Home to over 653,000 small businesses and boasting the 6th best-ranked economy in the nation, the Centennial State is a great place for your service business to call home.
Here are the steps you’ll need to take to start a business in Colorado.
Checklist: starting a business in Colorado
- Create a business plan
- Name your business
- Understand Colorado zoning
- Choose a legal structure that works for you
- Register your business
- Set up a business bank account
- Secure startup capital
- Research licenses and permits
- Purchase insurance
- Invest in equipment and software
- Research your tax obligations
- Grow your team
How to start a business in Colorado
1. Create a business plan
Every successful business starts out as a detailed business plan. Understanding things like startup costs, growth goals, and your competitive landscape can accelerate your success as a service business entrepreneur.
A well-crafted business plan can help you:
- Determine your startup costs
- Define business goals in the short and long terms
- Understand your competition and your own competitive advantage
- Develop growth strategies
- Identify potential customers
- Create a basic marketing plan
- Brainstorm additional revenue streams
- Attract investment
Writing a business plan is relatively straightforward. Use business plan templates from the Colorado Business Resource Book and the Small Business Administration (SBA) to guide you through the process.
2. Name your business in Colorado
In Colorado, sole proprietorships can operate using the same legal name of the business owner, whereas general partnerships must include the surnames of all the partners. LLCs and corporations require unique names that need to comply with Colorado’s business naming requirements.
How to name a business in Colorado
- Check availability. Use Colorado’s Name Availability Search tool and do a good old fashioned Google search to check if the name you want is available or already in use.
- Claim the name. If the name is available, you can claim it when you register your business.
How to reserve a business name in Colorado
You can reserve an entity name in Colorado for 120 days by filing a Statement of Reservation of Name and paying a $25 processing fee with the state. This can be a good option if you’re not ready to make your business official just yet.
3. Check Colorado zoning regulations
No matter where in Colorado you intend to locate your business, it will be affected by zoning laws. Zoning allows governments to keep businesses from negatively impacting residential areas, so be sure that you understand the zoning at your business address. Colorado zoning information is available from the Colorado Department of Local Affairs.
If you plan on operating your business from your home, there may be additional restrictions imposed by local governments. For example, there are two zone types in Denver that do not allow certain kinds of home-based businesses. Check with your local city to make sure your intended home-based business is allowed.
4. Choose a business structure that works for you
Every business registered in Colorado must choose a business structure. In some instances, this is also referred to as a “business structure,” “legal structure,” “legal entity,” or “business entity.”
Your business’s legal structure will impact business formation, personal liability protection, business size, and much more. You can explore information about legal structures in our guide to business structure types but be sure to work with a CPA or business attorney to determine which one is best for you.
You can choose from the following business structure options in Colorado:
- Sole proprietorship
- General partnership
- Limited partnership
- S corporation
- Limited liability company (LLC)
- Limited liability partnership
- Limited liability limited partnership
- Limited partnership association
- Nonprofit organization
- Out-of-state business
You can go in-depth into each legal structure in the Colorado Business Resource Book to help you understand the advantages and disadvantages of each one before registering.
5. Register your business
You can register your business in Colorado by following the steps in the Colorado Secretary of State’s Checklist for New Businesses.
Here’s an overview of what to expect:
- Elect or hire a registered agent. This is an individual or corporation with a physical address in Colorado that is responsible for receiving and distributing legal communications on behalf of your business. You can learn more about registered agents from the Colorado Secretary of State.
- File forms. Depending on your legal structure, you will need to file several forms with the Colorado Secretary of State.
- Subscribe to email notifications. The Secretary regularly sends updates that may relate to your business.
- Set up a Federal Employer Identification Number (FEIN or EIN). This is a federal tax registration requirement. You can sign up with the IRS. You’ll need an EIN for paying taxes, setting up business bank accounts, and hiring employees.
- Apply for a Colorado Sales Tax License. Depending on your legal structure and types of sales you plan to make, you may need a Colorado Sales Tax License. Find more information and apply with the Colorado Department of Revenue.
Registering a business in Colorado involves filling out formation documents full of legalese. We strongly recommend all business owners hire a business accountant or CPA to take care of business registration.
How much does it cost to register a business in Colorado?
In Colorado, business registration fees for most legal structures start at $50, with additional fees depending on your requirements ($20 filing fee for a trade name reservation, for example). A complete list of business registration fees is available in the Colorado Secretary of State Fee Schedule.
6. Set up a business bank account
No matter what type of business you are starting, it’s always a good idea to keep your business and personal finances separate. Separating and managing business finances in a business bank account isn’t just a legal requirement for most businesses. It’s also a huge time-saver that can make bookkeeping, accounting, and tax filing a whole lot easier.
In order to set up your brand new business bank account, you’ll need the EIN you created with the IRS. It works like a Social Security Number; only it’s for your business.
You will need a business checking account to manage incoming and outgoing funds. You may also want to consider a business savings account. And a business credit card is also a good way to build business credit, provided that you’re able to pay it off every month.
From there, choosing a bank boils down to personal preference. Whether local, credit union, national, or neo bank, there’s a wide selection of financial institutions available. Shop around and try to get the best deal for your operation.
7. Secure startup capital
If you have enough in your personal savings to boot up your business, you’re in good shape to get started right away. If not, you’ll need to secure startup funding before you start working with customers.
Consider the following small business funding options in Colorado:
- Equity partners
- Friend or family loan
- Small business bank loan
- Financing for business owners
- Government grants
- SBA loan or grant
- Angel investment
If the idea of taking a loan doesn’t sit right with you, you could also consider applying for a credit card with a 0% APR introductory interest rate. Just be sure that you can pay back the money you borrow on credit before the interest rate returns to the usual (very high) rate, or your debt could soon grow exponentially.
Lastly, include capital requirements and sources in your business plan so that funding stays top of mind during the startup process.
8. Research licenses and permits
You might need to apply for federal, state, and local permits or licenses depending on the type of service business you are starting. Permits and licenses regulate companies that provide liquor service, hair styling, acupuncture, and more.
To determine the licensing requirements that apply to your business, check these information sources:
- For federal regulation, check the SBA’s licenses and permits page.
- At the state level, the Colorado Department of Regulatory Agencies administers licenses and permits. The same agency deals with professional licensing as well.
- County business licenses and permits could apply to your business, so don’t forget to check with the county clerk in your area for more information.
- At the local level, consult city hall or the local chamber of commerce to learn about and apply for business licenses and permits. For example, licenses in Durango are handled by the City of Durango.
9. Purchase business insurance
Every business needs insurance. Even service businesses with no products and nothing to steal or damage should have insurance to protect the owner(s) from legal liabilities. Your business’ legal structure, such as an LLC, may provide some protection for your personal assets, but it’s prudent to have additional coverage just in case.
Different business types are required to have a variety of insurance types in Colorado, of which there are more than a dozen.
Here are some types of business insurance you may need for your service business:
- Worker’s compensation coverage. Applicable if you intend to hire employees.
- Property insurance. Do you own the building where you do business? You probably need property insurance.
- Automobile insurance. Many service providers are mobile so their vehicles must be insured as part of their businesses.
- Professional liability insurance. In the course of your business operation, you may encounter claims of negligence, copyright infringement, personal injury, and other liabilities related to your services. Professional liability insurance can protect your assets.
For complete information on business insurance, consult the Colorado Department of Regulatory Agencies Small Business Guide to Insurance and check out our detailed guide to business insurance.
10. Invest in equipment and software
Before you open for business, invest in a few apps and tools that will keep you productive and well-organized. Business software is essential to most service business owners these days.
Consider using software to streamline the following aspects of your service business:
- Invoicing. Automate your invoicing and accept credit card payments to save time and hassle for you and your clients.
- Review management. Your reputation online isn’t just a matter of hoping for the best. Durable provides a review management tool to help you build a good name for your business.
- Customer relation management. To provide the best possible service, you need to know your customers. A customer relationship management (CRM) platform tracks every interaction you have with clients so that you can give them exactly what they need at just the right time. Durable’s CRM automates many of these types of interactions, helps you stay organized, and it’s free.
- Scheduling. If you’re a service provider or business owner who has to book appointments with clients, you know that it can be a headache. Take the pain out of scheduling with an automated tool like Calendly or MeetFox.
There might be other business activities specific to your operation that can be automated, and if there are, there’s a good chance that someone has created a tool to help. So don’t hesitate to do some research before you cut the ribbon at your grand opening.
11. Research your tax obligations
Unless you happen to be an accountant, you should work with a CPA to understand your business tax obligations—things like tax rates, filing deadlines, and more.
Taxes have to be paid at local, state, and federal levels, and tax codes can be tricky, so a professional’s expertise is likely to save you money and hassle during tax season.
Here are some key business tax obligations in Colorado:
- Income tax. Most businesses are required to pay income tax to the state separately from the income tax paid to the federal government.
- Sales tax. It is likely that you will have to collect Sales & Use Tax from your clients to remit to the Department of Revenue.
- Withholding tax. If you have employees, you will need to withhold income tax from them.
- Local tax. Some local cities and regional governments require you to charge an additional sales tax on many transactions. Consult the revenue department in your area to find out what your obligation is.
- Product tax. Some specific products require additional taxes, such as liquor or cannabis.
For additional tax help, the Colorado Department of Revenue provides a handy collection of tax guides.
12. Build your team
Hiring employees can be complicated. That’s why most service business owners choose to work with an independent contractor or two when their business is relatively new.
If you need to hire employees, make sure you have the correct registrations set up long before you start conducting interviews. There are federal and state requirements for businesses with employees, and you’ll need to comply with all of them.
Here are some key employer responsibilities to keep in mind:
- Obtain an EIN. You did it as part of the registration process in Step 5, but it bears repeating: you must have an EIN from the federal government to hire employees.
- Work through the New Employer Checklist. The Colorado Department of Labor and Employment provides a thorough checklist that outlines everything you need to do before hiring your first employee.
- Verify employee eligibility. Once you start meeting with potential employees, you’ll need to verify that they are eligible to work in the United States by having them fill out this form.
From the towering Rockies in the west to the wide-open Great Plains in the east, the state of Colorado offers a bustling economy, a diverse population, and a wide selection of growth opportunities that could be perfect for a new business owner like you. Follow the steps in this guide to learn how to start a business in Colorado. And once your business is set up, stick around and give Durable a try.
Durable is a free platform with everything you need to start and grow a service business. Build your business website in minutes, and make invoicing, customer management, and review management a breeze.
Try Durable today—it’s free!