How to start a business in Iowa in 8 steps
Iowa is known to be one of the safest states in all of the United States. It should come as no surprise then that businesses operating in the state of Iowa enjoy the comfort of knowing their establishments receive a high degree of security simply by being an Iowa-based business. If you’re thinking about starting your own business, particularly in the midwest, consider setting up shop in the Hawkeye State.
The process for setting up a business in Iowa is pretty straightforward, but it can feel a tad overwhelming if it’s the first venture you’re setting up. Here we’ll walk you through the process of setting up a business in the 26th state so you can gain a comprehensive understanding of what’s needed and required for your entrepreneurial journey to be a success.
1) Think about the type of business you want to start
You may already have a specific business idea in mind, or you may only have the bubbling inclination that starting a business is for you. Regardless of where you fall on the business idea spectrum, knowing what type of business you want to start is your first step toward creating it.
If you’re having trouble nailing down the type of business you want to start, begin by looking at your interests. What do you enjoy doing for fun? What are your passions? These days, any hobby or activity can be monetized and turned into a business, so if you’re eager to start your own business but are unsure of what operation you want to run, looking at your interests as potential business ideas is a fantastic option.
Once your business idea is locked, having a thorough understanding of the work required to run your business and how you’ll make money are two of the essential ingredients for future success. If those two elements excite and inspire you, you’ll be even more motivated to map out a business plan and follow it along the road to achieving your entrepreneurial dreams.
2) Set up your legal structure
The next step toward actualizing your new business idea is to set up your business structure—or legal structure—which essentially designates how your business will be taxed. Choosing your business structure depends upon many factors, such as the type of work you’re involved in, if you have partners, and how much revenue you expect to generate. In the state of Iowa, there are 5 main types of business structures that you can establish, each with its own pros, cons, and requirements:
- Sole Proprietorship: With a sole proprietorship, you’re opting for a more informal business structure and are not incorporating, with all income being reported using your Social Security Number. You, as the owner, receive all of the profit but also accept any loss or liability. From a paperwork standpoint, being a sole proprietor is a simple way to launch your business since there are no forms to file with the state of Iowa. However, you can file a “Doing Business As”—also known as a DBA or trade name—with the state, which will allow you to choose a fictitious name under which you can legally conduct business instead of using your own name.
- General Partnership: Think of a general partnership as a group of two or more sole proprietors working together. General partnerships do not offer the legal protections incorporated entities provide, so they’re best suited for businesses that want the appearance of a corporate structure but do not need the tax benefits.
- Corporation: For those looking to establish a uniquely separate entity that will not affect one’s personal assets and also offers liability protection, setting up a corporation is the way to go. Corporations in the state of Iowa typically file as an S corporation or a C corporation, which correspond to the two different ways in which the business structure pays its taxes. You’ll need to submit Articles of Incorporation along with a $50 filing fee to formalize this structure.
- Limited Liability Company (LLC): The Limited Liability Company is a fantastic option for small business owners looking for a simple way to secure legal protections and receive the tax flexibility to register as a pass-through entity or traditional corporation. The process for setting up an Iowa LLC is also much easier than setting up a traditional corporation. To set up your LLC in the state of Iowa, you’ll need to submit a Certificate of Organization to the Iowa Secretary of State via mail, online, or by fax, along with a $50 filing fee.
- Nonprofit: Different from both a corporation and a sole proprietorship, a nonprofit is funded by donations and is not required to pay taxes. Typically, nonprofits help advance a social cause or initiative and are a great option if your business idea is rooted in helping others but does not have a traditional way of generating revenue. The only caveat to registering as a nonprofit in the state of Iowa is that you’ll also have to select board members, draft bylaws, and apply for the coveted tax exemption status. You’ll then need to submit Articles of Incorporation to the Iowa Secretary of State along with a $20 filing fee.
Take some time to research the different business structure options available to you. Each company is unique, so the legal structure that best fits your friend’s organization might not be the best option for your business. Looking at how competing companies in the state of Iowa have set up their business structures should give you a better idea of the most applicable designation for you.
3) Name and register your business
After you’ve selected your business structure, you’ll then need to choose a name for your new startup. You’ll want to choose a name that is first and foremost one you enjoy, but one that is also memorable enough to remain top of mind in your customers’ psyche. You'll then want to make sure your desired business name is not used by someone else, so it's essential to verify your desired name is available. You can check your business name availability using the Iowa Secretary of State's Business Entity Search feature before you start filling out any of the business registration paperwork.
There is nothing to register for sole proprietorships and general partnerships that are operating using the owners' full legal names. However, if you’re conducting business using a DBA, you’ll need to fill out an Iowa DBA Registration Form and submit it to the Iowa County Recorder, along with a $7 filing fee. For Corporations and LLCs, you’ll be filing your business name with the state when you select your company’s business structure.
With your business name selected, the final steps to registering your new business are to choose a registered agent—the person or group who will be your point of contact for your business—and to obtain an Employer Identification Number from the IRS. Be sure to review the specific required documentation for your chosen legal structure since the documents needing to be approved vary depending upon your desired designation.
4) Apply for business licenses and permits
To ensure your business complies with all federal and Iowa state laws and sales taxes, be sure to consult The Small Business Administration (SBA) website, the Iowa Business License Information website, and your local Iowa chamber of commerce. All three resources will be able to provide you with the information you’ll need to lock in any required licenses, permits, or tax permits specific to your business operation. While the state of Iowa does not distribute a general business license, many cities will require a license if you want to operate within their jurisdiction.
5) Choose a location
Deciding where in Iowa you want to set up your business operation depends on an assortment of factors, such as where you currently live, the pricepoint of real estate across the state, and if you even need an office to run your business successfully.
If you’re starting a cattle farm, you’ll obviously have different spatial needs than a graphic design company since a large location with wide-open space will be pertinent to your farming success. However, if you’re a graphic designer with two employees, you might be able to use existing technology to communicate with your team and work remotely from your home.
Ultimately the nature of your business, your business needs, and the size of your workforce will dictate what—if any—land or office space your business will need to occupy.
6) Open a bank account and prepare for future taxes
While it’s a bit more legwork up front, opening a business bank account and creating the backend accounting infrastructure so your business is ready to file income taxes come tax season will save you time and money in the long run. The easiest and most cost-effective solution for both organized accounting and organized tax prep is to open business bank accounts and business credit cards to keep your business finances completely separate from your personal assets and accounts.
In the State of Iowa, setting up a business bank account and opening a business line of credit are two relatively straightforward processes. Once you’ve decided upon the banking institution that best fits you and your business, you’ll need your Federal Employer Identification Number, your Articles of Organization or Articles of Incorporation, and a driver’s license to proceed with the official paperwork for creating those accounts.
For your federal and Iowa state tax needs, you may find it beneficial to hire a business accountant knowledgeable in business tax law to handle your accounting. This will help you avoid double taxation and any withholding tax mix-ups, and will give you peace of mind that you’re complying with both federal and state tax legislation from the inception of your company.
7) Purchase business insurance
Another step you can take to reduce stress and increase confidence that your new Iowa company is operating legally on all levels of government is to purchase small business insurance. Business insurance allows you to grow your business while taking intelligent, calculated risks, with the knowledge you’ve taken steps to protect yourself and your company. There are three main types of business insurance that might be helpful to your business, depending upon the specific industry your company operates in:
- General Liability Insurance: A basic insurance policy that protects your company against a variety of unforeseen circumstances.
- Professional Liability Insurance: A policy similar to General Liability Insurance, specifically tailored to people selling advice or consulting services.
- Workers’ Compensation Insurance: Designed to protect small business owners and their employees should they incur medical expenses or other losses due to a work-related injury. In Iowa specifically, it is required by law that businesses with over two employees—not including the business owner—purchase workers’ compensation insurance.
Regardless of which type of business insurance you purchase, the fact that you’re buying business insurance as part of the formation of your company will give you a leg up on your competition.
8) Create a marketing plan, hire employees, and more
With the essential steps needed to start your own business crossed off your checklist, you can now focus on positioning your new business for future growth and success. For most, this process will include drafting a marketing plan, hiring employees, and promoting the company through different forms of advertising. In today’s digital age, marketing and promoting your business in Iowa has never been easier—or cheaper—using a multitude of free social media platforms.
As your entrepreneurial journey progresses, remember to check out Huckleberry for all of your business insurance needs. In just minutes, Huckleberry can provide you with an insurance quote that will help you calmly navigate your new business through the waters of an unpredictable future.