How to Start a Business in Colorado
- Select a Business Name and Entity
- Write a Business Plan
- Register the Company with the State
- File for a Tax ID (EIN)
- Secure Business Licenses and Permits (as Necessary)
- Open a Business Bank Account and Consider Business Financing
It may not be the most straightforward thing to do, but starting a business is a dream for most people. There might be a ton of paperwork involved, specifically if you’re starting a business in Colorado, and it’s easy to feel a little overwhelmed (if not discouraged, even). The good news is that plenty of other people have started a business in Colorado and lived to tell the tale. You’re not in this alone, even if you’re a sole proprietor or are otherwise literally doing this by yourself.
Starting a business in Colorado means understanding the state’s laws and regulations right from the beginning. Each state is different with regard to things like registration, business licenses and permits, and business insurance. You’ll also have to think about other factors, such as your Colorado small business bank options.
Even the most even-keeled entrepreneur might get overwhelmed with all the steps involved in starting a business in Colorado. That’s where we come in. If you’re wondering how to start a business in Colorado, we’ll point you in the right direction about everything from selecting a business name to opening a business bank account in our ultimate guide to starting a business in Colorado.
Step 1: Picking a Business Name and Entity
Starting a business in Colorado, just as you’d expect in any other state, begins with finding the perfect business name. As silly as that might sound, you will have to pick out a unique business name to register with the state. Bear in mind that you don’t always have to use the exact same name publicly as you’ve used to register your business with the state government, but picking the name you want—when it’s available—certainly makes things easier. You’ll want to head to the Colorado Secretary of State website and conduct a name availability search before deciding on your business name. Once you’ve settled on a business name, you will be able to reserve it for 120 days.
Colorado only has a few limitations on the kinds of business names it’ll allow. You’ll have to make sure your business name is distinguishable from existing businesses in the state. This can include adding suffixes, such as Inc., LLC, and others. Spelling and (some) punctuation differences also count, which means that “Example Company Incorporated” is distinguishable from “Example Company Inc.” Even if these two names seem relatively similar (if not identical), it’s still fair game. Alterations that don’t count as distinguishable differences include periods, commas, underscores, apostrophes, and title case (i.e. uppercase and lowercase letters).
If you add common business abbreviations like LLC, Corp., or Inc., you’ll want to make sure you actually register the business as the entity that comes along with these terms too. There are several business entities from which you can choose. Most of the time, you’ll want to pick a more mainstream option, such as a sole proprietorship, limited liability corporation (LLC), or a C-corporation.
Each of these entities are different, and serve their business owners in different ways. A sole proprietorship is best for small business owners who run a relatively straightforward business without any partners. LLCs are perhaps the most commonly used business entity for small businesses, as they can provide liability protection without requiring a ton of business filing every year. C-corporations (usually abbreviated as C-corps) create more separation between the business owners and their companies. There are also other entities you may decide to go with, as well. The best way to determine which business entity in Colorado works for you is by contacting a business attorney, since whichever entity you choose will have both legal and financial implications for your business down the road. These lawyers can help you figure out the best option for your new Colorado business venture.
Step 2: Write a Business Plan
With a registered name on file, you’re getting on your way toward officially starting a business in Colorado. You’ll have to set up a business plan, though, to really get things rolling. Granted, the state of Colorado doesn’t require businesses to do this, but it’s a vital component of any enterprise’s success.
A good business plan has to include a few basic elements that help offer a blueprint of what your company plans to do, how it plans to do it, and the ways by which it will generate revenue. Here are the vital elements that every business plan needs to have:
- Executive summary: A brief summary of what your business is and how it plans to make money, as well as other details about your approach to the existing market.
- Business opportunity: The differentiating factor that will help your business succeed. This can take the shape of a new product, more efficient processes, or other “x factors” that give your company a competitive edge.
- Current company financials: Whether your business is brand-new or has already existed for a while without a business plan, you’ll want to provide a detailed drill-down of the money you have on hand to fund the enterprise, as well as the need for capital you might have as time goes on.
- Current (and future) loan requirements: This component of your business plan is crucial if you’re seeking a small business loan—less so if you aren’t looking for funding yet. Regardless, it’s worth thinking about what kind of financing you might have to line up to complement the money you already have to invest (or invested) in the business.
- A description of how you’ll use the funds: If you incorporate your funding needs into your business plan, you will also need to provide more information about the purpose of the loans. After all, lenders are in the business of making money on their investments, which means they’ll want to know how you’re spending their money (and whether it will reap dividends).
- Your current (or future) loan repayment plans: Lenders want to know how you plan to repay them, as well as how long you’ll need in order to do so. All of these components will be spelled out once you’re approved for a loan and your lender draws up a contract. It’s better to incorporate prospective terms in your business plan, though, since it will give you a robust starting point in the loan approval process.
- A brief description of your team: Lenders don’t just want to know about your company’s financials. They also like to know more about the people who power your business as well. If your team members have prior business experience (such as a successful startup or an MBA), these factors can help give your loan provider with a better impression of your business.
The more (useful) detail you can put into your business plan, the easier you make it for business partners and potential lenders to determine if they want in on the action. Be sure to include risk analyses and realistic financials, as you’ll end up in hot water with lenders in the event that you misrepresented your company.
Step 3: Register Your Company with the State
Once you’ve picked out the perfect name, and made sure that it’s not already taken (or can be made distinguishably different), the next step in starting a business in Colorado is to register your name with the Colorado state government. The registration processes vary depending on the kind of business entity you’re looking to establish, but there are a few baseline elements that remain the same across them all. Here’s what you need to know in order to register your Colorado business.
For starters, it’s important to note that Colorado only accepts online applications. You’ll have to be handy enough with a computer to get through the registration process (which, thankfully, is relatively straightforward). The processes involved in registration will depend on your business entity: sole proprietorships require less paperwork, while corporations demand a significant amount of material about your business (such as articles of incorporation). Be sure to have all of these documents drafted, signed, and notarized (when required) before beginning the registration process. This will make it easier for you to complete the application in one go, rather than getting halfway through it only to find that you’re missing something and can’t proceed.
There are different filing fees associated with each kind of common business entity: sole proprietorships cost $20, partnerships $25, and both LLCs and corporations cost $50. You can pay this charge with either a debit or credit card.
Step 4: File for a Federal Tax ID (EIN) and Register with the Colorado Department of Revenue
One of the most crucial steps while starting a business in Colorado (or any other state, for that matter) is to register for a federal tax number. Also known as an employer identification number, or EIN, this ID registers your business with the IRS, and you’ll need an EIN in order to file your taxes or open a business bank account or credit card. Odd as it may sound, you can register for an EIN even before you’re officially minted within the state of Colorado. It’s easier, however, to wait until you’re all set on a state level in case there’s an issue with your business name—you’ll want these to match one another.
You might be surprised to hear that getting an EIN is actually a smooth process. All you need to do is go to the IRS website, enter some basic information, and you’ll have an EIN in no time. Make sure you do this as soon as you’re approved with the state so you don’t forget to do so when tax time arrives.
While getting your federal EIN, be sure to register with the Colorado Department of Revenue, as well. Colorado has a flat tax for both businesses and individuals (currently set at 4.63%), which makes it easier for you to file your taxes. But in order to do that, you’ll have to make sure you’re on the books with the state government. Remember that the best way to avoid any unnecessary (and potentially ugly) tax mistakes is to hire a business accountant.
Step 5: Secure Business Licenses and Permits (as Necessary)
Depending on what kind of business you’re planning to start in Colorado, you may be required to obtain specific business licenses or uphold certain requirements to remain in good standing. Let’s say you’re going to open a bar: you’ll want to make sure you have beer, wine, and liquor licenses as well as any signage that the state (or local) government mandates. On the other hand, if you’re starting your own plumbing company, you’ll need to make sure you have all of the required licenses and insurance to do work on other people’s property.
The list of the types of business licenses and permits on the books in Colorado is too expansive to list here, so be sure to check with the Colorado Business Licensing Database to see which ones you’ll need to have in order to stay on the right side of the law.
Step 6: Open a Business Bank Account and Consider Business Financing
Making it this far into starting a business in Colorado is a remarkable achievement. You’ve gotten all of the legal, governmental, and financial paperwork in place. Well, except for two crucial financial considerations, that is. With your registered business identity and tax information in tow, you’re ready to open a business bank account.
This is one of the most important parts of the entire business startup process—finding the best bank for small businesses in Colorado can mean getting the services and perks you need, without paying for those that you don’t. There are a ton of options out there for small business owners to consider: some are from nationwide and regional banks, while others might come by way of local banks and credit unions. Each account on offer comes with a different set of features, typically consisting of:
- Free transactions per month
- Free monthly cash deposits
- Online banking features
- Low monthly fees (that can typically be waived by hitting a certain account balance requirement)
Banks tend to offer anywhere from two to four different business checking accounts. If you don’t need a ton of features each month, free business checking accounts tend to work best for small businesses. There’s also middle-ground options for companies that move money around often, have to handle things like payroll and ACH transactions, and need a little extra support from their bank. These accounts tend to come with a monthly fee, which can usually be waived by maintaining a certain monthly or daily average account balance. On the higher end of the spectrum are accounts that provide businesses with a wide array of features in exchange for higher balance requirements. When deciding which account is right for you, make sure you have a sense of what your balance will be, and which kinds of transactions are “must haves” for your business.
With a business checking account (and, if you’ve got cash to spare, a business savings account) set up, you might want to assess your financing needs, as well. Your bank may be more likely to work with you on a loan if you’re already a customer, which is a worthy consideration to make when assessing your business banking options.
Alternatively, you may want to explore other financing options, such as SBA loans, which are highly coveted because they offer generous loan totals, low interest rates, and long repayment periods. The Small Business Administration teams up with banks to issue loans through this program, which reduces the risk banks take on when lending to small businesses that may not otherwise get a loan. The SBA guarantees up to 85% of the loan’s total, which makes it safer for banks to lend to entrepreneurs. There are also a ton of different SBA loan programs available, which makes this a versatile option for small business owners.
Unsurprisingly, SBA loans tend to go to the most qualified candidates, and can be tough for first-time business owners to get. This is particularly true if their business is new, as well. SBA loans also come with a lengthier approval timeline—not because it takes lenders a longer time to make a decision, but because of the sheer volume of paperwork that the SBA loan application demands. This may make an SBA loan less attractive if you need cash quickly, as well.
If an SBA loan isn’t in your future, there are plenty of alternatives to consider as well. For example, term loans help small business owners get fast access to cash in exchange for higher interest rates and shorter repayment periods. This is great for entrepreneurs who need fast cash and are willing to pay a little more in interest.
Depending on the type of business you’re starting in Colorado, you may also want to look into equipment financing, which helps you pay for specific pieces of machinery or business items without requiring additional collateral as part of the agreement. These loans are great options for new businesses and entrepreneurs, as equipment financing doesn’t require a longstanding or immaculate credit history.
Another financing option is a business line of credit. A line of credit is similar to a loan, although not identical. Instead of receiving a lump-sum loan and making repayments in short order, a business line of credit works more like a credit card. Lenders offer a set amount of money to a borrower, allowing them to access all or some of this cash repeatedly during a set period of time. Borrowers only pay interest on the money they’ve borrowed, which is great for situations in which you don’t need the entire loan’s sum at once. Credit requirements do tend to be higher for a business line of credit than equipment financing or short-term loans, however. Best to consider your own creditworthiness before diving in.
Starting a Business in Colorado: The Bottom Line
Colorado can be a small business-friendly state, depending on what you’re looking to do and how much effort you put into the setup process at the beginning. When starting a business in Colorado, registering your business, getting your tax information set up, and filing for any required licenses can all be done online. Setting up a business bank account, however, will likely need to be done in-person (unless you go with an online business bank, which is a different matter entirely). For the most part, however, the Mile High state doesn’t make it too challenging to get your company off the ground. All you need is perseverance, planning, and good business sense. With all of this taken care of, you’ll be ready to roll out your next big idea in no time.