Starting a business can often seem like an intimidating task. As a result, many potential business owners never take the steps necessary to turn their business ideas into reality. With a little education and research, starting a new business can be accomplished. Small businesses are extremely prevalent in the state of Colorado, with 98 percent of all businesses labelled as official small businesses. Small businesses also employ 52 percent of all private sector workers, a considerable portion of the working population.
Before you start a business, however, it is crucial that you ask yourself important questions to ensure your decision is a wise one. Determine what you are looking for out of your career, and how owning and operating a small business will help you accomplish those goals. Understand that initial operating expenses may prevent you from making immediate profits and that owning a business will likely entail many unforeseen challenges.
First Steps for Starting a Colorado Business
Once you are certain you want to start a business, the first step is to determine its legal structure. The decision you make likely depends on who is controlling or financing the business, and there are many different forms of legal structures you can choose from with various benefits and disadvantages. A few common ones are: sole proprietorships, general partnerships and limited partnerships.
Sole proprietorships are owned and run by a single individual, while general partnerships and limited partnerships are owned by multiple individuals or business entities. Sole proprietorships are the most common for small businesses. These structures are enticing because of the potential for profit, but also force the proprietor to assume the most risk. If you are willing to take full responsibility for your business’ success or failure, the first action you must take is to register the business’ trade name with the Colorado Secretary of State.
General partnerships must register their trade name as well, in addition to filing a partnership agreement, if real property is owned, in the county in which it is located. Limited partnerships, which are general partnerships where one partner has limited liability protection, must file a “Certificate of Limited Partnerships” with the Secretary of State. These structures require you to also acquire a Federal Employer Identification Number from the IRS, unless you are a sole proprietor with no employees. Incorporating a business is another option, which offers greater tax deductions and credits, but also involves more setup. Many first-time business owners do not opt to incorporate right away.
Tax Implications for New Colorado Businesses
Depending on your choice of structure, your business will be subject to different general income tax laws. General or limited partnerships will be required to submit state and federal income tax returns, although they are not subject to income tax. First you must fill out Form 1065- your federal return of tax. You will use this information to then complete Form 106, your Colorado return.
Sole proprietorships do not have to fill out these forms. Instead, you must file your own self-employment taxes. Colorado’s income tax is 4.63 percent of your federally taxable income, which you will have to pay if you owe the state of Colorado more than $1000 in taxes.
If your business involves selling, renting, or leasing property or goods, you will also need a sales tax license. The state sales tax rate for Colorado is 2.6 percent. Depending on the city or county your business is in, various additional taxes will also have to be paid.
Colorado Employer Responsibilities
If you plan to employ other individuals, you must decide whether you want to hire full-time or part-time employees, known as common-law employees, or independent contractors. Common law employees are employees whose services are wholly dictated by the company. Independent contractors are not bound to one company, providing services as requested to any company that expresses interest.
If you choose to hire common law employees, the W-2 form will be your tool for determining tax withholdings. Employing independent contractors requires the use of a 1099 form. You will need to fill out a 1099 form for each contractor you hire. You must also come to a written agreement with each independent contractor, which outlines the nature of your business relationship.
Growing Your New Colorado Business
Once you have determined the basics of your new business and opened your doors to customers, it is time to begin your focus on marketing. Develop a plan by first establishing a budget, creating goals for growth, and learning about how your company stacks up with competitors. Understand what you are providing and what your customer base might look like. The Colorado Department of Labor & Employment can be a valuable resource for industry and labor market statistics.
Once these tasks are accomplished, it is time to consider your actual plan of attack. Decide what avenues and specific tools of advertising would work best to reach your potential customers. Television, radio, newspapers, magazines and social media are only a few of your possible tools. With a strong, consistent message that reaches your desired audience as efficiently as possible, your new company will be well on its way towards financial success