How to Start a Business in Colorado
Colorful Colorado offers boundless opportunities and benefits for aspiring entrepreneurs. Whether you have a passion for the outdoors, the arts or technology, you can find a market in which to make a name for yourself. Are you excited to get started? We sure are. We pulled together everything you will need to know to take the first steps – and make your dream a reality.
Some of the best places to start a business in Colorado are Denver, Boulder, Fort Collins and Colorado Springs, where you can tap into a large and educated workforce as well as a high quality of life. With popular sectors such as tourism, agriculture, aerospace and renewable energy, Colorado also has a vibrant startup culture. There are many business resources and incentives for new small business owners.
To start a business in Colorado, you'll first need to follow some basic steps and legal requirements. These steps may vary depending on the type of business you want to run and where, which is why we’ve created a comprehensive, step-by-step guide that will help you navigate the process and start your small business with ease.
What are the steps to opening a business in the state of Colorado?
Step 1: Develop your business idea
One of the most exciting and challenging parts of starting your own business in Colorado is coming up with an idea or refining the one you already have. If you’re looking for some inspiration, think about what you love to do and how you can turn it into a profitable business. You can also look at other successful businesses online and in your area, see what they’re doing right, and consider what you can do better.
However, don’t make the mistake of thinking that you need a totally unique idea to succeed. You also need to make sure that there is a market for your product or service. If you don’t see any competitors offering something similar, it could mean that there is not enough demand for it.
To finalize your idea, you should:
Get feedback from people you trust about the type of business you want to start. They can help you assess whether your business idea is realistic and profitable.
Research your industry to find out what other successful local businesses are doing. This can help you identify opportunities and generate new ideas for your own small business that may differentiate it from competitors.
Think about your target audience and how your business will meet their needs. If you’ll have a physical location or serve a specific area, research the demographics to make sure they match your target audience and business goals.
Seek feedback from people you trust and be open to constructive criticism. Honest feedback can help you improve your Colorado business idea and increase your chances of success.
Step 2: Create your small business plan
A solid business plan is crucial when starting a new Colorado business, whether it’s an LLC or another type of legal business entity. If you write your business plan well, it can help you outline goals for your business, as well as strategies and financial projections, and set you up for success.
Your business plan should cover all the important aspects of your business, such as your products or services, target market and financial projections. It should also offer details about your company’s structure, management hierarchy and planned marketing strategies.
The more detailed your business plan is, the better prepared you'll be to face the challenges or opportunities that come along the way. Your plan can also help you secure funding from investors or lenders, so it’s worth the effort.
Here's what you should include in your business plan:
Executive summary
A brief overview of your business idea, goals, value proposition, your company's history, location, team, competitive advantage and market opportunity.
Mission statement
A clear and concise statement that defines your business's purpose, core values, specific objectives, and the passion that inspired you to start the business.
Company overview
A summary of your business that includes the legal structure, location, relevant history, and any other events or achievements.
Market analysis
A detailed description of your target market, including their demographics, location, lifestyle, and buying behavior. Here is also where you include an analysis of your main competitors and any notable industry trends and an analysis of your strengths, weaknesses, opportunities, and threats.
Management structure
Details about the business owners, partners, and any key personnel involved, including their roles and responsibilities.
Products and services
A comprehensive explanation of the products or services that your business sells. Include details about your suppliers or vendors, a description of how you produce or deliver your products or services, and a description of what makes them different.
Financials and funding
Details about your projected revenue, expenses, funding needs, and financial risk assessments. A break-even analysis that shows when you predict your business will start making a profit, and a cash flow statement showing how much you expect to have coming in and going out of your business each month.
Sales and marketing plan
A description of your proposed marketing approach, specific channels you plan to use, and any promotional strategies or collaborations you may engage in. Also provide a description of your sales process and goals, including how you plan to generate leads, convert prospects into sales and retain customers.
Appendix
Any additional materials or documents that are relevant to your business plan, such as customer surveys, permits or licenses you've applied for and obtained, or logo and branding mockups.
Step 3: Secure necessary funding
If you want to learn how to start a business in Colorado without the common struggles faced by new business owners, you need to consider funding. Launching your new venture can mean buying or leasing commercial space, dealing with land permits and zoning, acquiring inventory, and setting up a storefront. Whatever it is that you may require, you'll need enough money to get things moving before you can take on customers.
One of the most common sources of funding for new businesses is capital lending solutions. These are loans offered by third-party lenders like Heartland who specialize in helping small businesses. Loan options can range from $5,000 to $5 million, which is why working with a lender can help you alleviate stress and get the money you need both quickly and easily.
You can also use crowdfunding or personal investments, however, you should be careful not to rely too much on these sources, as they may not be enough to sustain your business. You also need to have enough cash flow to operate your business and pay back your debts.
Step 4: Choose your business name
One of the first steps to starting your Colorado business is to choose a name that reflects what your business does (and possibly, where it does it). Your business name is more than just a label, it acts as a powerful method for retaining your ideal customers, communicating your value proposition, and standing out from your competitors.
After choosing a name, you'll need to complete a name search to confirm that it's available. You can do this by visiting the Colorado Secretary of State’s website. If the name is available, you can form your LLC or other business entity using that name. This will give you the legal rights and protections to operate your business under that name in Colorado.
If you’re not ready to form your LLC or other business entity just yet, you can request a name reservation for 120 days with the Colorado Secretary of State. The cost of reserving a business name in Colorado is $25. But keep in mind that a reservation doesn’t give you the exclusive right to use the name. Other businesses can still use the name or a similar one, so it’s important to secure your preferred name as soon as possible by registering your business.
Pro tip! Reserve your website domain name
You'll likely need a website that enables customers to find you online. Once your name is secured, try to purchase an identical domain name and open new social media accounts under the same name as well. This will keep your online presence consistent, increase your visibility and help to promote your brand.
Step 5: Identify your business structure and business entity type
Choosing the right legal entity type for your Colorado business is a crucial step that will affect how your business runs and pays taxes to the Internal Revenue Service (IRS). The legal structure you choose will also decide how much personal risk you take on, how much paperwork and reporting you need to do, and how you can get funding—which is why you need to know the different business structures so you can start on the right track.
General partnership
A general partnership is a type of business structure where two or more people agree to share the profits and losses of a business. Each partner will contribute money, property, labor, or skills to the business and will subsequently have equal rights and responsibilities in managing it. A general partnership does not require any formal registration or paperwork to start, but many partners will use an operating agreement to detail the specific roles and responsibilities they will take on.
Partnerships also lack limited liability protection, meaning that the partners have unlimited personal liability for the debts and obligations of the business. If the business is sued or goes bankrupt, the partners’ personal assets (their homes, cars, or bank accounts) can be seized to pay off creditors. To file taxes, partners report their share of the partnership income or loss on their personal tax returns.
Sole proprietorship
A sole proprietorship is a type of business structure where one person owns and operates the business (otherwise known as the sole proprietor). The owner is the sole decision-maker and has complete control over every aspect of the business. Sole proprietorships don't require any formal registration or paperwork, but just like partnerships, they lack any limited liability protection.
The sole proprietor has unlimited personal liability for the debts and obligations of the business and could lose personal assets if the business gets into trouble. To file taxes, the sole proprietorship must report its income and expenses on the personal income tax return of the owner, as all profit is taxed as personal income.
Limited Liability Company (LLC)
A limited liability company (LLC) is a business structure that protects its owners from personal responsibility for their debts or liabilities with limited liability protection. This means that personal assets are separated from business assets and cannot be seized by creditors or through a legal suit. An LLC can have one or more owners who can be individuals, corporations, other LLCs or even foreign entities. An LLC is legally formed by filing articles of organization with the state of Colorado.
LLCs are widely popular because they offer several advantages for business owners. Primarily, LLCs have flexibility in how they file taxes, as they can choose pass-through taxation like partnerships and sole proprietorships or as a registered corporation (note that an LLC is not considered a corporation, but a company). This means they can avoid double taxation or reduce their tax liability depending on their situation.
LLCs with only one owner or member need to file Form 1040 with the IRS. If an LLC has more than one member or owner (a multi-member LLC), they need to file Form 1065.
Subchapter "S" Corporation (S Corp)
An S Corp is a business structure that elects to pass its income, losses, deductions, and credits through to its shareholders to be taxed as personal income using pass-through taxation. S Corps can only have up to 100 shareholders and can only trade one type of stock.
S Corps offers advantages for business owners, including limited liability protection and the ability to avoid double taxation, even though S Corps are registered corporations. An S Corp can choose to be taxed as an LLC, for example, where all income and losses are passed through to the owners and reported as personal income on their personal returns.
If you wish to form an S Corp, you’ll need to submit Form 2553 to the IRS.
Subchapter "C" Corporation (C Corp)
A C Corp is a business structure that is taxed separately from its owners or shareholders. C Corps can have an unlimited number of shareholders, and the shareholders can be any individual, corporation, or foreign entity. Just like S Corps, C Corps have limited liability protection which separates shareholders' personal assets from the business assets.
C Corps in Colorado state have access to more sources of capital as they can sell shares to investors or other businesses and organizations. That said, C Corps face double taxation on their income, as each corporation is required to pay federal tax as well as state tax (in some states). Then, the shareholders pay personal tax on any dividends that they receive. To remain compliant tax-wise, C Corps have to file Form 1120 with the IRS.
Nonprofit organization
A nonprofit organization is a business that has been granted tax-exempt status by the IRS because its goal is to further a social cause or benefit the public. Nonprofits can receive donations from individuals, corporations, government entities or other sources that are usually tax-deductible for the donors as well as the nonprofit itself.
Nonprofits have the same limited liability protection as other registered corporations do and avoid paying federal income tax on their income—as long as their income is used for charitable purposes and doesn't support or engage with any political activities. Nonprofits need to file an annual Form 990 “Return of Organization Exempt from Income Tax” with the IRS to report revenue, expenses and activities.
Step 6: Register your small business in Colorado
Starting a new small business in Colorado requires choosing a registered agent, filing articles of organization and paying the state filing fee. The easiest and fastest way to do this is online through the Colorado Secretary of State's website. The filing fee to register an LLC, corporation, or nonprofit online is $50.
What is a registered agent?
A registered agent is a person or entity designated by a business to receive legal documents and notices on their behalf. Registered agents need to have a physical address (not a P.O. Box) and be available during regular business hours, serving as the contact point for any legal correspondence that the business may receive. Colorado businesses can choose to act as their own registered agents, or they can use a third-party service.
What are articles of organization?
Colorado requires new businesses to file legal documents in order to become official businesses recognized by the state. These documents are called articles of organization (or sometimes, articles of incorporation), and they provide key information about the business as well as define the obligations of the owner(s).
Articles of organization need to contain certain specific information that will be reviewed and approved by the Colorado Department of State. This information includes:
The name of the business and its physical address
The registered agent’s name and physical address
Names and physical addresses of all owners and managers
A statement outlining the purpose of the business and its mission
Entrepreneurs determining how to start a business in Colorado can file their articles of organization on the Colorado Secretary of State's website.
Step 7: Apply for an Employer Identification Number (EIN)
An EIN is a federal Employer Identification Number that the IRS assigns to businesses for tax purposes. Corporations are required to have an EIN, as are businesses that wish to hire employees or open business bank accounts and credit card accounts.
Obtaining an EIN provides many benefits for a business. It makes it much easier to apply for bank loans, protects the identity and Social Security Number of the business owners, helps the business build credit, enables it to hire and pay employees, and may be requested when applying for business insurance. You can get an EIN for your business for free by applying online with the IRS. Online approvals are instant, so you can begin using your EIN right away.
Step 8: Open your small business bank account
Once you have an EIN, you can open a bank account for your business. Opening a business bank account can help you manage your business finances more effectively and professionally, as it works to separate your personal and business transactions. This makes it easier to track your income, expenses, taxes and cash flow. You'll also be able to access tools such as online payment processing, payroll and batch payments, accounting systems, international transfer services, as well as business loans and credit all in one place.
Step 9: Obtain your business licenses and permits
Colorado doesn't have a state-issued business license, but your business will need to follow all municipal regulations, bylaws and requirements to operate locally. Depending on the nature of your business, you may need multiple licenses or permits to remain compliant.
Your business license obligations can vary, so it's important to research available business resources and information on how to get the right permits and licenses through your local government's website.
You can also check the Colorado Department of Regulatory Agencies website to find information on professional licenses and permits that you may need to do business in Colorado state.
Step 10: Understand your Colorado business taxes
Businesses have to pay taxes, and Colorado businesses are no exception. Aside from personal income taxes, here's what businesses should keep in mind as far as taxes go.
Sales and Use Tax
Colorado businesses have to pay a sales tax on any physical products sold as well as on some specific services. This tax rate is 2.9% across the state. However, local tax jurisdictions can impose an additional amount up to a maximum total of 11.2%. You'll need to pay for a Colorado tax license, which is available for a 2-year period from the Colorado Department of Revenue, and your tax ID will be listed on your tax license.
Use tax may also apply to businesses that purchase products from out-of-state businesses that don't charge Colorado sales tax.
Corporate Income Tax
Corporations in Colorado must pay a state corporate income tax of 4.55% on their taxable income. This is separate and in addition to the 21% federal corporate tax rate. Corporations are required to file a Colorado corporate income tax return every year, regardless of whether they earned income or not or if they don't owe any tax.
It's your responsibility to ensure that you are in compliance with all tax regulations for your business, which is why we recommend reviewing the information available from the Colorado Department of Revenue, Taxation Division and seeking the advice of a licensed tax professional.
What is a DBA?
A DBA (Doing Business As) is sometimes referred to as a trade name and enables a business to use a name that differs from its registered or legal name. Essentially, using a DBA allows you to create a brand that is more catchy and memorable than your legal name. You might use one if you plan to expand your services over time or if the purpose of your business changes.
Frequently Asked Questions (FAQs)
How much does a business license cost in Colorado?
Colorado doesn't have a state-issued business license, but you can check with your city or local municipality to find license costs and requirements for your business type and specific activities.
Is it good to start a business in Colorado?
Colorado is a great place to start a business, thanks to a talented workforce and low tax obligations.
Is an LLC a business license in Colorado?
No, forming an LLC means registering a legal entity with the state of Colorado, while obtaining a business license is something businesses can do at the municipal level in order to do business in that municipality.
Is Colorado good for small businesses?
Absolutely, Colorado's many cities provide ample opportunities for small business owners to fill a need in a specific niche and enjoy a high standard of living surrounded by stunning natural landscapes.
What licenses and permits are needed to start a business in Colorado?
To start a business in Colorado, you'll need to create a business plan, designate a registered agent, file articles of organization and pay the state filing fee. Licenses and permits are provided by your local municipality, so you'll need to check with them for specific application and licensing requirements.
What are the benefits of starting a business in Colorado?
Colorado is extremely business-friendly and has an educated workforce to support your business needs and various ventures, including startups. Among other perks, the state is known to be a tech hub, with many business owners in the technology space choosing to call Colorado home.
Ready to work with a company that knows what it’s like to start a business?
It’s exciting to start a business in Colorado, but there’s lots to learn. Having the resources and guidance you need to start a small business can help set you up for success.
As you work to make your dreams come to life, we encourage you to check out the Start-Up Path for Entrepreneurs. It’s a completely free tool with interactive worksheets and planning guides that complement the information reviewed here. You can move through it at your own pace and come back to it anytime throughout your business journey. Plus, you’ll get advice from real entrepreneurs who have been in your shoes.
We know you’re busy – tuning in to our Entrepreneur’s Studio podcast can help you get inspired and learn tips for success while on the go. Hear empowering stories from Milk Bar founder Christina Tosi, celebrity chef Aarón Sánchez, Shake Shack founder Danny Meyer and many more.
Whenever you’re ready to start your business in Colorado, Heartland is here for you.
Heartland is the point of sale, payments and payroll solution of choice for entrepreneurs that need human-centered technology to sell more, keep customers coming back and spend less time in the back office. Nearly 1,000,000 businesses trust us to guide them through market changes and technology challenges, so they can stay competitive and focus on building remarkable businesses instead of managing the daily grind. Learn more at heartland.us