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Start Your Business Entrepreneurs

The State of Small Business: South Dakota

The State of Small Business: South Dakota

As part of our yearlong project "The State of Small Business," Business News Daily plans to report on the small business environment in every state in America. In this installment, we asked a few of South Dakota's more than 82,000 small business owners about the challenges and opportunities of operating in their state. Here's what they had to say.

South Dakota is an attractive state for entrepreneurs; not only is the cost of living low and the per capita personal income high, meaning there's more cash to go around, but South Dakotans also enjoy low taxes and easily navigated regulations. It's relatively easy to start a business in the Mount Rushmore State, and remaining in compliance with the tax code and regulatory framework is fairly straightforward.

However, for all its stability and certainty, South Dakota's economy is growing very slowly. Moreover, the labor market is highly competitive, as the state boasts one of the lowest unemployment rates in the nation. That helps boost disposable income, which is a boon to small business owners, but it also means filling open positions can be difficult.

One of the more attractive qualities of South Dakota is its below average cost of living, which is compounded by a strong per capita personal income rate. On average, a South Dakotan earns roughly $48,000 per year, according to the U.S. Bureau of Economic Analysis (BEA). That's equal to the amount the average American earns each year, but the cost of living in South Dakota is just 97 percent of the nation's, which means more spending money in the average resident's pocket.

"Cost of living here is really reasonable," T.J. Barthman, CEO and partner of Sioux Falls-based Phone-N-Fix, said. "In Sioux Falls specifically, you can live a pretty comfortable life at making between $45 and $50,000 a year."

South Dakota also boasts one of the lowest tax burdens in the nation, which is good for business owners both in terms of their own tax rate and the disposable income of the community at large. South Dakota levies no personal or corporate income taxes and a modest four percent state sales tax. In 2012, according to the Tax Foundation, South Dakota's total tax burden was the 2nd lowest in the nation at an average of 7.1 percent (the national average was 9.9 percent that same year). Today, South Dakota remains number one in the nation in terms of income taxes and 22nd for property taxes.

"South Dakota has very lenient taxes with no income tax and a low sales tax," Colin Tracy, CTO of Chelsea's Boutique, said. "It's also extremely easy to start a business up in South Dakota." 

Since the end of the Great Recession in 2009, South Dakota only experienced one year of economic growth above two percent. In 2012, the state's economy shrank by 0.9 percent, rebounding the next year and maintaining modest growth through today.

The tepid economic growth could possibly be attributed to the state's small population. As of the 2012 U.S. Census, South Dakota was home to less than 1 million people. Since gross domestic product is the result of the total value of production throughout the state, it stands to reason a smaller state would have a more limited GDP. South Dakota's economy prominently features agriculture, manufacturing, mining and tourism.

Another major challenge facing the entrepreneurs of South Dakota is a tight labor market. While a mostly employed labor force is good for the economy, it also means entrepreneurs may encounter some difficulty when looking to fill vacant positions and attract young workers.

"The biggest challenges have to deal with the limited population of South Dakota," Tracy said.  "This creates a bottleneck of talent and a highly competitive employment landscape. There is also the challenge of advertising outside of South Dakota. Being a lesser known area, most of the younger workforce is unaware of the large amount of opportunities and the excitement that is building around the state." 

If you're a small business owner in South Dakota looking for resources to help you move forward, here are a few organizations you might want to learn more about.

South Dakota SCORE

SCORE's volunteer business professionals and expert "mentors" give counsel and guidance to entrepreneurs looking to start or expand their businesses. The services are entirely free and volunteer-driven. Here are some of the chapters in South Dakota. 

Rapid City SCORE

Sioux Falls SCORE

U.S. Small Business Administration District Offices

The U.S. Small Business Administration (SBA) offers financing and grants, as well as consultations and counseling services. There are also opportunities to apply for federal government contracts through the SBA and avenues for obtaining assistance in the wake of natural disasters.

U.S. SBA District Office

South Dakota Small Business Development Centers

South Dakota hosts a number of development centers for small business. Each is dedicated to supporting the development and retention of small businesses, helping entrepreneurs do everything from crafting business plans to navigating the state's tax code. You can find your region's small business development center at the link below.

South Dakota SBDC Network

Are you an entrepreneurial organization or resource for small business owners, but are not listed here? Let us know. Contact the author at auzialko@purch.com.

Adam C. Uzialko
Adam C. Uzialko

Adam received his Bachelor's degree in Political Science and Journalism & Media Studies at Rutgers University. He worked for a local newspaper and freelanced for several publications after graduating college. He can be reached by email, or follow him on Twitter.