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Perhaps the most important, but often undervalued step to starting a business in South Dakota is writing a business plan.
A lot of people only write a business plan because the bank won’t loan them money until a business plan is submitted. That’s a valid reason, but there is a more important benefit. Writing a business plan gets the ideas out of the entrepreneur’s head and helps to create a roadmap for where they want the business to go. Business planning is a critical element to creating a successful business.
- Read more about how to write a business plan and what goes into one.
- Here is a free Business Plan Template we created to help you get started.
- If you need more inspiration, try these free Sample Business Plans.
- Last if the business plan template and sample business plans don’t provide enough guidance, check out software like Live Plan to guide you through writing the business plan and creating financial projections.
The second step in starting a small business in South Dakota is selecting a business entity, sometimes called a business structure. The business entity is how a business is legally organized to do business. The four primary types include the sole proprietorship, partnership, corporation and LLC. Each has pros and cons and a short description of each is below.
Sole Proprietorship: A sole proprietorship is an individual entrepreneur that decides to go into business. This is easiest and least expensive of the four entities to set up but has a serious potential downside which is unlimited liability. This unlimited liability means that if the business is sued, the owner’s personal assets are potentially at risk.
There is no filing for a sole proprietorship in South Dakota.
Learn more about the sole proprietorship advantages and disadvantages.
General Partnership: A general partnership involves two or more people conducting a business together. Like the sole proprietorship, there is no formal filing and just like the sole proprietorship, the partnership has unlimited liability so if the partnership were to be sued, each of the partner’s personal assets are potentially at risk.
Corporation: A corporation is a legal business entity that is separate from the individual. While corporations are more expensive and complicated than sole proprietorships and partnerships to form, should the corporation be sued, the owner’s personal assets are protected in most cases.
To form a corporation, the Articles of Incorporation need to be filed with the Secretary of State. The filing fee to incorporate is $150.
Limited Liability Company (LLC): The LLC is a popular business entity choice because it provides the liability protection of a corporation with the ease of operation of a sole proprietorship by eliminating the many corporate burdens like holding a board of directors meeting, shareholders meeting, taking minutes, administrative paperwork, etc that a corporation is required to do.
To form an LLC, the Articles of Organization needs to be filed with the Secretary of State. The filing fee is between $150 & $165 depending on how you file.
Learn how to form a South Dakota LLC with our step-by-step guide.
To compare the pros and cons of each of the entities, see our comparison chart of business entities.
Forming a corporation or LLC doesn't require an attorney but can be made easier and done right with the help of a formation service. Some popular services include:
IncFile - $0 plus state fees & free registered agent for 1 year!
ZenBusiness - $0 plus state fees!
Northwest - $49 plus state fees.
After deciding on a business entity, the next step in starting a business in South Dakota is to register a business name.
HOW TO FILE A DBA IN SOUTH DAKOTA FOR SOLE PROPRIETORSHIPS & GENERAL PARTNERSHIPS
If you are a sole proprietorship or general partnership in South Dakota and doing business under your full first and last name, John Smith for example, there is no filing, but if the business will operate under a fictitious business name or DBA (Doing Business As) like John Smith’s Handyman Service, Mr. Handyman, etc, you will need to file a Fictitious Name Registration, sometimes known as a DBA or Doing Business As. You have the choice of filing with the Secretary of State’s office or the Register of Deed’s office in the County where the business will be located.
HOW TO RESERVE A BUSINESS NAME IN SOUTH DAKOTA FOR A CORPORATION OR LLC
Corporations and LLCs have to pick a name at the time of filing for the entity and each corporation/LLC has to be uniquely named.
A trademark can legally stop others from using names, slogans, or logos that are associated with another brand, product or service. The U.S. Patent & Trademark Office (USPTO) manages the registration of trademarks.
Before settling on a name, check the USPTO database to see if the name you want to use isn't registered to another business.
Registering your business name will not necessarily stop anyone else from using the name you choose. To protect your business name, consider registering for a trademark.
The Employer Identification Number or EIN (sometimes referred to as the Federal Employer Identification Number or FEIN) is a nine-digit tax identification number from the Internal Revenue Service (IRS). This number identifies a business operating in the U.S, tracks tax returns and is used to open a bank account. Much like what a social security number is to a person, the EIN is a social security number for a business. While most businesses will need to get an EIN, some do not.
Partnerships, corporations and many LLCs OR sole proprietorships with employees must file for an EIN.
Filing the EIN online takes only a few minutes and the number is available immediately. For more information about how to apply and to see our video with a step-by-step guide, check out how to file for an EIN.
To start a business in South Dakota, certain licenses and permits will be needed. Depending on the activities and location of the business, licensing may be needed from federal, state and local agencies. Some common registrations include:
Business Licenses – The state of South Dakota doesn’t have a general business license; however, many cities require a business license in order to operate.
Sales Tax License – Businesses selling products and certain services will need to register for a Sales Tax License with the South Dakota Department of Revenue.
Professional Licensing – Some services such as architects, plumbers, and barbers require licensing in South Dakota. While this isn’t a license on the business, licensing is required in order to operate.
Learn more about South Dakota business licenses and permits.
Obtaining financing for a small business can be a stressful and time-consuming process. Similar to getting a home loan, the bank is going to want lots of documentation on your personal finances in addition to a solid idea and the business plan.
As a rule of thumb, banks will want to see the owner invest 15%-25% of their money (equity) into a start-up business. That can include cash but also any buildings, tools, vehicles, inventory and equipment that will be used in the business. It is likely that the bank will want a lien on those items.
Credit score is going to play a large part in getting a loan approved. Start-up business loans are largely based on the owner’s personal credit and their personal financial statement.
There are a number of options to finance a business. A few of the more popular ones include:
Conventional Bank Loan – These are available at many financial institutions like banks and credit unions. Banks are typically very conservative and place a lot of weight on the owner’s personal credit, equity and collateral. After reviewing the business plan and personal financial information, they will respond with a yes, no or maybe. Yes is great but we recommend talking with at least three banks to get the best rates and terms for your business. No isn’t necessarily bad, as a bank may have many loans with other businesses in your industry or they don’t make loans for your type of business (restaurants are a typical example). If your loan has more risk than they want or if you don’t have sufficient credit, equity or collateral they may answer with a maybe and want a loan guarantee.
Expect the loan approval process to take anywhere from 2 weeks to 6 months (and possibly more) depending on the amount being borrowed, the complexity of the project and owner’s personal financial condition.
SBA Loan Guarantee – When a small-business loan is riskier than the bank wants to take on, there are loan guarantee programs from the Small Business Administration (SBA). This is a federal program that provides a guarantee to the bank that will pay a percentage of the loan back to the bank if the loan isn’t paid by the business owner. The percentage depends on the program but typically ranges from 50%-85%. Contrary to popular belief the SBA doesn’t provide business financing but they do help in getting money to small businesses by taking a majority of risk and encouraging the bank to make loans. Another thing to note is that SBA guaranteed loans will cost the owner more in closing costs, fees and interest.
Peer-to-Peer Lending – Sometimes a bank isn’t the best option, due to the difficulty in getting a start-up business loan, credit purposes or the time needed to get funding. In this case, peer-to-peer lending provides an interesting way to borrow money without going to a bank. These are personal loans and rates will vary on the owner’s credit. Loans will typically go up to the $35,000 – $40,000 range. Two popular options are Prosper and LendingClub.
Grants – There is a lot of information online about all of the free money for businesses and most of it isn’t true. There are some small business grants. Most are for established businesses doing research and but occasionally there are private grants for business startups. Do your research before applying and don’t pay for information telling you where the grants are, no matter how good their money-back guarantee is. All of the federal grant information is available for free at http://grants.gov.
Here is more information about finding money to start a business.
Loans for start-up businesses are very reliant on the owner’s personal credit score. Before stepping into a bank for financing, it is a good idea to know your credit score. Typically scores above 650 are considered viable so if you aren’t sure, get a copy of your credit report. If there is anything incorrect on your report, take care of those issues before going to the bank. Higher scores not only have a greater approval rate, they also get lower interest rates, saving money over the course of the loan.
You can request a free credit report once a year from AnnualCreditReport.com. This report won’t have your score, but it will show all of the credit activity under your name from the three credit reporting companies; Equifax, Experian and TransUnion. This information can be used to fix incorrect information.
Hiring employees is a complex and often intimidating process for a new business owner as there are multiple agencies to register with and labor laws to understand.
In South Dakota, a business will register with the IRS, Department of Labor & Regulation and U.S. Immigration and Customs Enforcement.
Businesses are responsible for reporting new hires, verifying employees are eligible to work in the U.S., and withholding state and federal taxes.
Employers will also pay federal and state unemployment taxes, Social Security and Medicare in addition to staying on top of state and federal labor laws.
Learn more about the steps to hiring your first employee in South Dakota.