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North Dakota has recently become the go-to for new companies hoping to benefit from low operational costs. After all, it boasts government accessibility, numerous business incentives, and a thriving workforce.
Moreover, it boasts favorable taxes that do not impede businesses from going past the startup stages. These factors may explain why many small businesses have set up homes in the state.
The expansion of these small businesses over the past few decades has propelled the state's overall growth. North Dakota ranks 26th in the U.S., owing to a 0.5% annualized growth rate in the past five years.
And if the small enterprises (SMEs) growth rate is anything to go by, this state is on its way to a better ranking nationwide. But why have SMEs played such a vital role in its growth? We find out.
75,427 entities operating in North Dakota as of a 2021 study are SMEs. They make up 98.8% of the total businesses in the state. This number points to a steady growth rate in cottage industries, as there were 73,142 SMEs as of a 2019 report;
SMEs in North Dakota are per the Small Business Administration definition. It caps the businesses as those with fewer than 1,500 or 250 employees with an annual revenue of $7.5 million;
Between 2019 and 2020, the employment rate expanded by 6,484 due to 2,593 additional SMEs in the state. During the same period, the state witnessed 6,352 small business expansions;
SMEs in the startup and expansion stages accounted for 32,937 additional job opportunities in the state. Those expanding resulted in additional 21,549 jobs in total. This expansion was an increment from 2017 when startups accounted for 2,300 new jobs in the state;
Lending for SMEs has been on the rise. 2020 statistics revealed that banks extended loans worth $916.8 million to entities that required loans of $1 million or less;
At the same time, they issued loans worth $335 million to SMEs generating $1 million or less;
Businesses that required less than $100,000 received loans worth $238.5 million. This amount significantly increased from the $226.8 million issued in 2017 to businesses that needed <$100,000;
Of the 75,427 SMEs in North Dakota, 56,523 are run by sole proprietors with no employees;
16,442 have 1-19 employees, while 2,462 hire 20 to 499 employees. Like in the 2017 study, firms with fewer than 100 employees make up the larger percentage;
Interestingly, SMEs hire 196,368 people employed in the state, accounting for 56.7% of the workforce. Most employees work in major industries, especially real estate, construction, and retail trade;
In 2019, the key employers were accommodation and food services (29,068), healthcare and social assistance (26,793), and retail trade (23,557);
The SME employment rate has been on a steady incline between 1994 and 2018, reporting a 29.2% increase. It is higher than the national average;
The minimum wage per the law is $7.25. However, those working for tips are often paid a minimum of $2.13 each hour and can be subject to deductions in tips earned per hour. Student workers may also earn less than the minimum wage.
The Key Industries in North Dakota
The top 10 industries in the state per the number of small businesses per sector are as follows:
Number of SMEs
Real estate and rental and leasing
Professional, scientific & technical services
Other services (save for public administration)
Healthcare and social assistance
Transportation and warehousing
Administrative, support, & waste management
Arts, entertainment, & recreation
Finance & insurance
Management of companies & enterprises is the smallest industry, with 58 operational businesses as of a 2021 study;
In 2019, 1,480 of the 1,742 enterprises exporting goods from North Dakota were SMEs. They made up 85% of the exporters and generated $3.3 billion in the value of exported goods, 52.5% of the exports;
It was a step up from 2017 when small businesses generated 36.7% of the total exports.
Business Ownership Demographics in North Dakota
The Percentage That Owns Small Businesses in North Dakota
The Percentage Employed by Small Businesses in North Dakota
Starting a Business in North Dakota
Entrepreneurs in the state can run their businesses as limited liability companies, corporations, partnerships, and sole proprietorships;
Business owners running incorporated businesses make a median income of $62,000. This amount is, on average, $20,000 higher than what those who run unincorporated businesses make;
The state offers mentoring, grants, and educational resources to people who want to launch a new business. Opening an LLC is even easier when you liaise with a reliable business formation company to prepare the paperwork;
Forming a limited liability company requires you to file your Articles of Organization with the state. This service incurs a non-refundable fee of $135;
Businesses in the state are not subject to privilege taxes. Moreover, the corporation income tax charged on businesses is on the lower side. It starts at 1.4% for income below $25,000;
LLC owners can choose to pay their taxes from individual profits or can have the companies treated as individuals. In the latter case, corporation income tax is applicable.
All LLCs must have registered agents in charge of receiving communique from the state. The agent must have a physical address in the state, be available during office hours, and be an incorporated business or individual aged at least 18. You can get reliable representation by hiring a registered professional agent.