenses: Depending on your location and the type of business, you may need local permits or licenses. In addition to a local business license, your business may need zoning permits, building permits, health department permits, and others. Be sure to check with your city or county government offices to determine the necessary local permits and licenses for your business.
Employer Identification Number (EIN): If your business has employees or is structured as a partnership, corporation, or multi-member LLC, you will need to obtain an EIN from the Internal Revenue Service (IRS).
Business Tax Permit – Businesses selling products and certain services will need to register for a Business Tax Permit with the Iowa Department of Revenue, which is most often used to collect sales tax, with the Iowa Department of Revenue.
Professional Licensing – Some services such as alarm installers, brewpubs, commercial kitchens, dietitians, and fur dealers require licensing in Iowa. Check with the Iowa Professional Licensing Bureau to determine if your profession requires a state license.
Step 5: Open a Business Bank Account
Another important step in starting a business, is opening a business bank account as separating business and personal funds is crucial for several reasons. First, it helps maintain clear and organized financial records, which simplifies bookkeeping and tax filing. Second, it creates a professional image for your business, as it demonstrates to clients and vendors that you operate a legitimate and organized enterprise. Third, if you have a corporation or an LLC, maintaining separate finances is even more critical in protecting your personal assets.
Step 6: Find Financing
Obtaining the funds to start a small business is often a challenging process for many. In Iowa, small businesses have several funding options available, supported by organizations like the U.S. Small Business Administration (SBA), Iowa Economic Development Authority, and local banks.
Conventional Bank Loans: Many Iowa-based banks and credit unions offer conventional business loans. These loans usually have fixed or variable interest rates, repayment terms, and may require collateral. Interest rates and terms may vary depending on factors such as your credit score, business history, and the financial strength of your business.
Lenders often expect entrepreneurs to invest some of their own money in the business to demonstrate commitment and personal risk. For a startup, expect between 15% and 25%.
SBA Loan Guarantees: The SBA partners with banks and other lenders to offer loan guarantees for small businesses. These guarantees help reduce the risk for lenders, making it easier for small businesses to secure financing. Popular SBA loan programs include the 7(a) loan program, which provides general-purpose loans, and the 504 loan program, designed more for real estate and equipment purchases.
Microloan Programs: Iowa has several microloan programs aimed at supporting small businesses, particularly those owned by women, minorities, and veterans. The Iowa Center for Economic Success, for example, offers microloans of up to $30,000 to qualifying businesses.
Investors: Small businesses in Iowa can also seek funding from friends & family, angel investors, venture capital firms, or private equity firms. These investors provide capital in exchange for equity in the business. The Iowa Venture Capital Association and Plains Angels are two examples of organizations connecting investors with Iowa-based businesses.
Step 7: Hire Employees
Hiring employees is a complex and often overwhelming process for a new business owner, so it’s important to understand the varios state and federal regulations.
Employers are responsible for several things such as reporting new hires to the state, verifying that employees are eligible to work in the U.S., income tax withholding, unemployment insurance, unemployment taxes, and payroll withholding taxes, including Social Security and Medicare.
Step 8: Obtain Business Insurance
Picking the right insurance is crucial step as it helps to safeguard business owners from liabilities, property damage, or income losses. Some common types of insurance to consider include:
General Liability Insurance: This type of insurance covers claims related to third-party bodily injury, property damage, and personal or advertising injury. It is essential for all businesses, as it can protect the owner from the financial burden of lawsuits and claims.
Property Insurance: Property insurance covers damages to the business property, including buildings, equipment, inventory, and supplies. It is crucial for businesses with physical locations or significant assets.
Workers’ Compensation Insurance: If you have employees, workers’ compensation insurance is a legal requirement in Iowa. This insurance covers medical expenses, lost wages, and rehabilitation costs for employees injured on the job. It also protects the business owner from lawsuits by injured workers.
Professional Liability Insurance: Also known as Errors and Omissions (E&O) insurance, this coverage is essential for businesses that provide professional services or advice. It protects against claims related to negligence, errors, or omissions in the services provided.
Cyber Liability Insurance: With the increasing reliance on technology, cyber liability insurance is becoming more critical. It covers losses resulting from data breaches, cyberattacks, and other technology-related incidents.
Step 9: Set up an Accounting System
Setting up an accounting system is vital for small businesses, as it ensures accurate financial recordkeeping and compliance with tax regulations. Implementing a reliable accounting system can contribute significantly to the success and growth of a business. There are several reasons why a robust accounting system is essential:
Compliance with tax regulations: A good accounting system helps business owners accurately calculate and report taxes, such as income tax, sales tax, and payroll tax. Timely tax filings and payments can help a business avoid penalties, interest, and audits.
Financial management: An effective accounting system provides business owners with a clear and up-to-date picture of their financial position. This allows them to make informed decisions about investments, expenses, and growth strategies. Accurate financial records also enable business owners to monitor cash flow, manage debts, and forecast future financial trends, ensuring the business remains sustainable and profitable.
Budgeting and financial planning: A good accounting system helps businesses create realistic budgets and financial plans. Business owners can compare actual financial performance against their budgets and plans, allowing them to identify areas for improvement and adjust their strategies as needed.
Related: Setting up accounting for a business
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Common questions when starting a business in Iowa
Is Iowa a good state to start a business?
Iowa has increasingly become an attractive destination for entrepreneurs looking to start a business. The state’s pro-business environment, supportive government initiatives, and growing startup ecosystem contribute to its appeal. Here are some reasons why Iowa is a good place to start a business:
Skilled workforce: Iowa boasts a highly skilled and educated workforce, providing a valuable talent pool for businesses to tap into.
Affordable cost of living: Iowa has a lower cost of living than the national average, making it an attractive location for entrepreneurs and employees alike.
Thriving startup ecosystem: Iowa’s startup ecosystem is growing, with resources and support available to entrepreneurs through organizations such as the Iowa Startup Accelerator, the Iowa Innovation Corporation, Iowa Small Business Development Center, and the John Pappajohn Entrepreneurial Centers. These organizations provide mentorship, funding, and networking opportunities to help businesses succeed.
What are the steps to starting an LLC in Iowa?
There are three main steps to starting an LLC in Iowa. These include:
1. Making sure the LLC name is available
2. Appointing a Registered Agent
3. Filing the Certificate of Organization
There are a few more details to consider depending on the business, so be sure to check out how to start an LLC in Iowa.
How much does it cost to start an LLC in Iowa?
The cost to start an LLC in Iowa is $50 to file the Certificate of Organization with the Iowa Secretary of State.
What licenses do I need to start a business in Iowa?
There isn’t a general business license required by the state, however, there are potentially several different licenses and permits a business will need to obtain before starting.
Can I start a business with no experience?
Starting a business with no relevance experience is possible, but it requires a lot of research, planning and learning.