Once considered an insignificant flyover state, North Dakota’s energy sector boom of the past 15 years has helped it become the fastest-growing state in the nation, in terms of housing units, since the 2010 census. Along with its remarkable growth come myriad opportunities for entrepreneurs in a range of sectors.
In the interest of aiding entrepreneurs in their budding ventures, we’ve put together this comprehensive guide to starting a business in the Peace Garden State. We’ll guide you through each step of the process: drafting a business plan, seeking funding sources, registering with the state, applying for licenses and permits, and more, while providing essential small business resources that’ll give you a leg up on the competition.
North Dakota small business statistics at-a-glance
- 72,723 small businesses are active in North Dakota, accounting for 98.8% of businesses in the state.
- 210,948 North Dakotans are employed by small businesses, which is 57.7% of the state’s workforce.
- Accommodation and food services is the leading small business employer industry in North Dakota, followed by retail trade, and health care and social assistance.
- North Dakota was ranked 11th in the nation in terms of affordability by U.S. News, and the 6th most affordable in housing prices.
- Tax Foundation ranked North Dakota 16th in its 2020 Business Tax Climate Index, while the state ranked 3rd in property taxes.
- 79.06% of North Dakota startups survive beyond their first year.
- North Dakota startups create 4.85 new jobs in their first year, on average.
- North Dakota has experienced an 18.9% growth in housing units since April 1, 2010.
Starting a business in North Dakota 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 North Dakota?
- Who is your target market?
- Do existing businesses in North Dakota 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 North Dakota 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 North Dakota.
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. North Dakota’s investment community is not among the largest, however, there are several investment groups operating in the state.
North Dakota Angel Investors and VCs
- (701) Angel Fund – An angel group founded in 2015 that counts 15 companies in its investment portfolio, to date.
- Dakota Venture Group – A venture capital firm based in Grand Forks, North Dakota headed by the University of North Dakota students that is the first entirely student-run VC fund in the nation.
- Arthur Ventures – A North Dakota investment group specializing in B2B software startups.
- Linn Grove Ventures – A Fargo-based investment firm established in 2007 with a focus on agriculture, food production, animal and medical health companies.
Additional Investor Resources
- AngelList: North Dakota Angel Investors – A broad directory of 4,918 angel investors seeking early-stage funding opportunities in the state.
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
Once you’ve settled on a business entity, it’s time to take the leap and register your business with the state. Depending on whether you are forming a sole proprietorship, LLC, or corporation, this process will take different paths.
For sole proprietorships
The only legal requirement for sole proprietors in North Dakota is registering a trade name if you are using a name separate from your legal name to do business.
First, run a business name search with the Secretary of State database to confirm that your chosen name is available for use in the state. Next, submit an application to register a trade name with the North Dakota Secretary of State. This can be done online through the state’s FirstStop portal.
For LLCs and corporations
To create either of these entities, you must first appoint a registered agent to handle the service of process and other government correspondence. Those with a physical address in the state can be their own registered agent, although hiring a professional is affordable ($50-$200 a year) and recommended to ensure that the process goes smoothly.
Next, perform a search to verify that your business name, or one similar to it, is not already taken. After you designate a registered agent and verify that your business name is available, you’re ready to submit the final paperwork to create your North Dakota business.
- To form an LLC in North Dakota, you must file Articles of Organization with the Secretary of State. Articles may be filed online using the state’s FirstStop portal, or via postal mail. The filing fee is $135.
- To form a corporation in North Dakota, you must file Articles of Incorporation with the Secretary of State. You can do this online using FirstStop, by fax, or through the mail. The filing fee is $100.
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. The North Dakota state government hosts a convenient, easy-to-use portal for new business owners in the state that details the state-levied taxes that may apply to your business, along with instructions on how to create a new tax account and e-file.
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 North Dakota good for small businesses
- Western State Bank
- Dakota Community Bank and Trust National Association
- Security First Bank of North Dakota
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.
Visit the North Dakota State University page on business licenses for a full list of occupational licenses and permits issued by state agencies that you may need to acquire to operate legally, depending on the nature of your business.
Once you’re familiar with the licenses you’ll need, you can use FirstStop–the same online service used for registering a new business–to apply for occupational licenses.
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?
North Dakota’s two largest cities-Fargo and Bismarck–have experienced significant growth in the past decade while maintaining a high quality of life for residents. New incubators and coworking spaces have popped up in the cities, including Bismarck’s IDEA Center and Fargo’s NDSU Startup Incubator, making both communities fine locations to start a business in.
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
North Dakota small business resources
- North Dakota Secretary of State: FirstStop – Register your new business or trade name, and apply for business licenses.
- North Dakota Tax: New Businesses – Learn everything there is to know about North Dakota business taxes. You can also create a tax account and file online through the site.
- North Dakota State University: Business Reports, Forms, and Licenses Required in the State of North Dakota – An extensive list of licenses, permits, and certifications issued by state agencies.
- SCORE of North Dakota – A directory of the leading U.S. business mentoring network’s North Dakota chapters.
- North Dakota Small Business Development Center – A statewide organization dedicated to aiding entrepreneurs through no-cost consultation and connection to funding sources.
- Emerging Prairie – An organization focused on boosting North Dakota’s entrepreneurial ecosystem through events, educational programs, and meetups.
- IDEA Center – An expansive incubator and coworking space located in Bismarck.
- NDSU Startup Incubator – A 50,000 square foot facility opened in 2007 near the NDSU campus offering myriad benefits and services for client companies.
- University of North Dakota Center for Innovation – A large, university-affiliated incubator providing office space, coaching, and connection to funding sources to tenants of the program.
- Lake Agassiz Development Group – A Fargo-based organization dedicated to assisting area entrepreneurs by connecting them to financial resources.