Thinking about starting your own business in Iowa but not sure where to begin? You’re in the right place. From choosing the business structure, business licensing, funding, and more, we’ll walk you through the things you need to know, so you can get set up right..
Steps To Start A Business In Iowa
Step 1: Choose a Business Idea
Starting a business in Iowa kicks off with a solid idea. You might already have one in mind, or you could still be on the hunt for the right concept. If you’re searching for a spark of inspiration, here’s a few tips:
- Start by looking at the things you know and love. Consider your hobbies, skills, and past experiences.
- Look around your community. What’s happening locally? Are there industries booming, or are there certain needs not being met?
- Toss around a few business ideas for a bit. This is a big decision and shouldn’t be rushed.
For a hand with your research, check out our collection of business ideas.
Step 2: Write a Business Plan
After choosing your business idea, creating a business plan is the next step. This plan helps you build the framework that outlines your business and how it will operate. The business plan fills a few roles, such as:
- Refine and clarify your vision and keep you focused.
- Navigate through the setup and growth of your business with structured steps.
- Calculate the initial costs needed to start your business.
- Run financial projections to make sure the idea is feasible.
Creating this plan is a big step towards making your business idea a reality. Not sure how to start? Check out our guide on how to write a business plan!
Step 3: Find the Money
After working through the business plan and figuring out how much it will cost to start, you will be able to see if you have enough savings to fund the business or if outside funding will be needed. Obtaining the funds to start a small business is often a challenging process for many, but there are several funding options available. Let’s look at the most common ones.
- Bank loans: Many Iowa-based banks and credit unions offer conventional business financing, and it’s typical for them to require a personal investment from the owners. For a startup, expect between 15% and 25%.
- SBA loan guarantees: The Small Business Administration 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: There are a few different types of investors, but startups are generally looking at friends & family and angel investors. 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 4: Select a Business Structure
The next step in your startup journey will be to select a business structure (which is also called a business entity). A business structure is how the business is legally set up to 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.
Starting with the sole proprietorship, which is the most basic form of business entity, the owner and the business are considered the same legally. 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, but it may not be suitable for those seeking liability protection.
While the sole proprietorship (and partnership – next) 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, registration of a Trade Name will be needed through the County Recorder in the county where the business is located.
A general partnership is similar to a sole proprietorship but involves two or more people sharing 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 filing 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
Last, a Limited Liability Company is a business structure that combines the limited liability protection of a corporation with fewer formalities.
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 5: Register the Business
With the business structure taken care of, we now turn to registering the business. In Iowa, the required business licenses and permits depend on what your business does and where it is located. Here is a general overview of the most common registrations:
- Business licenses: The state of Iowa doesn’t have a general 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.
- 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 6: Open a Business Bank Account
With the business set up and registered, the next step is to open a separate business bank account. A few reasons for this include:
First, it helps maintain clear and organized financial records, which simplifies bookkeeping and tax filing. Second, it creates a more professional image for your business since customers aren’t writing a check to you personally. Third, if you operate as a corporation or an LLC, maintaining separate finances is necessary to operate a separate legal entity that protects your personal assets.
Step 7: Hire Employees
One step that may be needed is to get set up as a new employer. There are a number of steps and requirements when hiring employees, so it’s important to be thorough.
First, new employers need to have their Employer Identification Number from the IRS, in addition to a Withholding Tax Number from the Iowa Department of Revenue and an Unemployment Account from the Iowa Workforce Development.
Employers are also 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
An often overlooked step is getting insurance in place, and while not all businesses will want or need insurance, it is worth researching. Picking the right insurance 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 the most common type of insurance for businesses.
- Property insurance: Property insurance covers damages to the business property, including buildings, equipment, inventory, and supplies.
- 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.
- Professional liability insurance: Also known as Errors and Omissions (E&O) insurance, this coverage is used by businesses that provide professional services or advice. It protects against claims related to negligence, errors, or omissions in the services provided.
Step 9: Set up a Bookkeeping System
Another important step when setting up a business is tracking the income and expenses of the business. Not only does a good system help with accurate financial recordkeeping and compliance with tax regulations, but it also provides business owners with a clear and up-to-date picture of their financial position.
Related: Setting up accounting for a business
This material is property of StartingYourBusiness.com
Common questions when starting a business in Iowa
What are the steps to starting an LLC in Iowa?
How much does it cost to start an LLC in Iowa?
The cost to file the Certificate of Organization with the Iowa Secretary of State, which is the paperwork to start an LLC in Iowa, is $50.
Does a sole proprietor need a business license in Iowa?
In Iowa, whether a sole proprietor needs a business license depends on the type of business they are running and where it is located, not the business structure.
While Iowa doesn’t have a statewide business license that applies to all businesses, specific business activities are regulated at the state level and may require permits or licenses. This includes, but is not limited to, environmental permits, health department permits, and professional licenses for certain occupations.
More common are regulations by the city and county. Some local governments require businesses, including sole proprietors, to obtain a local business license or permit to operate within their local area.
Can I start a business with no experience?
Starting a business with no relevant experience is possible, but it requires a lot of research, planning, and learning.
Iowa Small Business Resources
There are 272,465 small businesses in Iowa, which is 99.2% of all businesses in the state,1 and almost 640,000 people are employed by these small businesses.2 Because of the economic impact of small businesses, there are a number of small business resources to help Iowa businesses start and grow. Some of these include:
- Financial Empowerment Center: Offering small business owners boot camps and financial guidance.
- IASourceLink: Helps connect businesses with resources to start and grow their business.
- Iowa Economic Development: The Targeted Small Business Program aids women, minorities, and disabled individuals in starting their businesses.
- Iowa Small Business Development Center: The SBDC offers workshops and advice to help navigate the challenges of starting and running a business.
- Iowa Center for Economic Success: Supports Iowans in their entrepreneurial and economic development efforts.
- VentureNet Iowa: A resource that helps people with an idea for a product or service and turn it into a business.
- VetBiz: This organization offers education and mentoring to help veterans turn their military skills into small business success.