Iowa can be a great place to do business. The state boasts one of the lowest costs of living in the nation, which makes it more affordable for employers and employees alike. It also has low business costs, which makes expenses like rent far cheaper for new firms.
Are you looking to join the ranks of Iowa entrepreneurs? You’ve come to the right place! This guide will explain how to start a business in Iowa, walking you through each step that you will need to accomplish along the way.
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Decide on a business idea
First and foremost, you’ll need to decide what kind of business you want to start. Chances are you already have something in mind, but if not, here are some things to consider:
- What are you talented or naturally skilled at? Could this talent make you well suited to a certain type of business?
- What business does your community need? Have you talked to people to find out?
- What are you interested in? Can you combine any of your passions with a business idea?
- Is this going to be a full time business, or more of a side hustle?
These are questions to ask yourself when deciding on a business idea. Once you have decided, move on to the next step.
Plan your Iowa business
Now it’s time to start planning. This means coming up with a business plan, naming your business, researching locations, and more. There’s a lot to cover here, so let’s break it down:
Select a business name
The first step is to research and decide on a name for your new business. Take your time and brainstorm many ideas. You’ll want to select a name that is relevant to your business, memorable for your customers, and not already in use by another business.
The name you choose must be unique, meaning that it must be distinguishable from the names of other businesses registered in Iowa. You can use the Iowa business entities search feature to determine whether your desired business name is available or not.
There are various other rules to comply with, including:
- The name must be unique from other businesses already registered in the state
- LLC names need to contain “limited liability company”, or approved abbreviations like “LLC” or “L.L.C.”
- Corporation names need to contain “corporation”, or approved abbreviations like “corp” or “inc”
- To use certain restricted financial-related words, like “bank” or “trust”, you may need additional written permission
- Other rules may apply.
If you find a name that you like and are ready to move forward, you can move on to the next step. Alternatively, if you’re not quite ready to register your business, you can reserve the name temporarily, which buys you some time to think about it without losing the name if someone else tries to register it.
Iowa trade names
Iowa does allow for the use of “trade names”, otherwise known as Doing Business As (DBA) names. These are secondary business names that are used for branding and marketing purposes. Registering a DBA essentially “adds” the name to your business registration, allowing you to legally operate under that name.
Once you have registered your business, you can register additional DBAs if you desire. This gives you some flexibility in how you market and brand your business. You must file the Fictitious Name Resolution with the Secretary of State, and may also need to register the DBA with local city/county officials.
Register a domain name
Once you choose a name, you should immediately register a domain name for your new business. In most cases, getting a .com domain name is ideal, but there are many other extensions (.biz, .net, etc.) that are worth considering.
You can use a tool like Namechk to search for an available domain name and find a great deal on the registration cost. You may find that your desired names are taken, so you may need to get creative.
Complete market research
Once you have an idea, you’ll want to do some market research. You want to gain a better understanding of who your customers – and competitors – are. You can achieve this by conducting online research, running focus groups, sending out surveys, and more. There are also companies that can help you complete market research, for a fee.
Select a business location
Unless you plan to run a remote/virtual business, you will need to find a physical location for your company. Research commercial property in your area, and take note of typical costs. For customer-facing businesses (retail and some services), location is very important, so take your time in selecting the right area for your business.
Create a business plan
You will now need to create a detailed business plan for your new venture. This plan is helpful for your own purposes, and will also be necessary in order to obtain funding from a bank. A good business plan should contain these elements:
- Finances: How much funding does the business need to get started? How many sales does it need each month to break even on expenses?
- Product: What do you plan to sell? Is it a product or a service? What problem does your business solve, and how is it distinct from your competitors?
- Marketing: How will you drive sales? What marketing and sales efforts do you plan to employ? How much money will you set aside to fund marketing efforts?
- Staff & Partnerships: How many people will you need to hire, and what skill sets do they need to have? Will you have any partnerships or arrangements with other local businesses?
If you need help, you can find business plan templates online that will help walk you through the steps you need to take to draft a detailed business plan. If you plan to seek funding, you may also wish to call your bank to see what they require in terms of business plans.
Decide on a business structure
Before you form your business as a legal entity, you will need to decide which business structure you will use. There are a few different types of businesses, each with its own pros and cons.
Sole proprietorship
Sole props are single-person operations. Examples include freelancers, gig economy workers and consultants. A sole proprietorship business is very easy and inexpensive to form, and tax reporting is also fairly simple. As a sole proprietor, your business taxes are reported as part of your personal tax return.
The downsides to a sole prop are that you cannot hire employees, and you don’t have the legal liability shield that something like an LLC or corporation would provide. 100% of the debts and liability of a sole proprietorship go to the sole owner: you.
Partnership
A general partnership is an unincorporated business structure similar to a sole proprietorship, except with two active owners/participants. Partnerships do not have liability protection.
Limited Liability Company (LLC)
A limited liability company, or LLC, is a popular choice for business owners because it provides liability protection to the owners. It separates the business from the owners, which means the personal assets of owners will not be at risk if the company gets sued or goes into bankruptcy.
LLCs are also a bit easier to form than corporations. Even so, there is definitely more work involved with an LLC than there is with a sole proprietorship.
Corporation
A corporation is owned by its shareholders and is a separate entity. There are a few different types of corporations (C-corp, S-corp, etc), with the main differences being the way they are treated tax-wise.
Corporations are more regulated than LLCs, which makes them more attractive to outside investors. For this reason, most large companies are corporations. The downside is that it takes more effort, and more paperwork, to form a corporation.
Nonprofit
A nonprofit is a legal entity that is set up with charitable status, meaning that its goal is not to make a profit, but rather to address a certain cause. Nonprofits are funded by donations, rather than investors, and are subject to many regulations. They are exempt from most forms of taxation, although tax returns must still be filed.
Register your business in Iowa
Next, it’s time to actually register your business and form a new business entity. You’ll need to work with the Iowa Secretary of State’s department. You can complete the necessary forms online, or through the mail.
You have two options to complete these steps:
- Doing the work yourself (see the steps below)
- Using a professional business formation service
For most entrepreneurs, it’s recommended to use a business formation service. Northwest Registered Agent, ZenBusiness, and Bizee are all great options with low costs.
Using a business formation service can help save you both time and hassle while ensuring that you don’t make any mistakes. For most entrepreneurs, the extra expense is well worth the peace of mind.
If you decide to do the work on your own, the basic steps include:
- Choosing a name for your business
- Choosing an Iowa Registered Agent for your business. The registered agent is tasked with receiving legal documents on behalf of your company. More information here.
- Filing formation documents with the Iowa Secretary of State
- Applying for an Employer Identification Number (EIN) from the Internal Revenue Service (IRS)
- Applying for other necessary permits or licenses
The specific steps you need to take from here will depend on the type of business entity you are forming. See below for details.
Form an Iowa sole proprietorship
Follow these steps:
- Decide if you will operate under your legal name, or use a trade name
- If you use a name other than your own, you will need to register a trade name
- Apply for a business license and/or other necessary permits from local governments (city/county)
Form an Iowa LLC
Follow these steps:
- Name your LLC
- Choose an Iowa Registered Agent (or use a service such as Northwest Registered Agent)
- File the LLC Certificate of Organization online, and pay the $50 filing fee. You can also draft your own Certificate of Organization in order to file by mail
- Draft an LLC operating agreement
- Apply for an EIN with the IRS
Form an Iowa corporation
Follow these steps:
- Decide on your desired corporate tax structure (S corp or C corp)
- Name your new corporation
- Hold an organizational meeting and appoint directors
- File the Iowa Articles of Incorporation online, and pay the $50 filing fee. You can also draft your own Articles of Incorporation in order to file by mail
- Apply for an EIN from the IRS
Our picks of the best registered agent services
Apply for business licenses and permits
Registering your business and forming an LLC or corporation is an important part of starting your business – but in order to operate legally, you will likely also need to obtain certain permits and/or business licenses.
The specifics vary depending on the type of business you are running, as well as your location. For example, restaurants will need health permits, bars will need liquor licenses, and medical service providers will need various professional licenses and federal permits. You will need to research the specifics that relate to your business type.
There are different requirements at each level of government:
- Local: Cities and counties may require certain business licenses or permits. Contact your county clerk for details.
- State: Iowa may require additional permits and/or licenses in order to operate legally in the state. Check the Iowa Business License Information Center for details.
- Federal: Federal permits/licenses may be required for certain regulated industries, such as construction, medicine and legal services. Check the Small Business Administration (SBA) guide for more details.
At this time, you should also apply for an Employer Identification Number (EIN). An EIN is a federal tax ID that is required to hire employees. You can apply for an EIN online with the IRS – the application is free, and quick.
Secure funding
For most businesses, some startup funding will be necessary in order to get started. In step #2, you should have calculated your funding needs while drafting a business plan. Use this information to determine how much funding you need to raise.
For bootstrapped companies, you may be able to get by with your own personal savings, or some seed investments from friends and family. If your funding needs are small, this is likely your best route.
If your business plan indicates that substantial funding is needed, you will likely need to apply for a loan and/or a grant.
- Small business loans are offered by banks, credit unions and other lenders. They can range from as little as a few thousand to hundreds of thousands. Specifics will depend on your business, as well as your personal creditworthiness. Most small business loans are issued in a lump sum, and paid back on a monthly basis, with interest.
- Small business grants are offered by government agencies and some nonprofits. They are essentially business loans that don’t need to be paid back – but they usually have substantial fine print. It’s worth looking into, however, as there may be grants available, particularly for businesses serving an importan
Set up your business finances
Beyond securing funding, there are other routine tasks that you need to take care of to get your business’ finances in order. This includes:
- Opening a business checking account. You should have a separate business bank account that you use solely for business purposes. You can open this account at most banks, credit unions and financial institutions. Call ahead to see what documents will be required to open this account.
- Open a business credit card or line of credit. This is not strictly necessary, but most businesses can benefit from having a business credit card, and/or a business line of credit. This can be used for day-to-day expenses and purchases, and may also earn you some rewards.
- Set up your accounting system. As a business owner, you will need to keep very detailed records about all revenue and expenses. To do this, you’ll want to set up the proper foundation from day one. This could be investing in an account software such as QuickBooks or Xero, hiring a bookkeeper, or at the very least establishing a spreadsheet to track everything. If you do not have any accounting experience, it’s wise to hire a professional to help.
- Purchase business insurance. Most businesses should have some form of liability insurance, and potentially other forms of business insurance as well. Insurance policies can help protect your equipment and buildings from costly damage, and help shield your company from liability if a worker or customer is injured or otherwise harmed. Speak with a local business insurance provider to get started.
Create a business website
In this day and age, having a solid web presence for your business is very important. And social media profiles, while important, are no replacement for an actual website. You will want to build a professional business website that you can use to drum up business, inform your customers, and stay connected with your clientele.
The simplest way to build a website is to use a website builder from a web hosting provider. When you register a new domain name, look for a provider that also offers web hosting and a site builder, so that you can purchase everything at once and get your site set up quickly.
Our picks of the best website builders
Hire employees
Unless you plan to operate a solo business (with you as the only worker), you will likely need to hire employees. To do this, you will need a federal employer identification number (EIN), which is a free tax ID number issued by the Internal Revenue Service (IRS).
Once you have an EIN, you can legally hire employees. However, the state of Iowa has some requirements that you must meet. You must report new hires to the Iowa Workforce Development department, and you must ensure that your employees are able to legally work in the state and that they have all necessary professional licenses and permits.
Employers will also need to register for and pay unemployment insurance tax, as well as withholding tax. There may be other tax reporting requirements for employers, as well – speak to your CPA for details.
At this point, you also should look into setting up your payroll system – whether you handle it yourself, or use a payroll service.
Run and grow your business
Now it’s time to get down to business and engage with the day-to-day activities that are sure to bring your business success. This means marketing your products and services, maintaining good relationships with your return customers, and setting yourself apart from the competition.
Iowa business FAQs
Still have questions about running a business in Iowa? Here are some answers to frequently asked questions.
What are some business resources in Iowa?
Iowa entrepreneurs have a variety of resources at their disposal. A great place to start is the Iowa Small Business Development Center (Iowa SBDC). This resource provides free business advisor services, webinars and training, and many other useful resources. Other good resources include the SCORE Des Moines and the US Small Business Administration (SBA).
Entrepreneurs can also search for resources specific to their industry or niche. There are also business resources specifically tailored to certain types of entrepreneurs, including veterans and women.
What is the minimum wage in Iowa?
The Iowa minimum wage is $7.25 per hour, the same as the federal minimum wage. This wage applies to most employees, although there are some exceptions.
Employees who earn tips can be paid as little as $4.35 per hour, so long as their cash wages + tips equal at least the $7.25 federal minimum wage. Additionally, all employees may be paid $6.35 per hour for the first 90 calendar days of employment.
Keep in mind that individual cities and counties are able to impose their own minimum wage laws. Check with your local city/county governments to ensure that you are compliant with all local laws.
What business taxes does Iowa have?
There are a variety of taxes that Iowa businesses must pay. Any business that sells taxable goods or services must pay the Iowa sales tax (currently 6% on the state level, plus local city/county sales tax), and taxable goods that are used or consumed by the business may be subject to use tax.
Many businesses will also be subject to corporate income tax, unemployment insurance tax, as well as withholding tax and potentially others. See the Iowa Department of Revenue’s website for details.
How do I dissolve an LLC or Corporation in Iowa?
If you close a business, you will need to “dissolve” it. To do this, you will need to file the Articles of Dissolution with the state of Iowa. You will also need to file any outstanding tax returns, and close down your tax accounts with the state. There may be other steps as well.
Closing a business can be a complex process. To ensure that everything is handled accurately and efficiently, it’s a good idea to work with your certified public accountant (CPA) to close down your Iowa business.
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