If you’re planning on starting a new business in Colorado, but have no idea where to begin, here’s a step-by-step guide of 16 easy steps to help you choose the right path.
After making the startup decision, the business owner faces many new challenges. Do you consider starting an LLC, sole proprietorship, or do you want to choose another structure? Have you planned the formation process and the subsequent operation of the company to make it as productive as possible?
In this article we will answer these and some other questions about starting a small business, and discuss the nuances that will make it easy and enjoyable.
1) Write a Business Plan
Drafting a business plan is an effective way to organize your business ideas, goals and needs. When you take a look at these and some other key elements of your business, you’ll make sure you don’t miss anything important.
The structure and content of a business plan, of course, depends on the company and the owners’ wishes, but some of the most popular points are as follows:
- Company description: create an image of the company, describing its purpose, current and future goals;
- Market Analysis: analyze the market and talk about the advantages of your business that will help you be ahead of your competitors;
- Managerial or organizational structure: who will manage the company and what specialists will be needed;
- Products and/or services: what exactly are you planning to produce and why your product is better than that of your competitors, etc.;
- Marketing strategies: portray your customer and show how your products and services meet their needs;
- Funding goals: write down how much money you need and what it will be used for;
- Financial projections: think through and prepare a planned Cash Flow Statement, Profit & Loss Statement, Initial Expenses and Balance Sheet;
- Executive Summary: is a separate document that represents your company and contains a brief description of its goals, benefits, and opportunities.
To summarize, a business plan allows you to carefully think through how to realize your small business ideas. It not only covers the basics of internal operations, but also makes your future business more reliable to potential investors or partners.
To learn more about a business plan, check out the guide from the U.S. Small Business Administration, where you can find a lot of useful information.
2) Decide on a Business Name
Choosing the perfect name is one of the key aspects of deciding on a business, which will influence its future significantly. A successful name must fit the business purpose and, at the same time, be unusual and memorable. In addition, do not forget about the state requirements.
The Secretary of State’s Business FAQ page provides information on how a company’s business structure affects its name. If you plan to start a limited liability company, the name must include words or abbreviations that indicate this, like “LLC”. The same goes for corporations.
Furthermore, an important criteria for an appropriate name is its availability. Before you put your chosen LLC name on the Articles of Organization, you must do a name availability search to make sure that it is free. If not, the Secretary of State will reject your application.
You can also use a name reservation service if you want to keep the desired name, but are not ready to officially open.
3) Decide on a Legal Structure
In America, entrepreneurs can choose from a few types of business structures, and each has its own unique set of advantages and disadvantages. Nowadays, the most popular types of businesses are:
- Limited liability company (LLC);
- Sole proprietorship;
- General partnership;
- Corporations, which are divided into two types according to the type of taxation:
- S corporation;
- C corporation.
Most often entrepreneurs choose an LLC, because of the personal asset protection it provides, or the sole proprietorship, which is the easiest way to start a business. However, there is no universal answer to the question, “Which form of business is better?”. Therefore, you should consider the pros and cons of each business structure when making your decision.
4) Choose a Registered Agent
Processing legal communications in a timely manner is a crucial part of any business. For this reason, every LLC and corporation needs a registered agent who will take on the role of an intermediary with the state and will receive all official correspondence. This is a mandatory condition for operating a business, because the Secretary of State also needs assurances that the company can always be reached.
If you wish, your own business may designate as a registered agent an individual or a legal entity that meets the following criteria:
- Be an individual Colorado resident or a business entity authorized to do business in the state;
- Be present at the registered office address during normal business hours;
- Have a physical address in Colorado;
- Have a mailing address in Colorado (not a P.O. box).
There are a wide range of candidates who qualify as a Colorado registered agent. You can even designate your LLC as your own registered agent, which is not available in some other states.
However, the best option is still a professional registered agent service, which makes doing business more convenient. Some of these companies offer business formation and annual reporting services, allowing you to avoid extra work and focus on developing your business strategy.
5) Register Your Business
The registration officially creates your business, making it legal in the eyes of the state. Depending on the business type, the amount of formal requirements and costs may vary.
- LLCs: to start the LLC formation process, you must file the Articles of Organization with the Secretary of State. You can find the form on the Business Forms page of the Secretary of State in Colorado website in the “Limited Liability Companies” section. Click “File Online”, enter the required information and pay the Colorado LLC filing fee of $50 by credit or debit card. Usually, these applications are processed as quickly as possible;
- Corporations: to open a corporation, you must file the Articles of Incorporation, paying the state fee. Its cost depends on the type of corporation and starts at $50;
- Sole Proprietorship/General Partnership: you can start doing business by obtaining the necessary licenses and permits. There are no mandatory official documents and fees for these business structures. However, the flip side of the coin is the lack of personal asset protection, which puts your savings at risk;
- Foreign Entities: foreign refers to a business that was founded in another state and is now expanding into another state, in this case into Colorado. Such companies need to foreign qualify to conduct business in that state. You can get it by filing a Statement of Foreign Entity Authority, where you need to provide basic information about the business.
6) Get an EIN
For the ease of maintenance, corporations, sole proprietorships, partnerships and almost all LLCs need the Employer Identification Number (EIN), which is assigned by the IRS.
The functions of this unique nine-digit code are similar to a Social Security Number used for individuals.
An EIN identifies your business on tax documents, allowing you to pay state and federal taxes, open corporate accounts and hire employees.
If the owners did not specify otherwise when forming an LLC, it will be considered a “pass-through” entity by default and enjoy certain benefits. For example, such businesses do not pay federal income taxes and do not file corporate tax returns. Instead, the income and expenses of the business are reported in the personal tax returns of the LLC owners. However, this does not mean that such a business does not need an EIN, since most companies are still subject to other tax requirements.
Are you still not sure if you should get an EIN? Visit the IRS website to learn more about it. You can also apply for an EIN online there.
If you prefer paper documents, use a Form SS-4 and send it to the IRS in one of the ways listed below.
Download the form to your computer, complete and print the document, then send it to the address:
Internal Revenue Service Operation
Attn: EIN Operation
Cincinnati, OH 45999
Send the completed form to (855) 641-6935.
7) Open a Business Bank Account
To maintain limited liability protection, LLC and corporation owners must follow certain rules. First, personal and business finances must be completely separate, which requires a corporate account.
Nevertheless, personal asset protection is not the only reason why a start-up business may need its own bank account. Among the benefits it offers, there are also the following:
- Facilitating bookkeeping;
- Customers find it more comfortable to write checks to a business rather than to its owner as an individual;
- Expansion of lending opportunities, etc.
To open a business bank account, first you need to decide on the number of branches and their closeness to the office. In most cases, entrepreneurs choose one where they already have existing accounts, but it is optional.
The bank may ask you for the following documents to open a corporate account:
- Sole proprietorship and partnership:
- Trade Name Certificate;
- EIN or SSN;
- Owner(s) drivers license.
- Certificate of Formation;
- Operating Agreement;
- Certificate of Good Standing;
- Owner(s) drivers license.
- Certificate of Formation;
- Certificate of Good Standing;
- Owner(s) drivers license.
8) Handle Any Tax Obligations
If you run a business in Colorado, you must consider business’ tax requirements as an essential element of the company’s financial plan. The number and type of taxes are determined not only by the field of activity and location, but also by the chosen business structure.
By default, LLCs are not required to pay federal income taxes and file a corporate tax return because they are considered “pass-through” tax units. Profits and losses generated by the business operations are reported in the owners’ personal tax returns. However, an LLC may establish a corporate tax treatment.
Corporations are free to choose one of 2 basic taxation options:
- C-corporation: the company files a corporate tax return under its own name. This leads to so-called “double taxation”, in which profits are taxed twice. The first time is at the business level as a whole. The second time is at the level of the owners;
- S-corporation: such corporations transfer the obligation to file a tax return to their owners, avoiding the expenses associated with “double taxation”.
Owners of sole proprietorships and general partnerships must pay self-employment taxes because they are considered self-employed but not employees.
There are also taxes that are not related to the business structure. Depending on the characteristics of the company, there may be:
- Sales and Use Taxes: are applied if the business sells goods or services. In this case, you must register with the Department of Revenue online or by paper copy.
- Withholding Tax: if you have employees or intend to hire them, you must contact the Department of Revenue to pay Withholding Tax. Employers are also responsible for paying Unemployment Insurance Taxes and must register with the Department of Labor and Employment.
If you have any questions, visit Colorado’s Department of Revenue website for more information on taxes.
9) Find an Accountant
At the initial stage of starting your own business, many entrepreneurs handle bookkeeping and tax procedures on their own. However, as the business grows, the tasks can become more complicated, requiring more and more time and specific knowledge. Therefore, transferring financial responsibilities to a specialist is a good way to ensure efficient and professional record-keeping.
10) Create an Operating Agreement
An Operating Agreement is an internal document that outlines the management structure of the company and its basic operating principles.
The content of the Operating Agreement is determined by the owners and depends on the needs and peculiarities of the business. Usually it includes the following main points:
- Rights and duties of the participants;
- Voting procedures;
- The way of asset allocation;
- Procedures for the dissolution of a company;
- How to change company members.
Although an Operating Agreement is not a required document to officially start a business in Colorado, there are still several reasons to have one:
- Ensuring stable and smooth operation of the company;
- Protection of the limited liability status if the court has doubts about the legal business structure of the company;
- Enhancing the sustainability of the business in the eyes of potential partners or investors;
- The ability to avoid the default state rules.
Since the Operating Agreement is optional, there is no officially approved sample on the Secretary of State’s website. However, there are two ways to obtain this document:
- Create it on your own, using an online template;
- Hire an attorney or an incorporation service, like ZenBusiness.
The Operating Agreement must be approved and signed by all LLC members. There is no need to register the completed document with the Secretary of State. It should simply be kept with the rest of the company’s papers.
11) Acquire the Necessary Licenses
Although filing your formation documents makes a business official, in some cases it is not enough to start operating. Most companies need to obtain specific licenses to start operating in Colorado legally. The type, cost and number of licenses depends on the type and location of the business.
The most common types of licenses and permits include the following:
- Sales Tax License: if your business sells goods or services, you must register to pay the appropriate tax;
- Professional/Occupational Licenses: professions such as doctor, accountant, engineer and some others require licensure from state departments. You can find a complete list of licensed occupations on the Department of Regulatory Agencies website to see if your company falls into one of the categories;
- Local Licenses: a city, county, or municipality might set its own conditions in addition to federal and state requirements. Consult your local county clerk to learn more about this.
12) Consider Business Insurance
Insurance allows you to protect your business and assets against lawsuits, losses, or other unforeseen circumstances.
Although forming an LLC or corporation protects the personal assets of its owners, additional business insurance offers a number of advantages. You can purchase protections such as:
- Public liability insurance;
- Professional liability insurance;
- Workers’ compensation insurance;
- Vehicle insurance, etc.
If you are going to or have just started a new business and have not yet decided which type of insurance is right for you, visit the SBA.gov website for more information.
13) Build a Website
Today, the importance of a company’s digital presence is so great that it is impossible to imagine a modern and efficient business without it. An online presence of a business increases its reputation and helps you make your company known to the widest possible range of people.
There is no doubt that having your own website is especially valuable for an online business the main activity of which is concentrated on the Internet. At the same time, it is also one of the most important steps to start a small business, about which sometimes aspiring entrepreneurs forget.
Starting your own website is quite easy. You don’t have to take courses in programming or web design. Just use services like WordPress and Squarespace to create a functional and attractive website on your own. Additionally, you can always hire a professional to do the job for you for a reasonable price.
14) Launch Social Media Accounts
Along with the website, many businesses also use such popular social networks as:
- Instagram, etc.
This is a great way to invest in startups and solve several urgent business problems at once, among which are the following:
- Establishing your local business presence;
- Attracting potential customers or partners;
- The ability to publish social media content to create a company image and present its products or services;
- Customer feedback.
Thus, social networks are mostly free, but an effective tool for the development and active promotion of your business.
15) Understand Ongoing Colorado Requirements
Once you have launched your business, there is the state’s ongoing compliance requirement to be met on a regular basis. These may be annual or biennial business requirements, depending on the state and type of business.
One of the main responsibilities of a formal business is to submit a Periodic Report on time. This document serves to ensure that the state has up-to-date information about the company.
The cost of filing a Periodic Report in Colorado is a $10 filing fee, which can be paid by credit card during the online filing process. Paper documents are not used in this state.
The Periodic Report must be filed by the end of the month in which the company was incorporated or within the next two months. Otherwise, the business becomes “noncompliant” and is subject to a $50 fine.
If you fail to correct the violation in two months, the company will become “delinquent”, which will lead to more serious penalties. In particular, the state may impose an administrative dissolution, closing your business against your will.
16) Check Out Colorado Small Business Resources
There is an extensive database of free resources that helps create a business-friendly environment in Colorado.
For more information about the formation process, visit SBA.gov. It provides helpful publication for businesses to start that will help you learn about small business resources such as:
- Loan opportunities;
- Startup business ideas;
- Networking events;
- Consultations, etc.
You can also check out the Colorado SBA district office webpage to find out more about starting and growing your business.