If you’re an entrepreneur trying to decide where to form a company, look no further than the state of Colorado!
With one of the lowest corporate tax rates in the country, low-cost workers’ compensation premiums, and a wide variety of business loans available for small businesses just starting out — this is one state that’s ready and willing to support your new venture from all angles.
How to Start a Business in Colorado
There are several steps involved when registering a company in any state, but registering a company in Colorado is straightforward and uncomplicated.
Step 1: Choose the Right Business Idea
Choosing your business idea is the most essential step of starting a new business.
While there’s no limit to what you can do within Colorado, here are some specific industries that are doing well in the state:
- business & professional services;
- health care and social assistance;
- scientific research & development.
Step 2: Plan Your Colorado Business Structure
Choose Your Business Name
Just like in most states, business names must include the words “corporation”, “incorporated” or “limited”; however, you cannot use the word “bank”.
You also cannot abbreviate these words as doing so will invalidate your corporation. Keep it simple and straightforward for the best results!
What is DBA?
A DBA, or “doing business as” name is a trading style that allows you to operate under a different name than the one on your business license.
For example: if you are operating primarily as an accountant but want to also offer tax preparation services, consider registering your business under a separate DBA for tax preparation purposes.
This will let potential clients know that you offer services as a tax preparer and will prevent you from running into any advertising issues.
What is a trade name?
According to the Colorado Secretary of State, a trade name is “a name used in business other than the true or individual name of one or more persons conducting such business.”
In other words, it’s essentially your company’s brand.
Find a Business Location
Selecting the right business location is one of the most important decisions you’ll make while starting a new business.
Finding an available commercial property where you can set up your business operations is often more difficult than it sounds because there are thousands of retail properties on the market and even fewer owners willing to lease space to start-up companies.
Additionally, keep in mind that you can also form a business that operates out of your home (in compliance with zoning laws and other regulations) – this is called a “home-based business”.
Conduct Market Research
Before you start a new venture, ensure that there’s actually a market for your product or service.
Product testing, focus groups, surveys, and other research are essential when determining if your business idea is viable.
In some industries, market research is also required by law.
Write a Business Plan
While the actual Colorado business plan law (or lack thereof) is a bit murky, it’s still recommended that you write out a simple, one-page business plan for your new venture.
A well-written and detailed plan will help guide you through many of the steps involved in starting your business and will make it easier to secure financing down the line.
Business Planning Resources
Getting help with your Colorado business plan is both simple and affordable.
Here are a few free resources to get you started:
- Colorado Small Business Development Center (SBDC) – The SBDC offers one-on-one business coaching services, access to experts who can provide advice on everything from pricing strategies to intellectual property issues, and classes targeted towards entrepreneurs with limited time and resources.
- The United States Small Business Administration – This government agency works closely with Colorado SBDC offices to help small businesses in their area start, run, and grow. They offer everything from business plan templates to free workshops for entrepreneurs starting a new venture or looking to expand their existing business operations.
- Online Business Plan Template – Use this free online business plan template to create a detailed, professional-looking business plan for your new venture.
Step 3: Get Funding
After completing your Colorado business plan and choosing the legal structure (i.e. incorporating) that’s right for you, it’s time to start looking for financing options.
The best way to find funding is by networking with local banks and credit unions; however, if you prefer a different approach, here are some additional resources:
Do Your Research
Before you start applying for a business loan, make sure you’re going to get the best possible option.
Note that many state-run agencies only offer to fund to businesses looking to expand operations or conduct research and development on new products; therefore, it’s important to fully research your financing options before starting the application process.
Applying for Financing
On the off chance that you’re unable to secure a business loan through your bank or credit union, don’t lose hope.
The good news is there are numerous financial institutions and government agencies offering financing options for new businesses.
However, before you apply for a specific business loan product, it’s recommended that you compare terms between lenders.
Here are some free resources:
- Free Business Loan Comparison Tool – This free tool allows you to compare business loan rates and pricing structures for dozens of lenders in Colorado. The results returned are easy to understand and include the total interest paid over the life of the loan along with a monthly breakdown of payments.
- Business Credit Score Guide – Before applying for financing, it’s important to know where you stand. This free guide from Experian describes how to get a business credit report, what information is included on your score, and how you can improve your rating over time.
- Free Business Credit Score – A business credit score offers a very general look at your company’s financial health. The higher the number, the better, as this will make it easier to secure financing down the line. These free online scores from Experian can help you get started assessing your financial standing today.
Step 4: Choose a Business Structure
Because there are several corporate structures, each with its own legal requirements and benefits, it’s a good idea to think about your business marketing plan long before you incorporate in Colorado.
After all, the state’s registration fees aren’t cheap: filing for corporation status will cost $100 plus annual renewal costs of $50 per year.
For businesses operating under a limited liability company (LLC), the cost is a bit more flexible: you can choose to pay $75 for your initial filing or an annual renewal fee of $50.
However, if you plan on filing as a sole proprietorship, partnership or trust, there are no registration fees.
If you plan on running your business as an individual and all assets will be owned by you, then registering a sole proprietorship is the right choice for your Colorado startup.
As long as you make less than $500,000 in annual revenue, there are no formal registration or ongoing costs with Internal Revenue Service.
However, it’s important to note that personal liabilities will be unlimited and any assets owned by your business will be considered personal property.
If you have a business partner, it’s best to file for partnership status. Like sole proprietorships, there are no annual renewal or registration costs.
Plus, your personal liability will be limited and your company’s assets will remain yours.
The biggest drawback to this business structure is that the state of Colorado can take an interest in partnership activities when the business owners are living or doing business within state lines.
If your business will be structured as an LLC in Colorado, there are three different options to consider: member-managed, manager-managed, and hybrid.
Member-managed is the most common option because it offers flexible ownership rights and easy management restructuring.
However, your personal liability will remain unlimited unless you opt for a formal operating agreement that clearly defines each partner’s rights and responsibilities.
Manager-managed LLCs are similar, but the registered members don’t have as many administrative powers.
Finally, hybrid LLCs offer a blend of both member-managed and manager-managed options. Depending on your business goals, this arrangement may be an ideal choice for your company’s long-term stability.
The biggest benefit of forming a corporation in Colorado is that your personal assets will be protected from all company liabilities and claims against the business.
This means that, if you’re ever sued for something your company did or someone’s injured on one of your premises, your own assets will remain safe and sound.
Despite their relative protection, corporations still need to file annual reports (which cost $50 each) and can be heavily taxed based on their net income taxes.
If your business will be a nonprofit organization, you’ll also need to consider registering with the state of Colorado.
Colorado offers “unINCORPORated” status for nonprofits that meet specific requirements issued by the Secretary of State’s Office and only charge for goods or services offered.
There are also other articles, such as this one on Incorporating as a Nonprofit in Colorado that may be of interest for those looking to start a nonprofit.
Step 5: Register Your Colorado Business
After you’ve determined the basic structure for your company, the next step is to register your business in Colorado.
This can be done either by paying an online filing fee of $100 or dropping off your filing documents at any Colorado Secretary of State office, including one near you.
If you choose to file online (which we recommend), then make sure you have a PDF viewer installed on your computer.
If you plan on selling products or services online and operating internationally, then also consider registering for an employer identification number (EIN) from the IRS in addition to a C-Corp.
This may seem like overkill, but it’s better to be safe than sorry.
In fact, if certain business activities will require regulatory compliance, then you may also want to register for a tax ID number from the IRS before launching your website.
Step 6: Set up Business Banking, Credit Cards, and Accounting Software
If you plan on using a bank for your business, make sure you set up a business account as soon as possible.
This includes getting alternative names registered (like “Widgets By Bob” instead of just “Bob’s Widgets”) and/or opening up new accounts with multiple signatories.
You’ll also want to get an EIN number and, if necessary, a tax identification number from the IRS and a federal employer identification number.
1. Opening a business bank account:
To open a business bank account, you’ll need to bring several things with you: your state registration certificate and a valid photo ID.
You should also have your EIN number handy (if applicable).
2. Getting a business credit card:
Business credit cards are not the same as personal credit cards.
For example, American Express does not allow business charge accounts for individual entrepreneurs that don’t have a physical office or established business location.
Instead of getting an Amex Business Gold Card, Small Business Saturday Members can apply for other rewards cards like the Chase Ink Bold.
Step 7: Get Insured
Insurance is important for any business owner or entrepreneur.
If you’re starting a business entity from home, then make sure that your homeowners’ insurance policy covers business equipment and tools.
Even if you plan on working out of a coworking space, this will still protect all your assets should anything happen to your personal residence.
Types of insurance:
- General Liability: Includes coverage for injuries and property damage to third parties.
- Commercial Property Insurance: Covers your business’ building, furniture, inventory, equipment, etc. If this kind of insurance is not included in your homeowners’ policy (or if you live in a commercial/rental space), then you should check out other providers like Estimator, which offers insurance quotes for home-based businesses.
- Commercial Auto: If you use your car or truck to run errands on behalf of your business, then this type of insurance is necessary. It covers damages caused by an auto accident as well as bodily injuries to third parties and the insured driver(s). Note that some cars used to run errands on behalf of a business are not covered by the commercial auto insurance policy. Personal autos (i.e. your own vehicle) must have their own
- Personal auto insurance policy. The good news is that you can still get discounts for having multiple insurance policies with the same provider, so make sure you check into that!
- Business interruption insurance: This covers business income loss if the area you work in is damaged due to fire, natural disaster, or other unforeseen events.
Step 8: Obtain Permits and Business Licenses
Depending on the type of work you’ll be doing, you may need zoning permits and other regulatory hurdles.
Here are some common licensing requirements:
- Zoning Permits: These things are required if your business operates within a certain area or in a specific location (like a residential neighborhood). You will need to apply for these permits whether you work out of your home or from a commercial space. You will need the owner’s written consent if you plan on working in their building as well as any necessary incident reports (accidents) associated with your business.
- Income Tax Permits: If you’re operating a service business, then you’ll also need to register for sales tax permits and/or sales tax ID numbers. These are important because they help you collect the appropriate amount of revenue from each client.
- Workers Compensation Insurance Permits: If you hire employees (which is optional, of course), then you’ll need to apply for a worker’s compensation permit. Business insurance providers like Chubb offer it at an affordable rate so make sure you read the exclusions and limitations beforehand.
- Business License & Permit for Specific Jobs: Depending on what type of service or product you’ll be selling, then you may need to register with a certain agency like the following:
Step 9: Hire Employees
If you need help with day-to-day tasks, then consider hiring employees.
You may be eligible for a tax credit if your sales exceed $500,000 and you hire 4 new workers or more.
The credit will vary depending on the number of new hires, but it can go up to 35% of wages paid up to $1 million.
The IRS says that new hires include not just permanent employees, but part-time and seasonal workers as well.
Seasonal workers need to be hired between January 1 and June 30 for them to qualify.
It’s also important to know how much you’ll owe in taxes.
Aside from social security and Medicare, there are several other payments you need to make:
- Federal Unemployment Insurance Tax Act (FUTA): This is only applicable if your business had at least one employee working at least $1,500 or more during any given month during the previous year. The tax rate is 6.2% of the first $7,000 in payroll.
- Federal Insurance Contributions Act (FICA): If you pay at least $1,900 or more to one employee during any quarter, then you must pay FICA taxes that consist of 12.4% social security tax and 2.9% Medicare tax on all earnings in excess of $117,000.
- Employee’s Withholding Allowance Certificate (W-4): In order to determine the amount you need to withhold from each employee, then you should have them fill out a W-4 form that will detail their personal information including name, social security number, date of birth, marital status and an anticipated number of allowances.
Step 10: Define Your Brand
Before you start selling your products or services commercially, then you must do one important thing first: define your brand.
By creating a unique persona/image for yourself, it will help clients to easily remember and identify with you.
Step 11: Build Your Business Website
You heard it here first: building a business website and choosing a domain name is mandatory.
It may cost you $7,500 – $10,000 + if you have to haggle with web designers but it is worth every penny.
Creating a good site for your business will help you stand out from the competition and make it easy for customers to find you.
For an idea on what to include in your site, make sure you check out the free business website templates made available by Google.
Step 12: Promote Your Business Online
Now that you have a good-looking website up and running, then it’s time to help potential clients to find it online.
Here are some ways to do just that:
- Set up a Google Places listing: Local residents will love being able to check out your business on Google’s online directory. You’ll get more customers and may even be able to snag some “local” awards too!
- Join iPro Services: This is one of the best ways to gain instant credibility for your site. It costs about $50 per year and is definitely worth it.
- Get listed on local business directories: There are dozens of sites you can register with for free but you should also check out Bizlocal, Yahoo’s Local Directories and YP.com too!
Thinking of starting a business?
Well, good for you! By following the step-by-step guide laid out above, you can make this dream into a reality.
Keep in mind that your business will need to comply with federal laws so check out Business.gov or the Small Business Administration’s site for more information.