Starting a Business in North Dakota – A Comprehensive Guide
How to Start a Business in North Dakota
Do you have a brilliant business idea that you’re eager to bring to life? You’re in the right place. Starting a business in North Dakota could be your best decision. This blog post aims to provide practical guidance, valuable insights, and relevant facts about starting and operating a business in the Peace Garden State. From the benefits and potential challenges to how-tos and tips for success, you’ll find this a go-to resource for launching your venture in North Dakota.
Top Two Benefits of Starting a Business in North Dakota
- Favorable Business Climate: North Dakota ranks high among states with the most business-friendly environments. The state offers low business costs, including competitive tax structures and affordable commercial real estate. This favorable climate allows new businesses to grow and thrive.
- Strong Workforce: The state boasts a highly skilled and educated workforce. North Dakota’s high school and college graduation rates are among the highest in the nation, providing businesses with a reliable pool of potential employees.
Top Two Challenges When Starting a Business in North Dakota
- Market Size: North Dakota, with a population of approximately 770,000, has a relatively small market size. This means the potential customer base may be limited for certain types of businesses, especially those relying on foot traffic or local clientele.
- Climate Considerations: North Dakota’s harsh winters can pose logistical challenges. Businesses, especially those in construction, agriculture, or transportation, may face seasonal disruptions due to severe weather conditions.
Regulatory Factors and Taxes in North Dakota
Understanding the regulatory landscape and tax structure is crucial to starting a business in North Dakota. For instance, the state imposes a corporate income tax ranging from 1.41% to 4.31%, depending on North Dakota’s taxable income level. This progressive tax structure means the more income your business earns, the higher the tax rate.
The state also levies a sales tax, which can significantly impact retail businesses. The state sales tax rate in North Dakota is a flat 5%, but local municipalities can add their own sales taxes on top of this. The combined rate can be as high as 8.5% in some cities. Businesses need to factor this in when setting prices and forecasting revenue.
Further, businesses in North Dakota must also be aware of other taxes, such as the unemployment insurance tax. This tax varies but is generally between 0.1% to 9.56% on the first $37,900 in wages paid to each employee annually. There’s also a Workforce Safety & Insurance (WSI) premium, which is North Dakota’s version of workers’ compensation insurance, and the rates depend on the industry and claim history. Knowledge of these taxes will ensure your business stays compliant and is prepared for the financial obligations associated with operating in North Dakota.
How do I Choose a Business Structure?
There are five primary types of businesses. Each type of business entity is described below.
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 North Dakota 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.
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.
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
|Percent of Businesses in North Dakota
|Limited Liability Company (LLC)
|Limited Liability Partnership (LLP)
The specific distribution can also depend on the industry and specific area within the state. Always check with a legal advisor or local business expert for the most accurate and current information.
What is an Employer Identification Number – EIN?
Definition of an EIN or Employer Identification Number
An EIN is a unique nine-digit identifier the Internal Revenue Service (IRS) assigns to businesses in the United States. It serves as a Federal Tax Identification Number or Federal Employer Identification Number, streamlining business tax administration.
Do I Need One to Start a Business in North Dakota?
Acquiring an EIN is necessary when establishing a business entity, hiring employees, obtaining business licenses, or opening a business bank account in North Dakota.
How Do I Get One?
You can apply online through the IRS website, a quick and convenient method that provides you with the number immediately after completing the application. Alternatively, you can submit Form SS-4 to the IRS through mail or fax. If you require additional assistance or information, 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 North Dakota – Important Registrations
Registering My Business Name
If you’re starting a business in North Dakota, it’s essential to register your business name with the Secretary of State’s office. This step provides your business with official recognition in the state. You can contact the office at (701) 328-2900 or visit their website at https://sos.nd.gov/ .
Registering a DBA (Doing Business As) If Relevant
In North Dakota, if your business operates under a name different from the registered business name, you must register a DBA, or “Doing Business As,” with the Secretary of State’s office. North Dakota has 53 counties with unique local government services and rules.
For further details, visit this website: https://www.nd.gov/businessreg , providing information to help businesses understand local regulations and requirements.
Registering for Payroll, State Payroll Taxes, and Unemployment Insurance
To handle payroll taxes and unemployment insurance in North Dakota, creating an account with the North Dakota Job Service is necessary. The website https://www.jobsnd.com/ or the phone number (701) 328-2814 can be used to contact them.
Registering for Worker’s Compensation Insurance
North Dakota businesses are required to acquire workers’ compensation insurance. You can obtain this insurance from Workforce Safety & Insurance (WSI), North Dakota’s exclusive provider of workers’ compensation coverage If you use a payroll service , they should also be able to provide worker’s comp.
Registering for Collecting Sales Tax
Businesses in North Dakota need to register for sales tax collection. This can be completed through the North Dakota Office of State Tax Commissioner’s website: https://www.nd.gov/tax/ or call them at (701) 328-7088
Registering for Income Tax
North Dakota imposes a corporate income state tax and requires businesses to obtain a state business license through the Secretary of State’s office. You can visit their website at https://sos.nd.gov/ or call them at (701) 328-4284.
Registering to Pay Property Tax
If you have any queries regarding property tax in North Dakota, it is recommended to contact the assessor’s office in your local county. For additional information, visit the North Dakota Office of State Tax Commissioner’s website at https://www.nd.gov/tax/ .
Permits for Starting a Business in North Dakota
Do I Need a Business Permit to Operate a Business in North Dakota?
At the State Level: Certain businesses may require a state-level permit or license to operate legally in North Dakota. This often applies to specific professions or industries regulated at the state level. You can check the North Dakota Department of Commerce website for state-level license requirements: https://www.business.nd.gov/ .
Check With Your City: You may need a local business license or permit, depending on your city. Each city has its unique requirements and processes. For instance, if you’re starting a business in Fargo, you must check with the City of Fargo Business Licenses department on their website: https://fargond.gov/city-government/ or call (701) 241-1310.
Check Federal Requirements. Certain businesses regulated by federal agencies may require special permits or licenses. For example, if you’re involved in aviation, you should check with the Federal Aviation Administration. Visit the U.S. Small Business Administration’s website for a list of federal licenses and permits: https://www.sba.gov/business-guide/launch-your-business/apply-licenses-permits
Check With Your County: Lastly, verifying if you need county-specific business licenses or permits is essential. For instance, if you are doing business in Cass County, you would need to visit their website for more information: https://www.casscountynd.gov/ or contact them at (701) 241-5600.
How do I learn about any special permits I need for my business?
In addition to the resources mentioned above, there are several other avenues to explore to ensure you’ve covered all bases for your business permits.
Firstly, consider contacting a local Chamber of Commerce in North Dakota. They often provide resources and guidance to new businesses and can be particularly helpful with local permit requirements. Here’s a source to get information on the Chambers of Commerce in North Dakota: https://www.ndchamber.com/ .
Additionally, consider consulting with a lawyer or legal advisor, particularly one specializing in North Dakota’s business law. They will have in-depth knowledge of state, county, and city regulations and can help ensure you meet all necessary legal requirements.
The North Dakota Small Business Development Center (NDSBDC) is also a valuable resource. They offer tools, resources, and advisors to help guide you through starting a business, including understanding permit requirements. Visit their website at https://ndsbdc.org/ or call (701) 777-3700.
Financing Options for Entrepreneurs in North Dakota
While personal assets and credit cards might be the first avenues that come to mind when looking for funding to kickstart your business, you can consider many other financing options. Exploring these alternatives can minimize risk and ensure your business has the financial footing it needs to flourish.
Financing a New Business
Finding credible funding sources for your new business cannot be overstated. As a business, your options extend beyond just self-funding. They may include grants from federal and state agencies, investments from venture capitalists, or contributions from angel investors. Doing extensive research into your various financing options allows you to identify the best fit for your business and positions your business for long-term success.
SBA Loans and Microloans
The Small Business Administration (SBA) provides several loan programs to assist small businesses in their growth, including microloans. Microloans are small, short-term loans that offer immediate funds to small businesses, helping them promptly cater to their financial needs. They can be a great way to address any cash flow issues and sustain the day-to-day operations of your business. More information about SBA loans and microloans can be found here: https://smallbusinessplans.com/sba-microloans-for-small-businesses-and-startups/ .
SBA Microlenders in North Dakota
Here are a few SBA Microlenders serving businesses in North Dakota:
Dakota Business Lending
Address: 5630 36th Ave S, Fargo, ND 58104
Phone: (701) 293-8892
Lewis and Clark Development Group
Address: 200 N. Phillips Ave, Sioux Falls, SD 57104
Phone: (605) 978-2804
Lake Agassiz Regional Development Corporation
417 Main Avenue, Suite 201, Fargo, ND 58103
North Dakota Development Fund
Address: 1600 E Century Ave #2, Bismarck, ND 58503
Phone: (701) 328-5300
State and Local Grants and Incentives
North Dakota offers several state and local grants and incentives to aid small businesses in their initial stages or help them expand their operations.
- North Dakota Innovation Business Grant (BIG) : A matching grant to support high-risk early-stage businesses with the commercialization of innovative products and processes.
- PACE Fund: The program can help a startup business lower its land, building, or equipment loan interest rate. More information can be found on their website
Angel Investor Groups
Angel investor groups are an invaluable resource for new businesses. These individuals or groups provide capital for startups, usually in exchange for convertible debt or equity. Angel investors can offer more than just money; they can also provide valuable business advice, industry connections, and mentoring.
They can be a game-changer for businesses, especially in their early stages when securing financing can be particularly challenging. Furthermore, they can foster an environment conducive to growth and scalability, allowing startups to tap into broader markets and reach their full potential.
Here are a couple of angel investor groups that cater to North Dakota businesses:
- Dakota Venture Group This group comprises university students and local business leaders focusing on funding North Dakota startups. This hands-on approach to venture capital allows budding entrepreneurs to work closely with experienced industry professionals. More information can be found on their website: http://dakotaventuregroup.com/ .
- Frontier Angel Fund While not based in North Dakota, the Frontier Angel Fund has been known to invest in North Dakota startups. The group offers both funding and mentoring to promising companies in the region. Visit their website for more details: http://www.frontierangels.com/ .
Remember, conducting extensive research and possibly consulting with a financial advisor or legal professional is crucial before accepting any investment. This ensures the terms are favorable and align with your business goals and strategy. With the right backing, your business in North Dakota can be poised for significant growth and long-term success.
Benefits of a Well-Structured Business Plan
Creating a well-structured business plan is essential for any aspiring entrepreneur in North Dakota. It serves as a roadmap, guiding businesses through each stage of starting and managing their operations. A business plan is vital in a state like North Dakota, where sectors like agriculture, energy, and technology have unique dynamics and opportunities to consider.
A well-thought-out business plan enables businesses to pinpoint their target market, understand their competition, and chart a clear path toward achieving their objectives. It gives business owners a holistic view of their operations, enabling them to identify potential challenges and formulate strategies to overcome them. Furthermore, in a state like North Dakota, which offers various incentives for small businesses, a comprehensive business plan can help businesses understand and utilize these resources effectively.
Executing a proper business plan in North Dakota entails understanding the state’s business environment and adapting the business strategy to fit. Businesses can use resources like the North Dakota Small Business Development Centers (NDSBDC) that provide tools and guidance to help create a solid business plan. Regular reviews and updates to the plan are crucial as they allow businesses to stay relevant and respond promptly to changes in the market or industry.
Meeting Lender and Investor Expectations
Meeting lender and investor expectations is integral to securing funding for your business. Lenders and investors look for companies that demonstrate potential for success, solid financial projections, and a strong team. They also look for entrepreneurs who understand their business model and market.
In North Dakota, where agriculture and energy are major sectors, businesses in these industries must be prepared to address unique questions and concerns from lenders and investors. This could involve knowledge of commodity prices, regulatory issues, or environmental factors.
Meeting these expectations begins with a well-crafted business plan communicating your vision, strategy, and financial projections. Regular updates and open communication with lenders and investors can help build strong relationships and foster trust. Businesses should also be prepared to provide timely and accurate financial information and show how they plan to mitigate risks associated with their business. By addressing these elements, businesses in North Dakota can successfully meet lender and investor expectations, paving the way for financial support and successful business growth.
Quick Links to Business Plan Templates and Examples
Where Can I Find a Mentor to Help Me Succeed?
Every successful venture in North Dakota is built on the solid foundation of a well-structured business plan. It is essential to seek guidance in building a practical and effective plan. Fortunately, North Dakota offers a robust network of organizations dedicated to nurturing the success of its entrepreneurs. Below are some essential resources:
North Dakota SCORE: An affiliate of the U.S. Small Business Administration (SBA), North Dakota SCORE offers free business mentoring, affordable workshops, and various resources to support businesses at different stages of growth.
North Dakota Small Business Development Centers (SBDC): Providing various services, including business plan development and financial analysis, North Dakota SBDC is a great asset for new and existing businesses.
Phone: (701) 777-3700
Center for Technology & Business (CTB): CTB provides training, personalized advice, and networking opportunities to cultivate entrepreneurship in North Dakota, with a particular emphasis on empowering women in business.
Greater North Dakota Chamber (GNDC): Advocating for the entrepreneurial community in North Dakota, GNDC provides learning opportunities and fosters connections to facilitate business growth. Contact Info:
The Economy of North Dakota
Understanding North Dakota’s economic landscape is pivotal for launching a successful business. Economic indicators like average household income, education levels, and consumer spending habits reveal potential opportunities and challenges that may arise.
Average Household Income
The median household income in North Dakota stands at approximately $68,131. While slightly lower than the national median, it indicates the state’s economic vitality and the consumer market’s purchasing power.
Average Level of Education
About 93.3% of North Dakota’s population aged 25 and over have completed high school, and approximately 29.1% hold a bachelor’s degree or higher. These figures are above the national average, indicating a well-educated populace and a more sophisticated consumer market.
Consumer Spending per Capita
The average consumer spending per capita in North Dakota is roughly $43,945. This relatively high figure suggests a strong consumer market with significant purchasing power.
In conclusion, these economic indicators are essential for starting a business in North Dakota. They provide insights into the state’s economic conditions, consumer behavior, and potential market opportunities, helping entrepreneurs to tailor their strategies for maximum success.
Top Industries in North Dakota:
North Dakota’s economy is characterized by diverse industries, with some sectors contributing significantly more to the state’s GDP. The largest industry in North Dakota, as of the most recent data, is the oil and gas extraction industry. Thanks to the Bakken shale formation, North Dakota is the second-largest crude oil producer in the United States. The oil industry contributes roughly 40% to the state’s GDP and employs over 50,000 people directly and indirectly.
Agriculture is another mainstay of North Dakota’s economy, with the state renowned as a leading producer of several crops in the United States. North Dakota is the nation’s top producer of spring wheat, durum wheat, dry edible beans, and peas. Agriculture supports thousands of jobs in the state and contributes nearly 25% of the state’s GDP.
Manufacturing is a growing industry in North Dakota, particularly in food processing, machinery, and technology. North Dakota has a vibrant tech scene with several tech startups and companies making their home in the state. The state’s manufacturing sector generated an estimated $4.82 billion, or 9.3% of the total GDP in 2020.
Healthcare is another significant industry in North Dakota, especially with an aging population. The healthcare sector in North Dakota employs over 75,000 people, making it one of the largest employers in the state.
Looking to the future, some emerging industries in North Dakota include renewable energy, particularly wind power, and technology. The wind energy sector has increased, with North Dakota ranked 9th in the United States for wind energy generation capacity.
Network Your Way to Success When Starting a Business
Networking is a skill that most successful business owners have as one of their top talents. You can do it too! Networking is a great way to improve your success and grow your personal and business reputation. Here are a few ways to get started.
Identify Complementary Businesses: Successful business operations often involve identifying and collaborating with complementary businesses. This allows for a broader customer base, shared marketing efforts, and cost savings through joint operations. For instance, a North Dakota grain farmer might collaborate with a local mill or a bakery, creating a supply chain that benefits all parties involved and adds value to the local economy.
Leverage Workforce Talent: The success of a business is also tied to the abilities and skills of its workforce. Thanks to a strong system of universities and colleges, North Dakota’s well-educated workforce provides a pool of talent that businesses can leverage. Businesses can find potential employees with specialized skills in areas like agriculture, technology, engineering, and healthcare, amongst others.
Collaborate with Industry Leaders: Collaborating with industry leaders can offer businesses numerous benefits, such as access to specialized knowledge, market visibility, and credibility. For example, a startup in the technology sector in North Dakota could seek partnerships with well-established tech companies, benefiting from their experience and networks. Through such collaboration, they can navigate market dynamics, improve their product or service offerings, and establish a more substantial presence in the industry.
Workforce and Talent
Understanding an area’s demographics, workforce, and talent is vital to establishing a successful business. This information can provide key insights into the potential labor pool, consumer behavior, and economic outlook of the area, which are critical for effective strategic planning and decision-making.
As of May 2023, the unemployment rate in North Dakota stands at 2.10%. This low unemployment rate signifies a healthy job market but also suggests competition for skilled workers. Businesses must offer competitive wages and benefits to attract and retain quality employees in such a market.
In North Dakota, as of 2023, the minimum wage is $7.25 per hour, which aligns with the federal minimum wage. While businesses must comply with this wage level for their entry-level workers, it’s important to note that offering competitive wages can significantly contribute to the attraction and retention of skilled employees.
Average Age and Demographics
The median age in North Dakota is approximately 35.2 years, with the population almost evenly split between males (50.2%) and females (49.8%). The median age and gender balance have implications for businesses. They can influence consumer behavior and preferences, shaping the product and service offerings of companies in the state.
Breakdown of People with Various Levels of Education
The education level of the population is another critical demographic.
- 29.1% hold a bachelor’s degree or higher.
- 93.3% have a high school diploma or equivalent.
- 7.7% have no high school diploma.
In conclusion, a comprehensive understanding of the demographic, workforce, and talent landscape is vital for businesses in North Dakota. It aids in tailoring strategies that align with the characteristics and needs of the local labor pool and consumer base, ultimately promoting a successful business operation.
Top Areas of Skilled Workers for Residents of North Dakota
In North Dakota, the scope and dynamism of the job market have created unique areas of specialization among its workforce, providing rich opportunities for businesses to tap into this talent pool.
The energy sector is a cornerstone of North Dakota’s economy, particularly its robust oil and natural gas industries. As a result, the region is abundant with skilled technicians, geologists, and engineers. These professionals offer exploration, drilling, production, and distribution expertise, creating an advanced and sophisticated energy sector. For businesses associated with this industry, whether directly or indirectly, there is a well-established pool of experienced professionals ready to contribute to the company’s growth.
North Dakota’s deep agricultural roots have also cultivated a workforce skilled in various farming disciplines. From crop scientists and animal husbandry experts to agricultural engineers, this breadth of talent supports the sector’s innovation and resilience. Businesses related to agriculture or those looking to implement sustainable practices could find valuable partners in these skilled workers.
The manufacturing sector, especially machinery and equipment manufacturing, has been a significant employment area in North Dakota. The state’s skilled workers range from assembly-line workers to specialized equipment engineers. Businesses in this sector or those dependent on manufactured goods can use this locally available expertise.
Healthcare is another crucial industry, employing many professionals, from nurses and doctors to medical technicians and administrators. The growth of this sector reflects the state’s commitment to public health and offers potential synergies for businesses operating within or interacting with the healthcare industry.
Emerging sectors like technology and green energy also hold promise for the future, attracting a new generation of skilled workers interested in these dynamic fields. The breadth of available talent is expanding from software engineers to data scientists, renewable energy experts to environmental scientists.
In summary, North Dakota’s diverse workforce across various sectors offers multiple opportunities for entrepreneurs. Businesses can harness this talent to drive innovation, improve operational efficiency, and foster sustainable growth. The state’s commitment to industries like energy, agriculture, manufacturing, and healthcare, coupled with an eye on emerging sectors, makes North Dakota an attractive destination for businesses seeking a rich and diverse talent pool.
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