These days, more entrepreneurs are shirking the commonly-held notion that you must move to Silicon Valley or New York to launch a startup. Why deal with the steep cost of living and stiff competition endemic to these areas when starting a business in one of the so-called flyover states is much more affordable and comes with a higher chance of success?
Iowa offers a superb climate for entrepreneurs on a tight budget: U.S. News ranks the state first in the nation for affordability, while CNBC places it in the top 10 for the cost of doing business. As a lack of cash flow is the top reason small businesses fail, starting a business in a low-cost environment is one of the best ways you can increase your odds of surviving.
To help you through the process of starting a business in Iowa, we’ve produced this handy step-by-step guide. You’ll also find a variety of resources that will connect you to Iowa-area investors, and organizations dedicated to assisting local entrepreneurs.
Iowa small business statistics at-a-glance
- Iowa is ranked 1st in affordability by U.S. News based on being #13 in the cost of living and #1 in housing affordability.
- Iowa is rated the 10th best state for cost of doing business by CNBC, and in the top 15 in quality of life and economy.
- The state ranks 2nd in the U.S. in the opportunity share of new entrepreneurs with 93.62%. This is the percentage of new entrepreneurs creating a business by choice rather than necessity.
- Iowa has 267,733 small businesses, accounting for 99.3% of businesses in the state.
- 646,525 Iowa residents are employed by small businesses, which is 48.3% of the state’s total workforce.
- Health care and social assistance is the top small business employer industry in Iowa, followed by accommodation and food services, and manufacturing.
Starting a business in Iowa in 12 steps
1. Develop an idea
Every successful business starts with a good idea. Ask yourself these questions:
- Which product or service can your business provide that doesn’t already exist on the market?
- How does your business idea refine an existing product or service?
Determine your personal strengths and interests: developing an idea that suits your personality and positive traits will provide motivation to put in the long hours necessary in addressing the myriad challenges you’ll face in getting your business off the ground.
Figure out how to market your expertise: if your business idea is not something you totally believe in and can sell effectively, it will be much harder to succeed.
2. Do the research
Once you have an idea, it’s time to put it through the wringer and decide if it’s viable in the market. Conduct market research to arrive at answers to these key questions:
- Is there a demand for your product/service in Iowa?
- Who is your target market?
- Do existing businesses in Iowa offer a similar product/service?
- What makes your business unique compared to the competition?
Coming up with satisfactory answers may require refinement, or even a total overhaul, of your original idea. Be patient: you’ll only want to proceed with the next steps after determining that a niche exists in the Iowa market for your business idea.
3. Draft a business plan
Now it’s time to write the blueprint of your business. A great business plan should chart the path of your company from infancy to success while being able to attract investors to provide financing.
Your business plan ought to include the following sections:
- Executive summary – An overview of your business and why it will be successful
- Description of business – Explain the advantages of your business and the problems it solves
- Market research – Provide research on your industry, target market, and potential competitors
- Organization and staff – Detail the nuts and bolts of your business; how it’s structured and who will run it
- Product or service description – State what you are selling or offering
- Marketing plan – Explain your strategy for attracting customers
- Fundraising – The money you’ll need in the next five years to grow your business and how you’ll spend it
- Financial forecast – Data and balance sheets providing a financial forecast for your business
- Appendix – An optional section with supporting and/or requested documents like resumes, letters of reference, permits, etc.
4. Secure funding
Every business needs money to get off the ground. In fact 82% of businesses that fail do so because of a lack of cash flow, U.S. Bank found in a recent study. Your business plan should include a detailed estimate of the funds you’ll need to cover expenses for at least a year, so now it’s time to acquire the money.
If you aren’t wealthy enough to self-fund your business, you can choose from a number of other funding options. These include a loan from the U.S. Small Business Administration, taking out a loan from a commercial bank, launching an equity crowdfunding campaign, or securing funding from an angel investor or venture capitalist group active in Iowa.
An angel investor is a wealthy individual who invests their personal finances in a startup, typically in the beginning stages, whereas a VC is a group of investors that will fund a business throughout its existence.
Which route you choose depends on the specifics of your business: angel investors typically invest smaller sums to help get a startup off the ground, while VCs invest larger sums of money in exchange for a greater say in the operations of a business. Smaller startups usually opt to pursue funding from angel investors. Plenty of both types of investors are operating in Iowa.
Iowa Angel Investors and VCs
- Corridor Angel Investors – A recently-launched accredited angel investment group with a focus on early-stage Iowa startups.
- Next Level Ventures – A VC firm with a policy of funding Iowa companies, only. Investments usually range from $1-$4M in exchange for a minority ownership position.
- Plains Angels – An angel group founded in 2012 focused on early-stage growth companies in Iowa. Individual members of the group have invested in hundreds of companies in a wide range of industries.
Additional Investor Resources
- AngelList: Iowa Angel Investors – An exhaustive directory of almost 5,000 angel investors seeking funding opportunities in Iowa. Click a listing to find out about an investor’s professional background, a list of investments they’ve made, and their areas of interest.
- ICIC: Venture and Angel/seed funds serving Iowa – A directory of venture and angel funds in Iowa put together by the Iowa Capital Investment Corporation.
5. Decide on a legal business entity
The form of business entity you choose will affect many factors going forward. There are 3 main options to decide from:
- Sole proprietorship – The name for running a business by yourself. Legally, you and your business are one and the same, with no separate legal entity for your business. A partnership is legally identical to a sole proprietorship, except that it comprises two or more people.
- Corporation – A complex legal structure that is a separate entity (providing legal protection to owners) from the owner and comprises directors, officers, and shareholders.
- LLC – AKA “Limited Liability Company”, this is a hybrid entity between a sole proprietorship and a corporation that possesses advantages of both. An LLCs provides the liability protection of a corporation, yet isn’t subject to double taxation as the profits go through your personal tax return.
Nowadays, LLCs are the option of choice for small business owners as they are easy to manage and provide the benefits of a corporation while lacking their complex structure. Taxwise, they operate more like a sole proprietorship.
You may want to consult with an attorney to help decide which entity works best for your business.
6. Register your business
The time has come to take the big step and officially register your business with the state of Iowa. The process varies whether you are forming a sole proprietorship, LLC, or corporation.
For sole proprietorships
Launching a sole proprietorship in Iowa requires no special filings unless you wish to operate under a business name separate from your given name. In this case, you must file a trade name report. First, check the Iowa Secretary State business name database and the U.S. Patent and Trademark Office to search if your chosen business name is available. If it is, you can file a trade name report with the county recorder in the county where your business is located. Visit the Iowa Association of Counties for contact information for every county in the state. Fees vary county-to-county.
For LLCs and corporations
Before forming an LLC or corporation, you are required by federal law to appoint a registered agent to receive process notices and other government correspondence on your business’s behalf. As long as you have a physical address in Iowa, you can be your own registered agent, but you should consider hiring a professional for $50-$200 a year if it’s your first time forming a business.
Once you appoint a registered agent, check the availability of your business name, and then you can proceed to register your business with the state.
Forming an LLC in Iowa requires you to file Articles of Organization while forming a corporation requires you to file Articles of Incorporation. You can file either form online after creating an account with the Iowa SoS website, or file by mail. The fee for filing either form is $50.
7. Acquire federal and state tax IDs
Now you should obtain a Federal Employer Identification Number (EIN), which is like a social security number for a business and allows you to open bank accounts, handle payroll, and file taxes.
Each state has its own laws and taxes regarding businesses. Visit the Iowa Department of Revenue: Starting a Business page to find out which state taxes are applicable to your business and register for them.
8. Open business banking and credit accounts
Opening a bank account for your business is crucial because it allows you to separate company assets from your personal assets, and makes filing taxes a lot easier. This is a recommended step, even if you are operating a sole proprietorship.
It’s also a wise idea to obtain a credit card for your business because it will help you isolate business expenses and build up credit for your company, which may help in securing investment in later stages.
Banks operating in Iowa good for small businesses
9. Get the necessary licenses and permits
Depending on the type of business you are opening, you may need to apply for a number of permits and licenses to operate legally. For example, a restaurant will need a liquor license, and a pawn shop will need a reseller’s license. The paperwork may prove a hassle, but it’s a necessary ordeal that will protect you from fines, lawsuits, and other legal hazards.
Iowa doesn’t have a general business license, however many professions in the state are regulated and require special licenses and/or permits. Visit this page for more information, or here to perform a business license search.
10. Choose a location
Whether you are running an online business or opening a restaurant, location is everything. Be aware of the demographics of the neighborhood or town that you are considering: Are the local residents likely to visit your business? Will nearby competitors take a share of your potential profits?
Des Moines, Iowa’s capital and largest city, is a great small city with a high quality of life and a nurturing environment for small businesses that has received high rankings in many publications. Iowa City, home of the University of Iowa, and Ames, home of Iowa State University, are fine alternative locations for opening many types of businesses, as well.
11. Get insured
No matter what type of business you form, buying insurance coverage to protect yourself in the case of property damage or legal action is a good idea. In fact, businesses with employees are required by the federal government to have two types of insurance, while others are strongly encouraged or required at the state level, depending on your business type. Consult with a licensed insurance agent to find out which types of insurance you should get.
Required forms of insurance:
- Workers’ compensation: Covers medical costs and disability benefits if an employee is injured or becomes ill on the job.
- Unemployment insurance: Provides benefits to workers after a loss of job through no personal fault.
Recommended forms of insurance:
- Professional liability insurance: Covers losses as a result of property damage, medical expenses, libel, slander, and negligence claims.
- Commercial property insurance: Covers property damage to business owned properties and possessions as a result of fire, theft, or storm.
- Disability insurance: Provides short-term benefits for employees suffering an illness or injury. Required in certain states such as California, New York, and Hawaii.
12. Develop an internet presence
Establishing an identity on the web is an important investment in a business’s future development. Here are some key steps in the process:
- Register a domain name for a company website (You can use domain.com, Bluehost, GoDaddy.com, Namecheap.com). Design the website and fill it with content.
- Create profiles on the popular social media services (Twitter, Facebook, Instagram)
- Register a Google profile for your business
- Create accounts on review sites such as Yelp, Google Reviews, and TripAdvisor
Iowa small business resources
- Iowa Secretary of State: Fast track Filing – Register your LLC or corporation online.
- Iowa Department of Revenue: Starting a Business – Learn about and register for state taxes that apply to certain businesses, such as the Consumer’s Use Tax and Retailer’s Use Tax. IASourceLink: Business License Information – Provides information on the various types of licenses issued by the Iowa state government.
- Iowa Small Business Development Center – A great resource for aspiring entrepreneurs in the state. Take advantage of the SBDC’s educational resources and counseling opportunities.
- SBA: Iowa – The Iowa District Office of the Small Business Administration located in Des Moines and Cedar Rapids.
- Iowa Economic Development: Targeted Small Business Program – A program aiding women, minorities, and disabled individuals with starting their own business through loans and exclusive events.
- NFIB: Iowa Small Business Association – The Iowa branch of the nationwide small business advocacy group.
- East Central Iowa | SCORE – The east-central Iowa chapter of the nation’s leading business mentoring network, which won the Chapter of the Year Award.
- Iowa Startup Accelerator – An intensive 12-month accelerator program based in Cedar Rapids offering a host of educational tools, working space, and resources.
- West Des Moines Business Incubator – A non-profit incubator program founded in 2009 that provides affordable office space, educational workshops, and mentoring to Des Moines-area startups.