Starting a Business in MN: Everything You Need to Know
Starting a new business can be both an exciting and terrifying experience. Follow these basic steps to properly start a business in Minnesota.6 min read
Starting a new business can be both an exciting and terrifying experience. The reality is that slightly more than half of Minnesota businesses started in 2010 went out of business by 2015, and nearly one in five didn’t even survive the first year. So how do you make sure that your business is one of the success stories? Proper planning and knowledge of the key legal requirements and common pitfalls.
Basic Steps to Starting a Business in Minnesota
- Prepare a Business Plan. A business plan is a roadmap for your business and the foundation of your success. Your plan will identity the problem you are trying solve, how you plan to solve it, and other keys to your success. Sample business plans are available online (for example, see http://www.bplans.com/). In addition, you can hire a consultant to write a professional business plan, though sitting down to think things through on your own will force you to really hone in on what you’re trying to accomplish and how to set out about doing so.
- Choose a Business Structure. Choosing the right business structure is one of the most important decisions you'll make when starting a business – for example, will your business be a limited liability company (LLC), sole proprietorship, corporation, or partnership?
When selecting the right entity, consider the tax structure and amount of risk you'll take on individually. Corporations and LLCs generally offer the most protection against individual liability while a sole proprietorship offers the least amount of protection but the most simplicity. Similarly, the type of entity you choose will have a bearing on your tax liability. For example, a sole proprietorship is disregarded for federal tax purposes, so as an owner, you’ll just report your income and expenses on your personal tax return. Conversely, other entity types like corporations and partnerships (as well as LLC’s that are deemed partnerships for tax purposes) file additional tax returns and may have additional liabilities. However, they can carry additional benefits as well, for example, when it comes to paying employment taxes.
Investors are another consideration. While LLCs are common for entrepreneurs, if you envision yourself potentially taking on outside investors (at least aside from family and friends), a corporation is most likely the way to go. While it’s not impossible to change entity types down the road, it’s much easier to get it right in the beginning, so give it some thought.
Name and Register your Business. Depending on the type of business entity you have decided on, you’ll need to file papers with the Minnesota Secretary of State to officially form the business. Prior to doing so, it’s essential to search state databases (and potentially national databases as well to avoid future infringement claims) to ensure that your chosen business name is available. Deciding what must be filed can be a detailed analysis, but fortunately the agency has step-by-step instructions online to help you navigate this process here.
As part of this process you will also need designate a registered agent who can accept legal and other formal documents for the business. You may be the registered agent or you may designate another person or company. There are a number of companies that offer these services. Otherwise, if you are working with an attorney, most will be happy to serve in that capacity for a minimal fee.
Research Applicable Deadlines. There are many important deadlines to keep track of – for example: (i) license renewal and tax due dates; (ii) deadlines related to employee health insurance, unemployment taxes and worker's compensation taxes; and (iii) administrative deadlines based on the type of business entity, such as annual registrations. As a business owner, you will be responsible for a number of items depending on the type of work you do. So, be sure to familiarize yourself with what may be required of your business.
Choose a Location. Depending on the type of business, it may be necessary to set up shop in an actual physical location. Do you need an office? What about warehouse space? There are options available now that permit business owners to essentially rent time at a shared location, or you may decide to go the formal route and set up your own office space. Do you need an office or retail location, or will you work from home? Here are some tips from the U.S. Small Business Administration.
Once you have a location picked out, be sure to carefully review any lease or contract terms for the space and negotiate any terms that you may want to see included. Lease negotiations can be complex and very detail-oriented, so often an experienced business attorney can be your best friend here
Taxes and Licenses. You will almost certainly be subject to federal, state, county and/or or local tax and licensing requirements, and will need to get both state and federal tax ID numbers (there are a few instances where you technically may not need a state ID number, but it’s a simple process to acquire one and worth doing upfront so you don’t forget to later on). This link to the Minnesota Tax Liability Page is a good resource to help you start the process of determining applicable taxes. In addition, this link to the Minnesota eLicense page can help you determine what licenses you may need.
Insurance and Bond. Determine the right type and amount of liability insurance and whether your business needs to be bonded for liability purposes. Customers generally are more likely to utilize a business that is insured and bonded because these measures provide protection to the customer if something goes wrong.
Open a Business Bank Account and Establish an Accounting System. In general, business funds should not be commingled with your personal funds, even when operating a sole proprietorship. Therefore, you will need to set up a separate bank account for your business and present proof of such prior to opening a bank account. Some banks also may ask for a copy of your business plan or other documents, depending on the financial institution. In addition, you will need to establish a system for keeping track of your financial information. There are a number of apps and programs that make bookkeeping simple, otherwise, when in doubt, it can be worth the cost to work with a professional bookkeeper and accountant.
Understand Your Responsibilities as an Employer. You may get to the point when you need to hire workers, which will open you to a wide range of new requirements including state and federal paperwork, additional insurance, notice requirements, and rules regarding salaries and benefits which are outside of the scope of this article. But, here is a good resource to get started.
Protect Your Intellectual Property. Intellectual property refers to the “creations of the mind” associated with your business, such as patents, trademarks, trade secrets, and copyrights. These can be some of the most valuable parts of your business. You should only disclose your intellectual property to others after you have consulted with counsel to ensure it is properly protected. Depending on the type, there may be a number of steps you should or must take to protect your intellectual property, from filings with the state to registering them with the United States Patent and Trademark Office.
Get Your Business Financed. Many private and government options are available to finance your business. Here is a list of some of the programs specific to Minnesota.
Build a Website and Market Your Business. Websites are no longer an optional part of doing business, and many “do it yourself” options are available for publishing a professional website quickly. Similarly, social media is quickly becoming an indispensable marketing tool.
Common Mistakes when Starting a Business
Here are a few common mistakes to avoid:
If you have employees, be sure you understand laws relating to employees, including wages, hours worked, health insurance requirements, benefits, taxes and liability insurance. They are often very complex to navigate and failure to understand your responsibilities can often be costly. This is an area that the expertise of a business and employment attorney can potentially save you a substantial amount of money.
Complete a demographic study on the location you choose. Just because a restaurant was in the spot you chose before doesn't mean that your restaurant will do well in that spot.
Use sample forms to help you properly complete the documents needed to get your business up and running. Doing so will save you time and resources better spent focusing on building your business. For example, when you send documents in to the Secretary of State, they will be rejected if they are not filled out properly.
Get Legal Help
Starting a business is not easy, and there are a number of complexities that must be navigated. If you are unsure of a step or need help with the business forms or other aspect of starting your business, post your legal need on UpCounsel's marketplace. UpCounsel screens out 95 percent of its lawyers to provide you only with best lawyers from top law schools like Harvard and Yale. UpCounsel attorneys have an average of 14 years of experience so that we have only the best to help you with your business start-up.