Few states offer a better environment for starting a business than Colorado: the state’s energy sector and budding cannabis industry have helped it increase its GDP by 3.5 percent in 2018, the highest increase in three years.
With the state economy booming, now’s the time for you to open your own business in Colorado and take advantage of the favorable environment for entrepreneurs. This guide will walk you through each step of starting a business in the Centennial State, from writing your business plan and courting potential investors, to registering your business and obtaining the necessary licenses and permits.
Colorado small business statistics
- Small businesses employ 1 million people in the state, over 48% of its workforce.
- 97.6% of Colorado businesses are small businesses, totaling over 570,000.
- Colorado’s startup growth rate was 74.1% in 2017.
- Colorado was ranked the fifth-best state in the country for startup activity.
- Colorado has the 7th-highest concentration of new firms in the country, with 36.2% of businesses being active for five years or fewer.
- 29% of new businesses were generated in the scientific, professional, technical and construction industries.
- Forbes named Colorado a top 10 state for business.
Starting a business in Colorado in 12 steps
1. Develop an idea
Every successful business starts with a good idea. Ask yourself these questions:
- Which product or service can your business provide that doesn’t already exist on the market?
- How does your business idea refine an existing product or service?
Determine your personal strengths and interests: developing an idea that suits your personality and positive traits will provide motivation to put in the long hours necessary in addressing the myriad challenges you’ll face in getting your business off the ground.
Figure out how to market your expertise: if your business idea is not something you totally believe in and can sell effectively, it will be much harder to succeed.
2. Do the research
Once you have an idea, it’s time to put it through the wringer and decide if it’s viable in the market. Conduct market research to arrive at answers to these key questions:
- Is there a demand for your product/service in Colorado?
- Who is your target market?
- Do existing businesses in Colorado offer a similar product/service?
- What makes your business unique compared to the competition?
Coming up with satisfactory answers may require refinement, or even a total overhaul, of your original idea. Be patient: you’ll only want to proceed with the next steps after determining that a niche exists in the Colorado market for your business idea.
3. Draft a business plan
Now it’s time to write the blueprint of your business. A great business plan should chart the path of your company from infancy to success while being able to attract investors to provide the financing.
Your business plan ought to include the following sections:
- Executive summary – An overview of your business and why it will be successful
- Description of business – Explain the advantages of your business and the problems it solves
- Market research – Provide research on your industry, target market, and potential competitors
- Organization and staff – Detail the nuts and bolts of your business; how it’s structured and who will run it
- Product or service description – State what you are selling or offering
- Marketing plan – Explain your strategy for attracting customers
- Fundraising – The money you’ll need in the next five years to grow your business and how you’ll spend it
- Financial forecast – Data and balance sheets providing a financial forecast for your business
- Appendix – An optional section with supporting and/or requested documents like resumes, letters of reference, permits, etc.
4. Secure funding
Every business needs money to get off the ground. In fact 82% of businesses that fail do so because of a lack of cash flow, U.S. Bank found in a recent study. Your business plan should include a detailed estimate of the funds you’ll need to cover expenses for at least a year, so now it’s time to acquire the money.
If you aren’t wealthy enough to self-fund your business, you can choose from a number of other funding options. These include a loan from the U.S. Small Business Administration, taking out a loan from a commercial bank, launching an equity crowdfunding campaign, or securing funding from an angel investor or venture capitalist group active in Colorado.
An angel investor is a wealthy individual who invests their personal finances in a startup, typically in the beginning stages, whereas a VC is a group of investors that will fund a business throughout its existence.
Which route you choose depends on the specifics of your business: angel investors typically invest smaller sums to help get a startup off the ground, while VCs invest larger sums of money in exchange for a greater say in the operations of a business. Smaller startups usually opt to pursue funding from angel investors. Plenty of both types of investors are operating in Colorado.
Colorado Angel Investors and VCs
- Access Venture Partners – A large Colorado firm with over 20 years of experience that has invested over $1 billion in early-stage tech companies.
- Angel Kings – A venture capital and private equity firm specializing in early-stage angel investments for Denver-area startups, particularly in the areas of biotech, mobile, and cybersecurity.
- Rockies Venture Club – An angel investing group with chapters in four Colorado cities (Denver, Boulder, Golden, and Fort Collins) that has invested over $40 million in 40+ Colorado companies since 2014.
Additional Investor Resources
- Angel.co: Colorado Angel Investors – You can find over 5000 investors based in Colorado in this extensive listing, along with the number of investments they’ve made and their areas of specialization.
- Seed Angel Forum – A Colorado non-profit organization founded in 2010 that focuses on connecting entrepreneurs with angel investors through special pitch events.
- Often it helps to attend large events to pitch your ideas to a range of investors and learn more about available opportunities. The Angel Capital Summit, held every year in Denver, is Colorado’s largest angel investing event. There you can connect with investors and hear speakers address topics important to Colorado-based entrepreneurs.
5. Decide on a legal business entity
The form of business entity you choose will affect many factors going forward. There are 3 main options to decide from:
- Sole proprietorship – The name for running a business by yourself. Legally, you and your business are one and the same, with no separate legal entity for your business. A partnership is legally identical to a sole proprietorship, except that it comprises two or more people.
- Corporation – A complex legal structure that is a separate entity (providing legal protection to owners) from the owner and comprises directors, officers, and shareholders.
- LLC – AKA “Limited Liability Company”, this is a hybrid entity between a sole proprietorship and a corporation that possesses advantages of both. An LLCs provides the liability protection of a corporation, yet isn’t subject to double taxation as the profits go through your personal tax return.
Nowadays, LLCs are the option of choice for small business owners as they are easy to manage and provide the benefits of a corporation while lacking their complex structure. Taxwise, they operate more like a sole proprietorship.
You may want to consult with an attorney to help decide which entity works best for your business.
6. Register your business
Next, it’s time to make your business official by registering it with the Colorado Secretary of State.
Completing this step will require a name if you don’t already have one. Search the Colorado Business database to ensure that your chosen name is available.
Registering your business will require a filing fee that varies depending on the entity you choose. Filing a sole proprietorship (DBA) costs $20 while forming a corporation or LLC is $50.
Forming an LLC in Colorado requires you to file the Articles of Organization (forming a corporation requires Articles of Incorporation), as it does in every state. You can file online. To complete the process you’ll need to appoint a registered agent, who is an individual or business who receives service of the process and handles official government paperwork such as tax filings. Yes, you can be your own registered agent, but for those forming their first corporation or LLC, you are advised to seek outside assistance.
7. Acquire federal and state tax IDs
Now you should obtain a Federal Employer Identification Number (EIN), which is like a social security number for a business and allows you to open bank accounts, handle payroll, and file taxes.
Each state has its own laws and taxes regarding businesses. Visit the Colorado Department of Revenue Taxation Division site for information on the state’s requirements.
8. Open business banking and credit accounts
Opening a bank account for your business is crucial because it allows you to separate company assets from your personal assets, and makes filing taxes a lot easier. This is a recommended step, even if you are operating a sole proprietorship.
It’s also a wise idea to obtain a credit card for your business because it will help you isolate business expenses and build up credit for your company, which may help in securing investment in later stages.
Major business banks operating in Colorado
9. Get the necessary licenses and permits
Depending on the type of business you are opening, you may need to apply for a number of permits and licenses to operate legally. For example, a restaurant will need a liquor license, and a pawn shop will need a reseller’s license. The paperwork may prove a hassle, but it’s a necessary ordeal that will protect you from fines, lawsuits, and other legal hazards.
Visit the Colorado Department of Regulatory Agencies for information on the types of licenses and permits that you will need to apply for to run your business.
10. Choose a location
Whether you are running an online business or opening a restaurant, location is everything. Be aware of the demographics of the neighborhood or town that you are considering: Are the local residents likely to visit your business? Will nearby competitors take a share of your potential profits?
Be wary of opening your business in an area with high real estate/rental prices or property taxes that will significantly hurt your cash flow. While the cities of Denver and Boulder have a lot of potential customers, they are also expensive to do business in, and have a lot of stiff competition.
11. Get insured
No matter what type of business you form, buying insurance coverage to protect yourself in the case of property damage or legal action is a good idea. In fact, businesses with employees are required by the federal government to have two types of insurance, while others are strongly encouraged or required at the state level, depending on your business type. Consult with a licensed insurance agent to find out which types of insurance you should get.
Required forms of insurance:
- Workers’ compensation: Covers medical costs and disability benefits if an employee is injured or becomes ill on the job.
- Unemployment insurance: Provides benefits to workers after a loss of job through no personal fault.
Recommended forms of insurance:
- Professional liability insurance: Covers losses as a result of property damage, medical expenses, libel, slander, and negligence claims.
- Commercial property insurance: Covers property damage to business owned properties and possessions as a result of fire, theft, or storm.
- Disability insurance: Provides short-term benefits for employees suffering an illness or injury. Required in certain states such as California, New York, and Hawaii.
12. Develop an internet presence
Establishing an identity on the web is an important investment in a business’s future development. Here are some key steps in the process:
- Register a domain name for a company website (You can use domain.com, Bluehost, GoDaddy.com, Namecheap.com). Design the website and fill it with content.
- Create profiles on the popular social media services (Twitter, Facebook, Instagram)
- Register a Google profile for your business
- Create accounts on review sites such as Yelp, Google Reviews, and TripAdvisor
Colorado small business resources
- Colorado Secretary of State: FIle a Form – Register your Colorado-based business online here.
- Colorado Division of Regulatory Agencies – Find information on the permits and licenses you’ll need for your business.
- Built in Colorado – A terrific site for members of the Colorado startup scene.
- Colorado Small Business Development Center Network – Offers tools and guidance for Colorado-based entrepreneurs.
- Colorado Department of Labor and Employment: Training – A directory of occupational training programs in the state.
- SCORE: Denver – The Denver branch of the nation’s leading business mentorship network.
- SBA: Colorado – The Colorado district office of the Small Business Administration.
- Boomtown – Boulder’s top accelerator program specializing in the healthcare and internet/mobile industries.
- Telluride Accelerator Program – A bootcamp model accelerator program based in scenic Telluride.
- Innosphere – Colorado’s top incubation program for science and tech companies with branches in Fort Collins and Denver.