Starting a Business in Minnesota – A Comprehensive Guide

How to Start a Business in Minnesota

Have a promising business idea? Consider starting your business in Minnesota. This blog will be an invaluable guide for anyone aspiring to start a business in the North Star State. We’ve simplified the process and provided detailed, practical information to set you on the right track to entrepreneurship.

Scenic view of lake in Minnesota to support article on starting a businessTop Two Benefits of Starting a Business in Minnesota:

  1. Economic Stability: Minnesota consistently ranks among the top states for business thanks to its stable economy. The state has a diverse economic base, with key industries like healthcare, manufacturing, and retail trade providing a fertile ground for various business ideas to flourish.
  2. Supportive Infrastructure: From start-up-friendly policies to a wealth of resources for entrepreneurs, Minnesota fosters a supportive business climate. The state offers various financial incentive programs, and organizations such as the Minnesota Small Business Development Centers provide guidance and help to new business owners.
    .

Top Two Challenges When Starting a Business in Minnesota:

  1. Regulatory Compliance: Like any other state, Minnesota has its own regulations and compliance standards that businesses must adhere to. Navigating these legal requirements can be a complex process for new entrepreneurs.
  2. High Taxation: While the state offers various advantages, Minnesota is known for its relatively high tax rates. These can challenge start-ups in their initial stages and trying to optimize expenses.

Interestingly, despite the challenges, Minnesota ranked as one of the top states for business start-ups in recent years. If you’re ready to make your business idea a reality, you’re in the right place. Continue reading for more detailed guidance on how to set up a business in Minnesota.

Regulatory Factors and Taxes in Minnesota

When starting a business in Minnesota, one key consideration is understanding the state’s tax policies. Minnesota imposes several taxes that can impact your business operations, including corporate income, sales, and property taxes.

Minnesota levies a corporate income tax rate, ranging from 9.8% to 12%, depending on the business’s taxable net income. It’s essential to account for this tax when planning your business finances.

Sales tax is another crucial consideration. The state sales tax in Minnesota is 6.875%, but local taxes can also apply, potentially raising the total sales tax rate. If your business involves selling goods or specific services, you’ll need to factor this into your pricing strategies.

Property taxes in Minnesota are primarily a local matter and vary by county. If you plan to buy or lease a property for your business, these taxes can significantly impact your costs. It’s advisable to research the property tax rates in your desired location before committing to any real estate agreements.

Understanding these tax obligations is critical when starting a business in Minnesota. By incorporating these taxes into your initial business plan, you can avoid surprises down the road and ensure a smooth start to your business operations.

How do I Choose a Business Structure?

There are five primary types of businesses. Each type of business entity is described below.

Sole Proprietorship

A business owned and operated by one individual with no legal distinction between the business and the owner. The owner is personally responsible for all debts and liabilities of the business. Most small business owners in Minnesota use this business type.

Limited Liability Company (LLC)

A flexible business organization that combines the liability protection of a corporation with the tax benefits and simplicity of a partnership. Owners of an LLC are called members, and their assets are typically protected from the debts and liabilities of the business. You have the flexibility to define many aspects of how your business will work in your Articles of Organization.

S-Corporations

A type of corporation allows for pass-through taxation, meaning that profits and losses are passed through to the shareholders and reported on their tax returns. S-Corporations are limited to 100 shareholders and must meet specific eligibility requirements. An S-Corp can be particularly advantageous if the founders or investors have other income. If the business doesn’t generate a profit in any year, the shareholders can use the losses from a tax perspective.

C-Corporations

A separate legal entity from its owners (shareholders) means that the corporation can enter into contracts, own assets, and sue or be sued. C-Corporations are subject to double taxation, meaning that the corporation and the shareholders are taxed on profits.

A Note About S-Corps and C-Corps

For both S-Corporations and C-Corporations, your business formation documents will include Articles of Incorporation, sometimes called a Corporate Charter. The specific requirements and format of Articles of Incorporation can vary by jurisdiction. It is advisable to consult with a business attorney or online legal service such as Legal Zoom to ensure compliance with local laws and regulations when drafting and filing these documents.

Limited Liability Partnership (LLP)

A partnership that limits the personal liability of its partners. LLPs are typically used by professional service providers such as lawyers, accountants, and architects. Each partner is protected from the other partners’ wrongful acts, omissions, and negligence, but they may still be personally liable for their actions.

Distribution of Businesses

Business Type Percent of Businesses in Minnesota
Sole Proprietorship 50-55%
Limited Liability Company (LLC) 20-25%
S-Corporation 10%
C-Corporation 5%
Limited Liability Partnership (LLP) 3%

The percentages may differ each year based on the industry and location. Also, the information covers businesses registered in states other than Minnesota but operating within the state.

What is an Employer Identification Number – EIN?

Definition of an EIN or Employer Identification Number

An Employer Identification Number (EIN) is a unique nine-digit code the IRS assigns to businesses in the United States. This number simplifies tax administration for businesses. The EIN is also called the Federal Tax Identification Number or the Federal Employer Identification Number.

Do I Need One to Start a Business in Minnesota?

If you plan to start a business in Minnesota, an EIN is typically required. This identification number becomes essential when establishing a business entity, employing personnel, applying for business licenses, or setting up a business bank account.

How Do I Get One?

Applying for an EIN can be done directly via the IRS website. Alternatively, you can submit Form SS-4 to the IRS via mail or fax. The online method is swift and convenient, as you receive the EIN immediately after completing the application. If you need additional assistance or want further information, you can contact the IRS at 1-800-829-4933 or visit their website at https://www.irs.gov/businesses/small-businesses-self-employed/employer-id-numbers.

How to Start a Business in Minnesota – Important Registrations

Registering My Business Name

If you’re planning to start a business in Minnesota, there are necessary steps you must take. First, register your business name with the Secretary of State’s office. They can be contacted at (651) 296-2803 or visit their website at https://www.sos.state.mn.us/.

Registering a DBA (Doing Business As) If Relevant

If your business operates under a name different from your officially registered business name, a DBA or “Doing Business As” registration with the Secretary of State’s office is required. Minnesota has 87 counties, each with unique local governmental services and regulations. You can access a complete directory of Minnesota’s local governments on this website: https://mn.gov/portal/government/local/. It provides contact details for each county, facilitating your understanding of the local rules or requirements.

Registering for Payroll, State Payroll Taxes, and Unemployment Insurance

Setting up an account with Minnesota Revenue is necessary for Minnesota’s payroll taxes and unemployment insurance. You can visit their website at https://www.revenue.state.mn.us/ or contact them at (651) 296-3781.

Registering for Worker’s Compensation Insurance

Minnesota businesses must also obtain worker’s compensation insurance. This insurance can be procured from a licensed provider, or if you employ a payroll service, they should also be able to provide worker’s compensation.

Registering for Collecting Sales Tax

Businesses in Minnesota must register to collect sales tax. This registration can be accomplished on the Minnesota Revenue website: https://www.revenue.state.mn.us/.

Registering for Income Tax

For corporate income state tax, businesses in Minnesota should register through the Minnesota Revenue. They can be contacted at (651) 296-3781 or visit their website at https://www.revenue.state.mn.us/.

Registering to Pay Property Tax

Should your business need to pay property tax in Minnesota, contact the assessor’s office in your local county. For additional information, visit the Minnesota Department of Revenue website: https://www.revenue.state.mn.us/.

Permits for Starting a Business in Minnesota

Do I Need a Business Permit to Operate a Business in Minnesota?

State capitol of Minnesota where business startup laws are madeAt the State Level: Certain Minnesota businesses need state-level permits or licenses. The Minnesota Department of Employment and Economic Development (DEED) offers resources to help identify these requirements. You can contact DEED at (651) 259-7114 or visit their website at https://mn.gov/deed/business/starting-business/ for more information.

Check With Your City: Many cities in Minnesota require businesses to obtain local permits or licenses. The specific requirements can vary greatly depending on the city and the type of business. It’s crucial to contact your city clerk’s office or local government to find out about any necessary permits or licenses. Most city government websites also provide relevant information.

Check With Your Country: Some businesses regulated by a federal agency (like selling alcohol, broadcasting, or transportation) must obtain federal permits or licenses. You can find more information on federal business licenses and permits on the U.S. Small Business Administration (SBA) website at https://www.sba.gov/business-guide/launch-your-business/apply-licenses-permits.

Check With Your County: Certain counties in Minnesota also require specific permits or licenses, especially for businesses that affect public health or the environment. You should contact your county’s business license department or visit their website for additional requirements. https://mn.gov/deed/business/starting-business/legal-regulatory/

How do I learn about any special permits I need for my business?

Specialized businesses often have unique permit requirements. If your business involves regulated activities like selling food, offering personal services, or conducting construction, you should consider these requirements.

The Minnesota Department of Health (651-201-5000, https://www.health.state.mn.us/) oversees health-related businesses, and the Minnesota Department of Labor and Industry (651-284-5005, https://www.dli.mn.gov/) oversees construction and labor-intensive industries. Both these departments provide industry-specific guidance on licensing and permit requirements.

For businesses that impact the environment, the Minnesota Pollution Control Agency (651-296-6300, https://www.pca.state.mn.us/) can provide advice on necessary permits and environmental regulations.

Trade associations and chambers of commerce can give industry-specific permits and regulation information. Consulting with a business lawyer can also help ensure you’ve covered all bases.

Financing Options for Entrepreneurs in Minnesota

Raising capital is often one of the most challenging aspects of starting a new business. Entrepreneurs can explore other financing options rather than exhausting personal assets or maxing out credit cards.

Financing a New Business

Finding reliable funding sources is crucial to fuel a business’s growth and operational costs. Entrepreneurs have a myriad of options to finance their business, including but not limited to business grants and securing investments from venture capitalists or angel investors. Performing thorough research to identify your business’s most suitable and sustainable financing options is paramount to its long-term success.

SBA Loans and Microloans

In Minnesota, the Small Business Administration (SBA) is pivotal in supporting small businesses through various loan programs, including microloans. Microloans serve as small, short-term loans that offer swift access to capital for small businesses. These loans can play a critical role in launching or expanding small businesses. For more information, visit https://smallbusinessplans.com/sba-microloans-for-small-businessess-and-startups/.

SBA Microlenders in Minnesota

Here are some SBA Microlenders in Minnesota:

African Development Center

1931 South 5th Street, Minneapolis, MN 55454

Phone: (612) 333-4772

Website: http://www.adcminnesota.org/

WomenVenture

2021 East Hennepin Avenue, Minneapolis, MN 55413

Phone: (612) 224-9540

Website: https://www.womenventure.org/

Northwest Minnesota Foundation

201 3rd Street NW, Bemidji, MN 56619

Phone: (800) 659-7859

Website: http://www.nwmf.org/

Southwest Initiative Foundation

15 3rd Avenue NW, Hutchinson, MN 55350

Phone: (800) 594-9480

Website: https://swifoundation.org/

State and Local Grants and Incentives

Minnesota’s state and local grants and incentives can support small businesses. Here are a few sources for these grants and incentives:

Minnesota Department of Employment and Economic Development (DEED)

1st National Bank Building, St. Paul, MN 55101

Phone: (651) 259-7114

Website: https://mn.gov/deed/business/financing-business/deed-programs/

Minnesota Investment Fund

Provides financing to help add new workers and retain high-quality jobs statewide.

Website: https://mn.gov/deed/business/financing-business/deed-programs/mif/

Angel Investor Groups

The Angel Investor Groups are critical in the business ecosystem, offering funding, mentorship, and strategic advice to startups and early-stage companies. These are individuals or groups of individuals who provide capital for businesses, typically in exchange for convertible debt or ownership equity.

In Minnesota, several such groups are helping drive business innovation and success. One such group is the Gopher Angels . Established in 2012, they’ve committed over $11 million in capital to businesses across various sectors. Gopher Angels encourage a culture of entrepreneurship and innovation by offering investments and mentorship to Minnesota’s startup community. You can learn more about them at their website: https://gopherangels.com/.

Another notable Angel Investor Group in Minnesota is the Sofia Fund . This group focuses explicitly on growth-stage companies with diverse leadership, particularly women-led businesses. They aim to foster a supportive environment for women entrepreneurs and are committed to driving growth and profitability in their portfolio companies. For more details, visit www.sofiafund.com.

Additionally, Twin Cities Angels is an angel investor group that provides funding for early-stage businesses in Minnesota. They offer investment capital, strategic advice, and valuable connections to early-stage companies looking to grow and expand. Their focus spans across a range of sectors, from technology to healthcare. Their contact information is available on their website: www.twincitiesangels.com.

Connecting with these Angel Investor Groups can be an excellent opportunity for startups in Minnesota. It can open doors to capital, strategic guidance, and influential networks that can significantly enhance the success and growth of a business.

Benefits of a Well-Structured Business Plan

Creating a well-structured business plan is integral to launching a successful business in Minnesota. The business plan provides a roadmap for your business operations and significantly improves your chances of securing funding from banks, investors, or grant programs in the state. This is because lenders and investors, including those in Minnesota, frequently require a detailed business plan to understand the business’s potential and growth prospects.

A well-structured business plan can be particularly beneficial for businesses in Minnesota due to the state’s unique business environment. Minnesota has a diverse economy with significant manufacturing, agriculture, retail, and healthcare sectors. A comprehensive business plan helps entrepreneurs analyze the market dynamics specific to their industry and Minnesota’s economic landscape. It helps business owners make informed decisions, identify growth opportunities, and prepare for potential challenges in the Minnesota market.

For a business to succeed in Minnesota, it is crucial to thoroughly understand the state’s business regulations, tax policies, and available local resources. This includes understanding Minnesota’s licensing requirements, sales tax policies, labor laws, and state-specific business grants and incentives. Businesses should also seek advice from local business development centers, such as the Minnesota Small Business Development Centers (MnSBDCs), which offer free business consulting to help entrepreneurs develop and implement their business plans effectively. Taking advantage of these local resources can be instrumental in creating a robust business plan tailored to Minnesota’s business environment and maximizing your business’s success potential.

Meeting Lender and Investor Expectations

Meeting the expectations of lenders and investors is a critical aspect of starting and running a successful business. Whether securing the initial capital to kickstart your business or obtaining additional funds for expansion, convincing investors and lenders of your business’s potential and viability are essential. They typically look for a business model that is sustainable, profitable, and has a competitive edge. Hence, demonstrating these elements can make your business an attractive investment proposition.

Moreover, it’s crucial to establish and maintain a positive track record. This includes demonstrating financial solid management, keeping a clean credit history, and showing consistent business growth and profitability. Remember that communication is key. Regularly updating lenders and investors about your business’s progress, whether the news is good or bad, builds trust and shows that you value their involvement. Lastly, showing passion and dedication towards your business resonates with investors and lenders, as it signals your commitment to overcome challenges and steer your business towards success.

Business Plan Templates and Resources

Where Can I Find a Mentor to Help Me Succeed?

The advantage of a knowledgeable mentor who can share insights, relevant strategies, and guidance customized for Minnesota’s unique business landscape cannot be understated.

Several organizations and resources in Minnesota are dedicated to encouraging the growth and success of its entrepreneurs. Here are a few noteworthy options:

  1. Minnesota SCORE: Associated with the U.S. Small Business Administration (SBA), Minnesota SCORE offers complimentary business mentoring, cost-effective workshops, and a range of resources and tools designed to assist businesses at all stages of growth.
    Contact Info:
    Phone: (952) 938-4570
    Website: https://www.score.org/seminnesota
  2. Minnesota SBDC: Offering a wide array of services, including assistance with business plan development and financial analysis, the Minnesota Small Business Development Centers (SBDC) is a valuable asset for both new and existing businesses.
    Contact Info:
    Phone: (651)-259-7114 or (800)-657-3858
    Website: https://mn.gov/deed/business/help/sbdc/
  3. WomenVenture: This focused organization provides women entrepreneurs with actionable business development training, one-on-one counseling, and opportunities for networking and learning. Contact Info:
    Email: info@womenventure.org
    Website: https://www.womenventure.org/
  4. Minnesota Cup: Aimed at nurturing innovation and growth, this organization connects entrepreneurs through programs and events devised to inspire and equip.
    Contact Info:
    Phone: (612) 625-1551
    Website: https://carlsonschool.umn.edu/mn-cup/
  5. Forge North: As an advocate for Minnesota’s entrepreneurial community, Forge North offers learning opportunities and fosters connections to stimulate business growth and success.
    Contact Info:
    Email: info@forgenorth.com
    Website: https://forgenorth.com/

By taking advantage of these resources, entrepreneurs can acquire the essential knowledge and support needed to successfully navigate Minnesota’s business environment.

The Economy of Minnesota

Understanding the economy of Minnesota is vital when starting a business in the state. A thorough grasp of the local economic indicators, such as average household income, education level, and consumer spending, can provide valuable insights into the market environment and potential customer base.

Economic Overview

Average Household Income

The median household income in Minnesota is approximately $74,593, which is higher than the national median. This higher income level suggests a consumer base with more disposable income, which could be advantageous for businesses offering non-essential or luxury goods and services.

Average Level of Education

In Minnesota, around 93% of the population aged 25 and over have completed high school, and nearly 35% hold a bachelor’s degree or higher. These statistics reflect a highly educated populace. For businesses, this could imply a customer base that values quality and innovation and is likely open to trying new products and services.

Consumer Spending per Capita

Consumer spending per capita in Minnesota is $44,403, aligning with the state’s higher-than-average household income. This relatively high spending level indicates a vibrant business consumer market, with a population willing to spend on essential and discretionary goods.

Understanding these economic factors is critical when starting a business in Minnesota. This knowledge can assist in shaping your business plan and marketing strategy to align with local conditions and consumer behaviors. By being aware of and responding to these factors, you can position your business for success in Minnesota’s economic landscape.

Top Industries in Minnesota:

Minnesota’s economy is powered by various industries, each playing a unique role in the state’s growth and prosperity. The presence of data and statistics not only authenticates the importance of these sectors but also facilitates entrepreneurs in identifying potential business opportunities.

The healthcare and social assistance sector is the largest employer in Minnesota, accounting for 16.5% of the state’s total employment, according to data from the U.S. Bureau of Labor Statistics. This can be partly attributed to world-renowned healthcare organizations like Mayo Clinic, which employs over 40,000 people in the state, and UnitedHealth Group, one of the world’s largest healthcare companies.

In terms of manufacturing, the U.S. Census Bureau reported that Minnesota’s manufacturers shipped nearly billions worth of goods yearly. Companies in the state produce everything from food to computers and electronic products. Iconic food manufacturing companies such as General Mills and Hormel Foods have their roots deeply embedded in the state’s rich agricultural landscape.

Speaking of education, Minnesota prides itself on its educated workforce. This robust emphasis on education opens the door for businesses offering educational products, services, and technologies.

Meanwhile, agriculture continues to hold a significant spot in Minnesota’s economy. As per the Minnesota Department of Agriculture, the state is a leading producer of corn, soybeans, and hogs, with agriculture contributing $37.1 billion annually to Minnesota’s economy.

As we progress, there is increasing attention on sectors like clean energy and biotechnology. According to the Clean Jobs Midwest report, Minnesota’s clean energy sector alone employed over 61,000 people, showing a 2.3% growth from the previous year, signaling the emerging opportunities in these sectors. As these industries continue to evolve, they will likely shape the future of Minnesota’s economic landscape.

Network for Success When Starting a Business in Minnesota

  1. Identify Complementary Businesses: Identifying complementary businesses can be a strategic step in establishing a successful business in Minnesota. For instance, a software development company could partner with hardware manufacturers to offer comprehensive solutions to their clientele. Additionally, businesses in the food sector could find complementarity with packaging or distribution companies. This practice can expand a company’s reach, increase customer value, and drive innovation through collaborative efforts.
  2. Leverage Workforce Talent: Leveraging workforce talent is crucial for business success in Minnesota, particularly given the state’s strong emphasis on education. An educated workforce is often more adaptable and can bring innovative ideas. Businesses can tap into this pool of skilled professionals in the state to drive productivity and growth. The state’s robust network of universities and colleges, such as the University of Minnesota and St. Cloud State University, also offers partnership opportunities, allowing businesses to engage with the talent they might eventually employ directly.
  3. Collaborate with Industry Leaders: Collaborating with industry leaders can provide businesses in Minnesota with unique growth and learning opportunities. By forging alliances with established companies, startups and small businesses can benefit from the larger companies’ resources, market insights, and established customer base. Collaboration could take various forms, including mentorship programs, joint ventures, or strategic partnerships. The possibilities for such associations are immense in Minnesota, which houses several Fortune 500 companies such as UnitedHealth Group, Target, and Best Buy.

Workforce and Talent

Knowing the workforce demographics and the talent pool is crucial when considering setting up a business in Minnesota. This information aids in assessing the labor market, identifying the available skill sets, and defining the kind of talent your business can attract to ensure sustainable growth.

Unemployment Rate

The unemployment rate in Minnesota is 2.8%. A relatively low unemployment rate reflects a healthy and competitive labor market. This could mean businesses may need to offer more enticing benefits to secure top talent, but it also showcases a thriving economy that can support the growth of new enterprises.

Minimum Wage

Minnesota has a two-tiered minimum wage system. As of 2021, large employers with an annual gross revenue of $500,000 or more must pay a minimum wage of $10.59 per hour. Smaller employers with an annual gross revenue of less than $500,000 have a minimum wage rate of $8.63 per hour. Understanding the minimum wage helps businesses factor in potential labor costs.

Average Age and Demographics

The median age in Minnesota is approximately 38.1 years, with a relatively balanced gender distribution of about 50.3% females and 49.7% males. This demographic data can provide insights into the type of products or services that resonate with the local market, influencing your business model and marketing strategies.

Breakdown of People with Various Levels of Education

 

Focusing on the population aged 25 and above in Minnesota, the education level is as follows:

  • 35% hold a bachelor’s degree or higher.
  • 93% have a high school diploma or equivalent.
  • 8% have no high school diploma.

Understanding these elements of Minnesota’s workforce and talent pool is vital for any entrepreneur. It informs the business strategy and provides a glimpse into the potential customer base and preferences. By considering these aspects, businesses can align their objectives with Minnesota’s economic and demographic realities, leading to a more successful enterprise.

Top Areas of Skilled Workers for Residents of Minnesota

The labor market in Minnesota is diverse and encompasses a wide range of skills, enabling businesses to flourish in various industries. Some of the top areas where Minnesota’s residents possess expertise include healthcare, manufacturing, education, finance and insurance, and information technology.

The healthcare sector in Minnesota is robust and supported by a talented workforce of doctors, nurses, and other medical professionals. This provides opportunities for businesses in the medical field or those offering products or services related to health and wellness. Innovations in telemedicine, home healthcare services, and health tech startups could find a thriving market in Minnesota.Minnesota has a well educated workforce which is helpful to anyone starting a business

Manufacturing remains a staple industry in Minnesota, employing skilled workers in food processing, medical devices, and machinery. As a result, businesses have opportunities in supply chain management, industrial tech, and even niche sectors like sustainable or green manufacturing.

Education is another field where Minnesotans shine, creating opportunities for businesses related to educational services or professional development. With a high percentage of residents holding advanced degrees, there is a demand for continuous learning and skill enhancement programs.

Minnesota boasts a highly skilled workforce in finance and insurance, leading to opportunities for fintech startups, financial consulting firms, and insurance technology companies. This sector continually evolves, with a growing demand for services that enhance economic security and simplify money management.

Finally, Minnesota’s skilled workers in the information technology sector present opportunities for businesses in the tech industry. The state’s tech-savvy workforce can support various companies in this field, from software development firms to IT consulting, data analysis, and cybersecurity.

In conclusion, Minnesota’s diverse areas of skilled workers provide a fertile ground for various businesses. Entrepreneurs can leverage the state’s professional labor market to build successful enterprises while contributing to the region’s economic growth.

Starting a Business in Minnesota – A Comprehensive Guide

Starting a Business in Minnesota – A Comprehensive Guide

Have a promising business idea? Consider starting your business in Minnesota. This blog will be an invaluable guide for anyone aspiring to start a business in the North Star State. We’ve simplified the process and provided detailed, practical information to set you on the right track to entrepreneurship.

Scenic view of lake in Minnesota to support article on starting a businessTop Two Benefits of Starting a Business in Minnesota:

  1. Economic Stability: Minnesota consistently ranks among the top states for business thanks to its stable economy. The state has a diverse economic base, with key industries like healthcare, manufacturing, and retail trade providing a fertile ground for various business ideas to flourish.
  2. Supportive Infrastructure: From start-up-friendly policies to a wealth of resources for entrepreneurs, Minnesota fosters a supportive business climate. The state offers various financial incentive programs, and organizations such as the Minnesota Small Business Development Centers provide guidance and help to new business owners.
    .

Top Two Challenges When Starting a Business in Minnesota:

  1. Regulatory Compliance: Like any other state, Minnesota has its own regulations and compliance standards that businesses must adhere to. Navigating these legal requirements can be a complex process for new entrepreneurs.
  2. High Taxation: While the state offers various advantages, Minnesota is known for its relatively high tax rates. These can challenge start-ups in their initial stages and trying to optimize expenses.

Interestingly, despite the challenges, Minnesota ranked as one of the top states for business start-ups in recent years. If you’re ready to make your business idea a reality, you’re in the right place. Continue reading for more detailed guidance on how to set up a business in Minnesota.

Regulatory Factors and Taxes in Minnesota

When starting a business in Minnesota, one key consideration is understanding the state’s tax policies. Minnesota imposes several taxes that can impact your business operations, including corporate income, sales, and property taxes.

Minnesota levies a corporate income tax rate, ranging from 9.8% to 12%, depending on the business’s taxable net income. It’s essential to account for this tax when planning your business finances.

Sales tax is another crucial consideration. The state sales tax in Minnesota is 6.875%, but local taxes can also apply, potentially raising the total sales tax rate. If your business involves selling goods or specific services, you’ll need to factor this into your pricing strategies.

Property taxes in Minnesota are primarily a local matter and vary by county. If you plan to buy or lease a property for your business, these taxes can significantly impact your costs. It’s advisable to research the property tax rates in your desired location before committing to any real estate agreements.

Understanding these tax obligations is critical when starting a business in Minnesota. By incorporating these taxes into your initial business plan, you can avoid surprises down the road and ensure a smooth start to your business operations.

How do I Choose a Business Structure?

There are five primary types of businesses. Each type of business entity is described below.

Sole Proprietorship

A business owned and operated by one individual with no legal distinction between the business and the owner. The owner is personally responsible for all debts and liabilities of the business. Most small business owners in Minnesota use this business type.

Limited Liability Company (LLC)

A flexible business organization that combines the liability protection of a corporation with the tax benefits and simplicity of a partnership. Owners of an LLC are called members, and their assets are typically protected from the debts and liabilities of the business. You have the flexibility to define many aspects of how your business will work in your Articles of Organization.

S-Corporations

A type of corporation allows for pass-through taxation, meaning that profits and losses are passed through to the shareholders and reported on their tax returns. S-Corporations are limited to 100 shareholders and must meet specific eligibility requirements. An S-Corp can be particularly advantageous if the founders or investors have other income. If the business doesn’t generate a profit in any year, the shareholders can use the losses from a tax perspective.

C-Corporations

A separate legal entity from its owners (shareholders) means that the corporation can enter into contracts, own assets, and sue or be sued. C-Corporations are subject to double taxation, meaning that the corporation and the shareholders are taxed on profits.

A Note About S-Corps and C-Corps

For both S-Corporations and C-Corporations, your business formation documents will include Articles of Incorporation, sometimes called a Corporate Charter. The specific requirements and format of Articles of Incorporation can vary by jurisdiction. It is advisable to consult with a business attorney or online legal service such as Legal Zoom to ensure compliance with local laws and regulations when drafting and filing these documents.

Limited Liability Partnership (LLP)

A partnership that limits the personal liability of its partners. LLPs are typically used by professional service providers such as lawyers, accountants, and architects. Each partner is protected from the other partners’ wrongful acts, omissions, and negligence, but they may still be personally liable for their actions.

Distribution of Businesses

Business Type Percent of Businesses in Minnesota
Sole Proprietorship 50-55%
Limited Liability Company (LLC) 20-25%
S-Corporation 10%
C-Corporation 5%
Limited Liability Partnership (LLP) 3%

The percentages may differ each year based on the industry and location. Also, the information covers businesses registered in states other than Minnesota but operating within the state.

What is an Employer Identification Number – EIN?

Definition of an EIN or Employer Identification Number

An Employer Identification Number (EIN) is a unique nine-digit code the IRS assigns to businesses in the United States. This number simplifies tax administration for businesses. The EIN is also called the Federal Tax Identification Number or the Federal Employer Identification Number.

Do I Need One to Start a Business in Minnesota?

If you plan to start a business in Minnesota, an EIN is typically required. This identification number becomes essential when establishing a business entity, employing personnel, applying for business licenses, or setting up a business bank account.

How Do I Get One?

Applying for an EIN can be done directly via the IRS website. Alternatively, you can submit Form SS-4 to the IRS via mail or fax. The online method is swift and convenient, as you receive the EIN immediately after completing the application. If you need additional assistance or want further information, you can contact the IRS at 1-800-829-4933 or visit their website at https://www.irs.gov/businesses/small-businesses-self-employed/employer-id-numbers.

How to Start a Business in Minnesota – Important Registrations

Registering My Business Name

If you’re planning to start a business in Minnesota, there are necessary steps you must take. First, register your business name with the Secretary of State’s office. They can be contacted at (651) 296-2803 or visit their website at https://www.sos.state.mn.us/.

Registering a DBA (Doing Business As) If Relevant

If your business operates under a name different from your officially registered business name, a DBA or “Doing Business As” registration with the Secretary of State’s office is required. Minnesota has 87 counties, each with unique local governmental services and regulations. You can access a complete directory of Minnesota’s local governments on this website: https://mn.gov/portal/government/local/. It provides contact details for each county, facilitating your understanding of the local rules or requirements.

Registering for Payroll, State Payroll Taxes, and Unemployment Insurance

Setting up an account with Minnesota Revenue is necessary for Minnesota’s payroll taxes and unemployment insurance. You can visit their website at https://www.revenue.state.mn.us/ or contact them at (651) 296-3781.

Registering for Worker’s Compensation Insurance

Minnesota businesses must also obtain worker’s compensation insurance. This insurance can be procured from a licensed provider, or if you employ a payroll service, they should also be able to provide worker’s compensation.

Registering for Collecting Sales Tax

Businesses in Minnesota must register to collect sales tax. This registration can be accomplished on the Minnesota Revenue website: https://www.revenue.state.mn.us/.

Registering for Income Tax

For corporate income state tax, businesses in Minnesota should register through the Minnesota Revenue. They can be contacted at (651) 296-3781 or visit their website at https://www.revenue.state.mn.us/.

Registering to Pay Property Tax

Should your business need to pay property tax in Minnesota, contact the assessor’s office in your local county. For additional information, visit the Minnesota Department of Revenue website: https://www.revenue.state.mn.us/.

Permits for Starting a Business in Minnesota

Do I Need a Business Permit to Operate a Business in Minnesota?

State capitol of Minnesota where business startup laws are madeAt the State Level: Certain Minnesota businesses need state-level permits or licenses. The Minnesota Department of Employment and Economic Development (DEED) offers resources to help identify these requirements. You can contact DEED at (651) 259-7114 or visit their website at https://mn.gov/deed/business/starting-business/ for more information.

Check With Your City: Many cities in Minnesota require businesses to obtain local permits or licenses. The specific requirements can vary greatly depending on the city and the type of business. It’s crucial to contact your city clerk’s office or local government to find out about any necessary permits or licenses. Most city government websites also provide relevant information.

Check With Your Country: Some businesses regulated by a federal agency (like selling alcohol, broadcasting, or transportation) must obtain federal permits or licenses. You can find more information on federal business licenses and permits on the U.S. Small Business Administration (SBA) website at https://www.sba.gov/business-guide/launch-your-business/apply-licenses-permits.

Check With Your County: Certain counties in Minnesota also require specific permits or licenses, especially for businesses that affect public health or the environment. You should contact your county’s business license department or visit their website for additional requirements. https://mn.gov/deed/business/starting-business/legal-regulatory/

How do I learn about any special permits I need for my business?

Specialized businesses often have unique permit requirements. If your business involves regulated activities like selling food, offering personal services, or conducting construction, you should consider these requirements.

The Minnesota Department of Health (651-201-5000, https://www.health.state.mn.us/) oversees health-related businesses, and the Minnesota Department of Labor and Industry (651-284-5005, https://www.dli.mn.gov/) oversees construction and labor-intensive industries. Both these departments provide industry-specific guidance on licensing and permit requirements.

For businesses that impact the environment, the Minnesota Pollution Control Agency (651-296-6300, https://www.pca.state.mn.us/) can provide advice on necessary permits and environmental regulations.

Trade associations and chambers of commerce can give industry-specific permits and regulation information. Consulting with a business lawyer can also help ensure you’ve covered all bases.

Financing Options for Entrepreneurs in Minnesota

Raising capital is often one of the most challenging aspects of starting a new business. Entrepreneurs can explore other financing options rather than exhausting personal assets or maxing out credit cards.

Financing a New Business

Finding reliable funding sources is crucial to fuel a business’s growth and operational costs. Entrepreneurs have a myriad of options to finance their business, including but not limited to business grants and securing investments from venture capitalists or angel investors. Performing thorough research to identify your business’s most suitable and sustainable financing options is paramount to its long-term success.

SBA Loans and Microloans

In Minnesota, the Small Business Administration (SBA) is pivotal in supporting small businesses through various loan programs, including microloans. Microloans serve as small, short-term loans that offer swift access to capital for small businesses. These loans can play a critical role in launching or expanding small businesses. For more information, visit https://smallbusinessplans.com/sba-microloans-for-small-businessess-and-startups/.

SBA Microlenders in Minnesota

Here are some SBA Microlenders in Minnesota:

African Development Center

1931 South 5th Street, Minneapolis, MN 55454

Phone: (612) 333-4772

Website: http://www.adcminnesota.org/

WomenVenture

2021 East Hennepin Avenue, Minneapolis, MN 55413

Phone: (612) 224-9540

Website: https://www.womenventure.org/

Northwest Minnesota Foundation

201 3rd Street NW, Bemidji, MN 56619

Phone: (800) 659-7859

Website: http://www.nwmf.org/

Southwest Initiative Foundation

15 3rd Avenue NW, Hutchinson, MN 55350

Phone: (800) 594-9480

Website: https://swifoundation.org/

State and Local Grants and Incentives

Minnesota’s state and local grants and incentives can support small businesses. Here are a few sources for these grants and incentives:

Minnesota Department of Employment and Economic Development (DEED)

1st National Bank Building, St. Paul, MN 55101

Phone: (651) 259-7114

Website: https://mn.gov/deed/business/financing-business/deed-programs/

Minnesota Investment Fund

Provides financing to help add new workers and retain high-quality jobs statewide.

Website: https://mn.gov/deed/business/financing-business/deed-programs/mif/

Angel Investor Groups

The Angel Investor Groups are critical in the business ecosystem, offering funding, mentorship, and strategic advice to startups and early-stage companies. These are individuals or groups of individuals who provide capital for businesses, typically in exchange for convertible debt or ownership equity.

In Minnesota, several such groups are helping drive business innovation and success. One such group is the Gopher Angels . Established in 2012, they’ve committed over $11 million in capital to businesses across various sectors. Gopher Angels encourage a culture of entrepreneurship and innovation by offering investments and mentorship to Minnesota’s startup community. You can learn more about them at their website: https://gopherangels.com/.

Another notable Angel Investor Group in Minnesota is the Sofia Fund . This group focuses explicitly on growth-stage companies with diverse leadership, particularly women-led businesses. They aim to foster a supportive environment for women entrepreneurs and are committed to driving growth and profitability in their portfolio companies. For more details, visit www.sofiafund.com.

Additionally, Twin Cities Angels is an angel investor group that provides funding for early-stage businesses in Minnesota. They offer investment capital, strategic advice, and valuable connections to early-stage companies looking to grow and expand. Their focus spans across a range of sectors, from technology to healthcare. Their contact information is available on their website: www.twincitiesangels.com.

Connecting with these Angel Investor Groups can be an excellent opportunity for startups in Minnesota. It can open doors to capital, strategic guidance, and influential networks that can significantly enhance the success and growth of a business.

Benefits of a Well-Structured Business Plan

Creating a well-structured business plan is integral to launching a successful business in Minnesota. The business plan provides a roadmap for your business operations and significantly improves your chances of securing funding from banks, investors, or grant programs in the state. This is because lenders and investors, including those in Minnesota, frequently require a detailed business plan to understand the business’s potential and growth prospects.

A well-structured business plan can be particularly beneficial for businesses in Minnesota due to the state’s unique business environment. Minnesota has a diverse economy with significant manufacturing, agriculture, retail, and healthcare sectors. A comprehensive business plan helps entrepreneurs analyze the market dynamics specific to their industry and Minnesota’s economic landscape. It helps business owners make informed decisions, identify growth opportunities, and prepare for potential challenges in the Minnesota market.

For a business to succeed in Minnesota, it is crucial to thoroughly understand the state’s business regulations, tax policies, and available local resources. This includes understanding Minnesota’s licensing requirements, sales tax policies, labor laws, and state-specific business grants and incentives. Businesses should also seek advice from local business development centers, such as the Minnesota Small Business Development Centers (MnSBDCs), which offer free business consulting to help entrepreneurs develop and implement their business plans effectively. Taking advantage of these local resources can be instrumental in creating a robust business plan tailored to Minnesota’s business environment and maximizing your business’s success potential.

Meeting Lender and Investor Expectations

Meeting the expectations of lenders and investors is a critical aspect of starting and running a successful business. Whether securing the initial capital to kickstart your business or obtaining additional funds for expansion, convincing investors and lenders of your business’s potential and viability are essential. They typically look for a business model that is sustainable, profitable, and has a competitive edge. Hence, demonstrating these elements can make your business an attractive investment proposition.

Moreover, it’s crucial to establish and maintain a positive track record. This includes demonstrating financial solid management, keeping a clean credit history, and showing consistent business growth and profitability. Remember that communication is key. Regularly updating lenders and investors about your business’s progress, whether the news is good or bad, builds trust and shows that you value their involvement. Lastly, showing passion and dedication towards your business resonates with investors and lenders, as it signals your commitment to overcome challenges and steer your business towards success.

Where Can I Find a Mentor to Help Me Succeed?

The advantage of a knowledgeable mentor who can share insights, relevant strategies, and guidance customized for Minnesota’s unique business landscape cannot be understated.

Several organizations and resources in Minnesota are dedicated to encouraging the growth and success of its entrepreneurs. Here are a few noteworthy options:

  1. Minnesota SCORE: Associated with the U.S. Small Business Administration (SBA), Minnesota SCORE offers complimentary business mentoring, cost-effective workshops, and a range of resources and tools designed to assist businesses at all stages of growth.
    Contact Info:
    Phone: (952) 938-4570
    Website: https://www.score.org/seminnesota
  2. Minnesota SBDC: Offering a wide array of services, including assistance with business plan development and financial analysis, the Minnesota Small Business Development Centers (SBDC) is a valuable asset for both new and existing businesses.
    Contact Info:
    Phone: (651)-259-7114 or (800)-657-3858
    Website: https://mn.gov/deed/business/help/sbdc/
  3. WomenVenture: This focused organization provides women entrepreneurs with actionable business development training, one-on-one counseling, and opportunities for networking and learning. Contact Info:
    Email: info@womenventure.org
    Website: https://www.womenventure.org/
  4. Minnesota Cup: Aimed at nurturing innovation and growth, this organization connects entrepreneurs through programs and events devised to inspire and equip.
    Contact Info:
    Phone: (612) 625-1551
    Website: https://carlsonschool.umn.edu/mn-cup/
  5. Forge North: As an advocate for Minnesota’s entrepreneurial community, Forge North offers learning opportunities and fosters connections to stimulate business growth and success.
    Contact Info:
    Email: info@forgenorth.com
    Website: https://forgenorth.com/

By taking advantage of these resources, entrepreneurs can acquire the essential knowledge and support needed to successfully navigate Minnesota’s business environment.

The Economy of Minnesota

Understanding the economy of Minnesota is vital when starting a business in the state. A thorough grasp of the local economic indicators, such as average household income, education level, and consumer spending, can provide valuable insights into the market environment and potential customer base.

Economic Overview

Average Household Income

The median household income in Minnesota is approximately $74,593, which is higher than the national median. This higher income level suggests a consumer base with more disposable income, which could be advantageous for businesses offering non-essential or luxury goods and services.

Average Level of Education

In Minnesota, around 93% of the population aged 25 and over have completed high school, and nearly 35% hold a bachelor’s degree or higher. These statistics reflect a highly educated populace. For businesses, this could imply a customer base that values quality and innovation and is likely open to trying new products and services.

Consumer Spending per Capita

Consumer spending per capita in Minnesota is $44,403, aligning with the state’s higher-than-average household income. This relatively high spending level indicates a vibrant business consumer market, with a population willing to spend on essential and discretionary goods.

Understanding these economic factors is critical when starting a business in Minnesota. This knowledge can assist in shaping your business plan and marketing strategy to align with local conditions and consumer behaviors. By being aware of and responding to these factors, you can position your business for success in Minnesota’s economic landscape.

Top Industries in Minnesota:

Minnesota’s economy is powered by various industries, each playing a unique role in the state’s growth and prosperity. The presence of data and statistics not only authenticates the importance of these sectors but also facilitates entrepreneurs in identifying potential business opportunities.

The healthcare and social assistance sector is the largest employer in Minnesota, accounting for 16.5% of the state’s total employment, according to data from the U.S. Bureau of Labor Statistics. This can be partly attributed to world-renowned healthcare organizations like Mayo Clinic, which employs over 40,000 people in the state, and UnitedHealth Group, one of the world’s largest healthcare companies.

In terms of manufacturing, the U.S. Census Bureau reported that Minnesota’s manufacturers shipped nearly billions worth of goods yearly. Companies in the state produce everything from food to computers and electronic products. Iconic food manufacturing companies such as General Mills and Hormel Foods have their roots deeply embedded in the state’s rich agricultural landscape.

Speaking of education, Minnesota prides itself on its educated workforce. This robust emphasis on education opens the door for businesses offering educational products, services, and technologies.

Meanwhile, agriculture continues to hold a significant spot in Minnesota’s economy. As per the Minnesota Department of Agriculture, the state is a leading producer of corn, soybeans, and hogs, with agriculture contributing $37.1 billion annually to Minnesota’s economy.

As we progress, there is increasing attention on sectors like clean energy and biotechnology. According to the Clean Jobs Midwest report, Minnesota’s clean energy sector alone employed over 61,000 people, showing a 2.3% growth from the previous year, signaling the emerging opportunities in these sectors. As these industries continue to evolve, they will likely shape the future of Minnesota’s economic landscape.

Network for Success When Starting a Business in Minnesota

  1. Identify Complementary Businesses: Identifying complementary businesses can be a strategic step in establishing a successful business in Minnesota. For instance, a software development company could partner with hardware manufacturers to offer comprehensive solutions to their clientele. Additionally, businesses in the food sector could find complementarity with packaging or distribution companies. This practice can expand a company’s reach, increase customer value, and drive innovation through collaborative efforts.
  2. Leverage Workforce Talent: Leveraging workforce talent is crucial for business success in Minnesota, particularly given the state’s strong emphasis on education. An educated workforce is often more adaptable and can bring innovative ideas. Businesses can tap into this pool of skilled professionals in the state to drive productivity and growth. The state’s robust network of universities and colleges, such as the University of Minnesota and St. Cloud State University, also offers partnership opportunities, allowing businesses to engage with the talent they might eventually employ directly.
  3. Collaborate with Industry Leaders: Collaborating with industry leaders can provide businesses in Minnesota with unique growth and learning opportunities. By forging alliances with established companies, startups and small businesses can benefit from the larger companies’ resources, market insights, and established customer base. Collaboration could take various forms, including mentorship programs, joint ventures, or strategic partnerships. The possibilities for such associations are immense in Minnesota, which houses several Fortune 500 companies such as UnitedHealth Group, Target, and Best Buy.

Workforce and Talent

Knowing the workforce demographics and the talent pool is crucial when considering setting up a business in Minnesota. This information aids in assessing the labor market, identifying the available skill sets, and defining the kind of talent your business can attract to ensure sustainable growth.

Unemployment Rate

The unemployment rate in Minnesota is 2.8%. A relatively low unemployment rate reflects a healthy and competitive labor market. This could mean businesses may need to offer more enticing benefits to secure top talent, but it also showcases a thriving economy that can support the growth of new enterprises.

Minimum Wage

Minnesota has a two-tiered minimum wage system. As of 2021, large employers with an annual gross revenue of $500,000 or more must pay a minimum wage of $10.59 per hour. Smaller employers with an annual gross revenue of less than $500,000 have a minimum wage rate of $8.63 per hour. Understanding the minimum wage helps businesses factor in potential labor costs.

Average Age and Demographics

The median age in Minnesota is approximately 38.1 years, with a relatively balanced gender distribution of about 50.3% females and 49.7% males. This demographic data can provide insights into the type of products or services that resonate with the local market, influencing your business model and marketing strategies.

Breakdown of People with Various Levels of Education

 

Focusing on the population aged 25 and above in Minnesota, the education level is as follows:

  • 35% hold a bachelor’s degree or higher.
  • 93% have a high school diploma or equivalent.
  • 8% have no high school diploma.

Understanding these elements of Minnesota’s workforce and talent pool is vital for any entrepreneur. It informs the business strategy and provides a glimpse into the potential customer base and preferences. By considering these aspects, businesses can align their objectives with Minnesota’s economic and demographic realities, leading to a more successful enterprise.

Top Areas of Skilled Workers for Residents of Minnesota

The labor market in Minnesota is diverse and encompasses a wide range of skills, enabling businesses to flourish in various industries. Some of the top areas where Minnesota’s residents possess expertise include healthcare, manufacturing, education, finance and insurance, and information technology.

The healthcare sector in Minnesota is robust and supported by a talented workforce of doctors, nurses, and other medical professionals. This provides opportunities for businesses in the medical field or those offering products or services related to health and wellness. Innovations in telemedicine, home healthcare services, and health tech startups could find a thriving market in Minnesota.Minnesota has a well educated workforce which is helpful to anyone starting a business

Manufacturing remains a staple industry in Minnesota, employing skilled workers in food processing, medical devices, and machinery. As a result, businesses have opportunities in supply chain management, industrial tech, and even niche sectors like sustainable or green manufacturing.

Education is another field where Minnesotans shine, creating opportunities for businesses related to educational services or professional development. With a high percentage of residents holding advanced degrees, there is a demand for continuous learning and skill enhancement programs.

Minnesota boasts a highly skilled workforce in finance and insurance, leading to opportunities for fintech startups, financial consulting firms, and insurance technology companies. This sector continually evolves, with a growing demand for services that enhance economic security and simplify money management.

Finally, Minnesota’s skilled workers in the information technology sector present opportunities for businesses in the tech industry. The state’s tech-savvy workforce can support various companies in this field, from software development firms to IT consulting, data analysis, and cybersecurity.

In conclusion, Minnesota’s diverse areas of skilled workers provide a fertile ground for various businesses. Entrepreneurs can leverage the state’s professional labor market to build successful enterprises while contributing to the region’s economic growth.

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