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The small population of the state’s Mount Rushmore means it’s overflowing with competitive opportunities. South Dakota has a business-friendly climate, low cost of living, and great tax incentives. Whether you choose to hang your shingle east or west of the Missouri River, here are eight steps to successfully starting a business in South Dakota.
- Choose a business idea
First, you need a business idea for your business in South Dakota. This is one of the most important decisions you will make as an entrepreneur. You can create a new or innovative product or discover that the business of your country lacks. Here are two important points when considering ideas for your project:
- Who is your customer? A business is successful as long as it understands its target customers. Will you be selling to other businesses (B2B) or directly to consumers? Will you be selling online, through a brick-and-mortar store, or a combination of the two? Research potential customers, study your competition, explore marketplaces that sell similar products or services (like Amazon or Wayfair), and company research methods.
- What is the value of your forecast? A business must earn more than it spends, at least in the long run. Pay attention to factors that affect your bottom line, such as pricing, packaging, distribution, collection types, and subscription options. How much do you have to sell to break even? How long will it take your business to achieve a healthy profit margin?
- Name your business
Once you have an idea for your business in South Dakota, choose a business name. A good name communicates what your business does, but it’s also attractive and memorable to customers. Here are some things to keep in mind when choosing a business name in South Dakota:
- Be the first. Your South Dakota business name must be different from any business registered in the state. Search for currently registered businesses through the South Dakota Secretary of State’s office to see if your favorite name is available.
- Keep your name. You can register your business in South Dakota for up to 120 days. The filing fee for this application is $25.
- Add and remove specific words. If you choose to form an LLC in South Dakota, your business name must contain the words “Limited Liability Company”, “Limited Liability Company”, “LLC” or “LC”. The company name must include the words “Company”, “Company”, “Incorporated”, “Incorporated” or an abbreviation thereof. No company name can have any issue that would challenge it with a federal or state agency.
- Get a DBA. Think of DBA, or “doing business as,” as a nickname or assumed name for your business. If you want to operate under a different name than the one you are registered with in the state, file a DBA application for a $10 fee. Your data protection administrator must comply with all South Dakota business naming laws.
- Secure your domain name and social media credentials. A unique name is important for online marketing. Buy a domain name (URL) and set up a social media username that matches your business name (or DBA) to make it easier for customers to find you online.
- Create a business plan
Just like a road map and travel itinerary, a solid business plan is essential to building a successful business. Your plan should reflect your overall business goals and give stakeholders (and potential investors) a clear idea of how you plan to operate in the short and long term. Here are the essentials of a good business plan:
- Summary and information statement
- A detailed description of the company
- Market analysis
- Your schedule
- List of products or services
- Customer segmentation reports
- Marketing plan
- Quick and easy planning
- Financial planning
You can write your plan using free templates tailored to your specific business needs, or write your own from scratch, looking at sample plans for inspiration.
- Choose a business plan and start
Before starting your business in South Dakota, decide on a business plan. There are four main forms in South Dakota: sole proprietorships, general partnerships, limited liability companies, and corporations. Each offers certain advantages and disadvantages when it comes to tax treatment and debt protection. Note that the tax rate between the types of corporations is subject to federal income tax, while South Dakota does not levy a corporation tax or income tax). Here’s how the different methods differ:
- Private business. It is a single-dominant, non-domestic trade name in the United States. Sole proprietors enjoy a “passive” tax rate, which means they are taxed only once on the sole proprietor’s income. However, tenants are not considered the only legal entity in the business, which means that the owner will be responsible for many of the debts and violations they cause. A sole proprietorship is a great option if your business has low risk, low capital and no employees.
- International relations. Two or more joint owners, called “partners”. Like sole proprietorships, partnerships are federally run corporations. They are not considered as a separate law in business ownership, which means that there is no protection of the assets of the partners from creditors and judgments.
- Company LLC. Limited liability companies (LLCs) combine the tax benefits of sole proprietors and partnerships with the liability shield of a corporation. In other words, LLC owners (or “members”) benefit from indirect taxes and keep their personal assets out of the hands of creditors and documents. An LLC is considered a business entity and often carries more liability and documentation than a sole proprietorship in a partnership, although it is still smaller than a corporation. Note that South Dakota LLCs are not subject to state business taxes.
- Company. A company can offer shareholders, who then have a stake in the business, making it easier to find money and raise money. Companies are recognized by their ownership, which protects the assets of the owners in case of bankruptcy or legal action. However, because of this added security, South Dakota corporations are subject to corporate income tax at the federal level, meaning that business sales are taxed at the corporate level and on the income of the owners. and its owners. As with LLCs, South Dakota corporation owners are not subject to state corporation tax and personal income tax.
Get a Federal Employer Identification Number (EIN)
Once you have determined the legal requirements of your South Dakota business, apply for a free Federal Employer Identification Number (EIN) through the Internal Revenue Service (IRS) website. The IRS assigns this nine-digit number to businesses for tax purposes. (Think of it as a Social Security number for businesses.) Having an EIN can also help secure credit and card accounts for business expenses.
Incorporation in South Dakota
To organize your business in South Dakota, you may need to file a form with the Secretary of State’s office, especially if you are forming an LLC or corporation. Here’s how to apply in South Dakota:
- Company. To establish a corporation in South Dakota, file a form of incorporation online, free of charge, or by paper (mail or in person), for a fee of $15. Companies must also file an annual return with the Secretary of State’s Office, which you can do online, for free, or by paper (mail or in person), for $15.
- Company LLC. To form an LLC in South Dakota, file an incorporation report online, for free, or by paper (mail or in person), for a $15 fee. LLCs must file an annual return, which you can do online, for free, or by paper (mail or in person) for $15.
You can also open a business bank account. Although not required, the IRS recommends that all small businesses maintain separate business bank accounts from their owners.
- Obtain business licenses and permits
All taxable businesses in South Dakota must have a tax license issued by the South Dakota Department of Revenue, even if you do not have a physical location in the state. That is, if you sell or facilitate transfers from South Dakota, even if your business is entirely online, you must obtain this tax license. You may also need to obtain a special license to sell certain products or services in the state, such as alcohol, tobacco products, wholesale, and gasoline. You can get these licenses from the Ministry of Revenue website.
- Explore Business Insurance Options in South Dakota
Unexpected losses can affect small businesses. Although some business entities such as corporations and LLCs offer personal property protection, you can still purchase insurance to cover goods, vehicles, and other assets. Types of business insurance you may need or want to consider include:
- Workers’ compensation coverage. Workers’ compensation covers injuries that employees may sustain on the job. South Dakota is one of the few states that does not require businesses to carry this insurance, but it is still a good investment for any job and employee.
- General liability insurance. General liability insurance covers large financial losses, such as those resulting from property damage or legal fees. If you want to lease an office or storefront in South Dakota, your lease may require you to have comprehensive liability insurance.
- product liability insurance. Product liability coverage protects your business against legal claims for personal injury or property damage related to products you sell, manufacture or repair.
- professional indemnity insurance. Professional indemnity insurance protects against financial loss from malpractice claims, which may be brought against companies that provide consulting or qualified services, such as law firms or health care practices.
- Business Owner Policy. Think of a business owner’s policy, or BOP, as a small business insurance package. The definitions vary, but BOP usually includes general liability insurance, business property insurance, and workers’ compensation.
The federal Small Business Administration also maintains a list of what your new South Dakota business insurance policy may require.
- Understand financial matters
In addition to purchasing insurance, you will need to make other investments to start your business in South Dakota. These costs may include renting a physical retail space, getting a well-designed business website, or paying for advertising, equipment, or accounting software. You may need lawyers, accountants or other professionals to support your efforts. You will also be responsible for special taxes such as unemployment insurance and state and federal taxes. Fortunately, there are business financing options to help cover startup costs, such as Shopify Capital, which allows you to be reimbursed by a percentage of your store’s daily sales.
- Your market
Marketing means developing customer interest and finding out what works to turn them into loyal customers. A solid business plan for your South Dakota small business may include the following:
- Market research. Market research is the key to identifying and penetrating your target market, giving you insight into how to compete and stand out in your business environment.
- Advertising. Spread the word through paid advertising, online or in print. Do it yourself or hire a company to design and post ads on your behalf.
- Social media. Today, every business must manage social media accounts on multiple platforms, including Facebook, Instagram, YouTube and TikTok. Always publish content that matches your brand identity and work to increase customer engagement.
- Public relations. Identify and develop media relationships, both in South Dakota and across the United States, to help you increase your exposure.
Customer loyalty. Build good relationships with customers so they keep coming back and spread the word to friends, family and colleagues.