Nestled amid the stunning Rocky Mountains, Colorado has emerged as an ideal destination for entrepreneurs seeking to establish and grow their businesses. With a robust economy, a highly educated workforce, and a thriving startup ecosystem, the state offers a fertile environment for innovation and success. Additionally, Colorado’s unparalleled quality of life attracts top talent and fosters a positive atmosphere for businesses to thrive. This unique combination of factors makes Colorado the perfect launchpad for aspiring entrepreneurs and a beacon for business success.
Colorado Small Business Stats
- There are 691,2303 small businesses in Colorado, or 99.5% of all Colorado businesses. (2022 SBA Small Business Profile)
- Exports by small Colorado firms reached $2.3 billion. (2022 SBA Small Business Profile)
- Small businesses accounted for 47.6 percent of Colorado’s 1.2 billion employees. (Statistics of US Businesses)
- Colorado was ranked as the #4 ranked top state for business by CNBC, with workforce, technology & innovation, and economy as primary ranking factors.
- U.S. News & World Report ranked Colorado as the 2nd best state for economy, with employment rates, strong growth, employment rates, and business environment.
Steps for Starting a Business in Colorado
Utilizing our comprehensive checklist will streamline the process of starting a small business in Colorado, ensuring you cover the most common aspects and adhere to the necessary regulations. From selecting the right business structure to navigating local permits and licensing requirements, our checklist provides a step-by-step guide that simplifies your entrepreneurial journey.
Step 1: Choose a Business Idea
Colorado is known for its diverse range of small businesses across various industries. Here is a list of popular small business types in the state. Please note that the popularity of these businesses may change over time and can vary by region.
Outdoor recreation businesses: Due to Colorado’s beautiful landscape and abundant outdoor activities, businesses like ski shops, bike rentals, rafting companies, and guided tour services are popular in the state.
Breweries and distilleries: Colorado has a thriving craft beer and spirits scene. Microbreweries, distilleries, and taprooms are popular small businesses in the region.
Health and wellness services: The state’s focus on health and wellness translates into a demand for businesses such as yoga studios, fitness centers, health food stores, and wellness retreats.
Cannabis dispensaries: Since the legalization of recreational marijuana in Colorado, the industry has grown significantly, with numerous small businesses operating as dispensaries and related services.
Tech startups: Colorado has a growing technology sector, with small businesses focused on software development, digital marketing, and other tech services thriving in cities like Boulder and Denver.
Arts and crafts businesses: The state’s creative scene supports various small businesses in the arts and crafts sector, including local galleries, pottery studios, and artisanal shops.
Renewable energy companies: Colorado is committed to sustainable practices, and small businesses in the renewable energy sector, such as solar and wind energy, experience a favorable environment.
Retail boutiques: Independent retail stores, particularly those offering locally-made products, eco-friendly goods, or unique items, are popular among Colorado residents and tourists alike.
If these ideas aren’t quite what you are looking for, I offer a few things to consider while you are doing your research. First, you should assess your skillset and interests to determine which type of business would suit you. Next, research the local marketplace to identify potential unmet needs or areas for growth. You may also want to look into joining an entrepreneurial organization or attending an event for ideas and resources related to starting a business or speak to other entrepreneurs in your area that have experience starting businesses to get valuable advice and insight into the process
You can check out our library of business ideas to get detailed industry information on hundreds of different types of businesses with trends, costs to start, tips, and lots more.
Step 2: Write a Business Plan
Writing a business plan is an important step when starting a business in Colorado. A business plan is a written document that outlines the goals, strategies, and financial forecasts of a business. It serves as a roadmap for how to structure, run, and grow the business. With a well-crafted business plan, entrepreneurs can identify potential risks and opportunities before they start their venture. Additionally, it can help them secure financing from investors or lenders.
A good business plan should include information such as the company’s mission statement, market analysis, competitive analysis, product/service description, marketing strategy and financial projections. By taking the time to create an effective business plan, entrepreneurs can increase their chances of success in Colorado’s competitive marketplace.
Related: How to write a business plan
Step 3: Select a Business Entity
The next step in starting a business in Colorado is selecting a business entity, which refers to how a business is legally organized. It is important to decide on a business structure early on, as this decision will have an impact on the registration process as we proceed further in this guide. There are four primary business entities: sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). A brief description of each is below.
A Sole Proprietorship is a type of business owned and operated by an individual who is responsible for all aspects of the business, including profits, losses, debts, and liabilities.
In Colorado, there are no formal registration requirements for establishing a sole proprietorship. The business owner can operate under their own name or choose a trade name (also known as a “doing business as” or DBA name) and register it with the Colorado Secretary of State.
While a sole proprietorship is easy to set up and has minimal regulatory requirements, the owner has unlimited personal liability for the business’s debts and obligations. This means that the owner’s personal assets, such as their home or car, could be at risk if the business encounters financial difficulties or faces legal claims.
Despite the liability concerns, sole proprietorships can be an attractive option for small or low-risk businesses due to their simplicity, low setup costs, and the owner’s complete control over the business.
A General Partnership is a business structure in Colorado where two or more individuals (partners) agree to operate a business together and share its profits, losses, and management responsibilities. Each of the general partners contributes to the business in terms of capital, labor, or skills and is personally liable for the partnership’s debts and obligations.
In Colorado, a general partnership can be formed without filing any formal documents with the state. However, it is highly recommended to create a written partnership agreement outlining the terms and conditions of the partnership, such as profit and loss distribution, management roles, and procedures for adding or removing partners.
Related: What is a partnership?
A Corporation is a more formal and complex business structure than a sole proprietorship and partnership, as it is characterized by its separate legal existence from its owners, who are called shareholders. This type of business structure provides limited liability protection to its shareholders, meaning that their personal assets are generally not at risk for the corporation’s debts and obligations.
In Colorado, to form a corporation, you must file Articles of Incorporation with the Colorado Secretary of State and pay the applicable filing fees. Additionally, corporations are subject to more regulatory requirements compared to sole proprietorships or general partnerships.
Related: How to form a Colorado Corporation
The Limited Liability Company (LLC) is a popular business structure in Colorado that combines the benefits of a corporation’s limited liability protection with the flexibility and pass-through taxation of a partnership or sole proprietorship.
To create an LLC, the Articles of Organization must be filed with the Secretary of State.
Related: How to form a Colorado LLC
Forming a corporation or LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular formation services include:
IncFile - Great service and free registered agent the first year.
Northwest - Privacy-Focused: Free registered agent and private business address for 1 year!
ZenBusiness - Easy to use and free registered agent for 1 year!
Step 4: Register the Business
Registering a business in Colorado involves several steps, depending on the type of business structure you choose. The specific business licenses and permits required in Colorado vary depending on the nature of your business, its location, and the regulations of local and state agencies., but here are some common licenses that are needed:
Business Licenses – There is no general state of Colorado business license, however, many cities require a general business license in order to operate.
Employer Identification Number (EIN) – An Employer Identification Number (EIN), also known as a Federal Employer Identification Number (FEIN) or Federal Tax Identification Number, is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to businesses operating in the United States, including Colorado. The EIN is used for tax reporting purposes, identifying the business as a tax-paying entity.
Sales Tax License – Businesses selling products and certain services will need to register for a Sales Tax Permit with the Colorado Department of Revenue.
Professional Licensing – Some services such as cosmetologists, massage therapists, and plumbers require licensing in Colorado. While this isn’t a license on the business, licensing is required to operate.
Zoning Permits – Some physical locations will need to obtain zoning permits from the city or county before they can open the business.
Additionally, the Colorado Small Business Navigator has a lot of information regarding federal, state, and local licensing requirements. Call the Small Business Navigator at 720-665-7439 with your small business licensing questions.
Step 5: Open a Business Bank Account
Opening a separate bank account for your business is important for several reasons:
Financial organization: A separate business bank account helps you keep your personal and business finances separate, making it easier to manage and track business income and expenses. This simplifies bookkeeping, budgeting, and financial planning for your business.
Tax reporting and compliance: Maintaining separate accounts simplifies tax reporting and ensures accurate financial records, making it easier to prepare and file your business tax returns. Mixing personal and business finances can lead to confusion and potential errors, increasing the risk of tax audits or penalties.
Limited liability protection: If you have a corporation or limited liability company (LLC), maintaining separate bank accounts is essential to preserve the limited liability protection provided by these business structures. Commingling personal and business finances can result in a loss of limited liability protection, potentially exposing your personal assets to business debts or legal claims.
Professionalism and credibility: A separate business bank account allows you to accept payments and conduct transactions under your business name, enhancing your professionalism and credibility with customers, vendors, and financial institutions.
Step 6: Find Financing
Obtaining the funds to start a small business is a challenging process for any small business owner. Regardless of whether going after a conventional bank loans, Small Business Administration (SBA) loan guarantees, investor, or grants, a well-prepared business plan that demonstrates the viability of your business idea and provides a roadmap for your company’s growth is critical.
Step 7: Hire Employees
When hiring employees for the first time as a Colorado business, it is important to take the time to understand your responsibilities as an employer and consider the necessary requirements such as understanding the legal requirements for hiring employees in Colorado, such as registering with the state, obtaining workers’ compensation insurance, preparing payroll and withholding taxes, and applying for all relevant licenses.
Additionally, small business owners should be aware of any required safety certifications or trainings they must complete, as well as any labor laws that may apply to their business.
Step 8: Obtain Business Insurance
Business insurance is an important step when starting a business, as the right coverage can provide financial protection and peace of mind in the event of unforeseen circumstances, such as property damage, liability claims, or employee injuries. While every type of risk can’t be covered, when establishing your business, consider the following types of insurance to help safeguard your investment and reduce potential risks:
General Liability Insurance: This type of coverage is essential for almost every small business, as it protects against claims arising from third-party bodily injuries, property damage, and personal or advertising injuries. General liability insurance can help cover legal expenses and potential settlements if a customer, vendor, or other third party files a claim against your business.
Property Insurance: Whether you own or lease your business space, property insurance can protect your physical assets, such as buildings, equipment, furniture, and inventory, in case of damage due to events like fire, theft, or natural disasters. Ensure that your property insurance policy provides coverage for the specific risks your business may face, based on your location and industry.
Workers’ Compensation Insurance: If you have employees, workers’ compensation insurance is typically required by law. This coverage provides benefits to employees who suffer work-related injuries or illnesses, including medical expenses and lost wages. In Colorado, most employers are required to carry workers’ compensation insurance, but it’s essential to check with the Colorado Division of Workers’ Compensation for your specific obligations.
Professional Liability Insurance: Also known as errors and omissions (E&O) insurance, this coverage is particularly important for businesses that provide professional services or advice, such as consultants, accountants, or architects. Professional liability insurance can protect your business from claims arising from negligence, errors, or omissions.
Commercial Auto Insurance: If your business owns or uses vehicles for work purposes, commercial auto insurance is necessary to protect against liabilities and damages resulting from auto accidents. This coverage can help cover the costs of property damage, medical expenses, and legal fees if an accident occurs while using a vehicle for business purposes.
Cyber Liability Insurance: With the increasing reliance on technology and the internet, businesses face a growing risk of cyber-attacks and data breaches. Cyber liability insurance can help cover the costs associated with responding to a cyber incident, including legal fees, public relations efforts, and notification and credit monitoring services for affected individuals.
As a small business owner, it’s crucial to evaluate your specific needs and risks to determine the most appropriate insurance coverage for your situation. Consulting with an experienced insurance agent can help you identify potential exposures and develop a tailored insurance plan to protect your business assets and financial well-being.
Step 9: Set up an Accounting System
Accounting is essential for small business, because it helps manage the financial health of the business and ensures compliance with tax and regulatory requirements. Setting up an accounting system for your business is one of the most important things you can do for your company to ensure long-term success.
Staying on top of finances not only helps a business comply with tax and regulatory obligations,
keeps the business out of trouble with the IRS but can be used to track and monitor trends in the business and maximize profits, but good accounting practices contribute to the overall success and sustainability of a small business.
Related: Setting up accounting for a business
This material is property of StartingYourBusiness.com
Common questions when starting a business in Colorado
Is Colorado a good place to start a business?
Colorado is a great place to start a business for several reasons, including its strong economy, educated workforce, and supportive entrepreneurial ecosystem. Here are some key factors that make Colorado a desirable location for business startups.
Strong economy: Colorado has consistently ranked as one of the top states for economic growth in the United States.
Educated workforce: Colorado boasts a highly educated workforce, which is important for businesses seeking skilled employees.
Supportive entrepreneurial ecosystem: Colorado offers a thriving environment for startups, with access to resources, networking opportunities, and mentorship through business resources such as the Colorado Small Business Development Center.
Quality of life: Colorado is well-known for its excellent quality of life, with numerous outdoor recreational opportunities and a strong focus on work-life balance. A high quality of life can be an asset for businesses trying to attract and retain top talent.
Tax incentives: Colorado offers several tax incentives for businesses, including the Enterprise Zone Program, which provides tax credits to businesses that invest in economically distressed areas.
What are the steps to starting an LLC in Colorado?
There are three main steps to starting an LLC in Colorado. These include:
1. Making sure the LLC name is available
2. Appointing a Registered Agent
3. Filing the Articles of Organization
There are a few more details to consider depending on the business. Learn more about starting an LLC in Colorado.
How much does it cost to start an LLC in Colorado?
The cost to start an LLC in Colorado is $1 to file the Articles of Organization with the Colorado Secretary of State.
What licenses do I need to start a business in Colorado?
The types of licenses required when starting a business in Colorado depend on the nature of your business, its location, and the specific regulations that apply to your industry.