Starting a business in South Dakota but not sure where to begin? Don’t worry; our easy-to-follow guide is here to help you kick things off. We’ll cover things like choosing a business idea, getting the permits and licenses you need, finding the money to get started, and more!

Steps To Start A Business In South Dakota

Step 1: Choose a Business Idea

Kicking off a business in South Dakota begins with deciding on what type of business to start. You might already have one in mind, or maybe you’re still thinking it over. Either way, we can help. Dive into our library full of business ideas. There, you’ll find details about different types of business, what it costs to start up, helpful tips, and plenty more.

Step 2: Write a Business Plan

Coming up with a great idea is just the beginning; making it a reality depends on having a sound plan backed by consistent execution. Creating a business plan helps to solidify a clear vision and direction, establish goals, and help secure funding. Investing time and effort in the beginning to create a business plan will greatly enhance your chances of success.

Related: How to write a business plan

Step 3: Find the Money

When starting a business, finding adequate funding for your business is a common source of frustration for entrepreneurs. There are many options for new companies in South Dakota looking to secure capital, ranging from personal funds to borrowing from banks, utilizing government loan guarantee programs like those offered by the Small Business Administration (SBA), accessing microloan programs, and attracting investors. Here are explanations of each option to help better understand the options.

Personal funds: The first place to start when looking at funding is the owner’s personal savings or assets. This can include tapping into your retirement savings or using a home equity loan.

Conventional bank loans: Another funding option for small businesses is to apply for a conventional bank loan. South Dakota has several banks that offer small business loans with varying interest rates and terms. Applicants must have a personal investment (typically between 15% and 25% of the total startup cost), collateral, good credit, and a solid business plan.

SBA loan guarantee programs: The Small Business Administration offers loan guarantees to qualifying businesses, which enables them to get a loan from a traditional lender with a reduced risk of default for the lender. This option can be helpful for businesses that may not qualify for a loan on their own.

Microloan programs: Microloan programs provide smaller loan amounts to start-ups and small businesses that may have difficulty qualifying for traditional bank loans. In South Dakota, several microloan programs are available, such as those offered by the South Dakota Development Corporation (SDDC) and various non-profit organizations. These loans typically have lower interest rates and more flexible repayment terms compared to conventional bank loans, making them an attractive option for businesses with limited credit history or collateral. However, the loan amounts are usually smaller and may not be sufficient to cover all your funding needs.

Investors: Seeking funding from investors, such as angel investors or venture capitalists, can be another viable option for new businesses. Investors provide capital in exchange for equity or a share of your company’s ownership. This funding method can offer significant financial support and valuable expertise or mentorship. However, it also means sharing control and profits with the investors and finding the right investor can be challenging and time-consuming.

Step 4: Select a Business Structure

A business structure (also called a business entity) refers to the legal structure through which a business operates and is recognized by state law. Choosing the right type of business structure impacts various aspects of how a business operates, such as tax obligations, personal liability protection, ownership transfer options, and fundraising capability. Understanding the differences between the four primary types of business entities in South Dakota can help entrepreneurs select the most suitable one for their particular circumstances.

Sole proprietorship: A single individual who owns and manages the entire business without any legal distinction and assumes full responsibility for financial debts and obligations. Pros include simplicity, low costs, and flexibility. Cons involve unlimited personal liability.

General partnership: Similar to a sole proprietorship, this structure has two or more individuals who collaboratively own and operate a business, share profits and losses, and face unlimited liability exposure for debts and legal issues arising from business operations. Pros include increased capacity, shared decision-making, and mutual encouragement. Cons include disagreements over management responsibilities and the risk of being held personally responsible for actions taken by another partner.

Corporation: A separate legal identity distinct from shareholders or owners, offering personal liability protections and the ability to source investment capital from external sources in addition to debt. Corporations must adhere to strict formalities and hold annual meetings, maintain records, file annual reports, and pay fees and taxes at both state and federal levels.

The Limited Liability Company (LLC) is a popular business entity choice because it provides the liability protection of a corporation with the sole proprietorship’s ease of operation. The Limited Liability Company does not have as many of the corporation’s burdens and has the greatest tax flexibility of the four entities as income can be taxed as a pass-through entity like the sole proprietor or partnership or as a corporation.

Related: How to form a South Dakota LLC

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

There are several federal, state, and local rules and regulations South Dakota businesses need to register for and comply with. Each business will have different requirements, but some common registrations include the following:

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.

Business name registration: For a sole proprietorship or general partnership wanting to operate under a fictitious business name or DBA (Doing Business As), a Fictitious Name Registration will need to be filed. You can file with the Secretary of State’s office or the Register of Deed’s office in the County where the business will be located.

Employer Identification Number (EIN): An EIN, also known as a Federal Tax Identification Number, is required for most businesses, especially if you have employees or plan to file taxes as a corporation or LLC. You can obtain an EIN for free by applying online at the Internal Revenue Service (IRS) website. The application process is simple and typically takes only a few minutes.

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 occupations, 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.

Step 6: Open a Business Bank Account

After you’ve taken care of business formation and licensing, the next step is to open a separate business bank account. This is important for a few reasons. First, it helps you keep track of your business finances easily and clearly. You have a better view of the money that’s coming in and going out, which is important for managing your budget and planning. It also makes tax preparation simpler, as all your business transactions are in one place.

Step 7: Hire Employees

Not every business will hire employees initially, but if you plan to, know that it is somewhat of a complex process as there are multiple agencies to register with and labor laws to understand.

Employers are responsible for reporting new hires, verifying employees are eligible to work in the U.S., federal income tax withholding, unemployment insurance, unemployment taxes, and payroll withholding taxes, including Social Security and Medicare.

Step 8: Obtain Business Insurance

Small business owners face numerous risks every day, including property damage, theft, liability claims, employee injuries, and more. Without proper insurance coverage, a single event could significantly harm your finances, reputation, and continued business operations. By having the right insurance policies, you gain peace of mind knowing that most unforeseen occurrences are covered, allowing you to focus on running your business.

Step 9: Track Income & Expenses

Bookkeeping plays an important role in managing the financial health of a small business. It involves recording and tracking transactions, income, and expenses, which helps business owners make informed decisions about strategic planning, tax compliance, cash flow management, and risk identification.

This material is property of StartingYourBusiness.com

Common questions when starting a business in South Dakota

What are the steps to starting an LLC in South Dakota?

There are three main steps to starting an LLC in South Dakota. These include:

1. Making sure the LLC name is available
2. Appointing a South Dakota Registered Agent
3. Filing the Articles of Organization

How much does it cost to start an LLC in South Dakota?

The filing fee to submit the Articles of Organization with the South Dakota Secretary of State is $150.

South Dakota Small Business Resources

There are 89,679 small businesses in South Dakota, which is 98.9% of all businesses in the state,¹ and 57.5% of South Dakota employees work for small businesses.² Because of the economic impact of small businesses, the state of South Dakota has invested in several small business programs to help South Dakota businesses start and grow. Some of these resources include:

South Dakota Small Business Resources

South Dakota Governor’s Office of Economic Development: Offers a variety of resources to help businesses in the state.
South Dakota APEX Accelerator: This resource aids small businesses in getting ready for government contracting, providing essential guidance and support.
South Dakota Enterprise Institute (SDEI): A private, non-profit organization, the Enterprise Institute offers tailored business development, commercialization, and market research services.
South Dakota International Trade Center (ITC): The ITC assists South Dakota’s businesses looking to expand their sales internationally.
South Dakota SCORE: SCORE is a group of volunteer mentors who volunteer their experience and knowledge to help small business professionals start & grow businesses.
South Dakota Small Business Development Center (SBDC): This center is a hub for entrepreneurs in the state, providing a wide array of services. These include no-cost consulting and assistance in developing business plans, which are crucial for any business’s growth and success.