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The State of Small Business: Minnesota

The State of Small Business: Minnesota

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 Minnesota's more than 500,000 small business owners about the challenges and opportunities of operating in their state. Here's what they had to say.

Minnesota is not without its problems, but overall, the state offers a healthy environment for small business owners. A stable economy, relatively high average per capita income, and the readily available support of local communities for small business all contribute to the state's attractiveness to entrepreneurs.

Still, the state is plagued by high taxes and harsh winters, which tend to depress optimism and slow the pace of growth. Although the state has a higher per-capita personal income compared with the national average, these high expenses cut into residents' disposable incomes. Even so, entrepreneurs seem generally undaunted by these prospects.          

Minnesota's economy is the 17th largest in the nation and its rate of growth remains notably stable. According to the St. Louis Federal Reserve, Minnesota's real gross domestic product has grown every year since 2010, and in the past three years the state has averaged 2.5 percent growth, compared to the national average of 2.17 percent. While modest compared with the economic growth of the late '90s and early aughts, Minnesota's pace of economic growth now is healthy and encouraging.

"We're seeing a healthy economy in Minnesota, and especially the Twin Cities. It is a great time for small businesses in the state," according to a statement from the Entrepreneur's Organization – Minnesota. "At Entrepreneur's Organization – Minnesota, we are seeing an uptick in new members, small business owners who are coming to us for peer-to-peer learning and access to experts."

The EO research suggests that so long as the stability continues, more aspiring entrepreneurs will be able to open up shop. EO – Minnesota reports a 70 percent increase in revenue, 56.3 percent increase in net profit and 57 percent increase in full-time employees.

Minnesota boasts a relatively high per-capita personal income (PCPI) level of more than $50,000, which totals 106 percent of the U.S. average ($47,669). While high taxes and an elevated cost of living are sure to take a bite out of that disposable income, the heightened PCPI more than covers those above-average expenses, according to the U.S. Bureau of Economic Analysis.

Overall, Minnesota's PCPI ranks 13th in the nation, so even though cost of living is a consideration, many Minnesotans are able to cope with the expense and still have money to patronize small business.

In addition, Minnesotans cite robust support from their community members, as well as state-based organizations and programs. Several entrepreneurs mentioned the "buy local" mentality of many Minnesotans and said that support is even stronger when a business reaches out to get involved in the community.

"Our philosophy is to be a valued community member, because the more we engage locally, the more locals will want to engage with us," Janice Gaut, owner of The Closet Factory, said. "This means opportunities are limitless, as long as you're willing to put in the work! For instance, we've donated countless hours and products to Reach and Restore, a nonprofit that provides clothing, bedding and furniture to the homeless. We also get involved with several food pantries in the area."

"I'm part of a program [called] Converting Layoffs Into Minnesota Businesses (CLIMB) that supports new businesses in a way we don't see in other states," Julie Swenson, founder of public relations company My Media Practice, said. "CLIMB allows an entrepreneur with an approved business to draw unemployment benefits while launching a business. So you have a couple months of runway to get things going. It's been crucial for me as I network and build a client list."

Minnesota's personal and corporate income tax rates are the third highest in the nation, reaching 9.85 percent and 9.8 percent, respectively. In addition, the state's 6.875 percent sales tax is nearly 1 full point above the national median of 5.95 percent. According to the Tax Foundation, Minnesota's total state and local tax burden ranks 8th highest in the U.S.

"Minnesota taxes are high and, as such, it impacts business decisions and the speed of growth," Kristi Piehl, CEO of Minnetonka-based public relations company Media Minefield, said. "The cost of living is high due to our higher housing costs and taxes; however, our quality of life is also high."

Minnesota is known for its harsh winters, which can add to storm-related costs and depress both fourth- and first-quarter revenues. While the state is well-equipped to deal with its intense weather events, there's no avoiding the inevitable slowdown caused by ice storms and blizzards; it's an annual reality for residents of the Gopher State.

"One of the largest challenges for Minnesota-based businesses tends to be the rather harsh, long winter," Matt McManus, owner of Minneapolis-based footwear company Bokos, said.

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

Minnesota 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.  

Minnesota's SCORE Locations

U.S. Small Business Administration (SBA) District Offices

The U.S. 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 after natural disasters.

Minnesota SBA District Office

Minnesota Small Business Development Centers

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

Minnesota 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 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.