Are you considering starting a business in Colorado? Keep an eye on these challenges and opportunities in the state.
To help set up our readers for success, Business News Daily is reporting on the small business environment in every state in the United States. In this installment, we cover the economic and small business environment in Colorado. We even asked a few of Colorado's 630,113 small business owners about the challenges and opportunities of operating in their state.
Overall economy of Colorado
As of the third quarter in 2018, Colorado experienced an annual growth rate of 3.8%, which, according to the U.S. Small Business Administration Office of Advocacy, was faster than the overall U.S. growth rate of 3.4%. Colorado's small businesses employ about 1.1 million people, and companies with fewer than 100 employees have the largest share of small business employment in the state. Such robust economic activity also raises the cost of living, and the price of real estate throughout Colorado has exploded. Colorado is a state in rapid economic ascension. The major metropolitan areas throughout the state have experienced unprecedented growth for several years now, creating more economic opportunities for entrepreneurs of all stripes.
Entrepreneurs in Colorado are excited about the fast-paced economic environment they're operating in, and they're largely optimistic about the future of the Centennial State. In communities eager to welcome small businesses and support local entrepreneurs, with disposable incomes riding high, many locals feel that obtaining access to capital will only become easier as time goes on.
Colorado's growing economy
Colorado has been deemed one of the best places in the U.S. to do business, as it's extremely business-friendly and a hub for growing businesses and startups. Between the appeal of an outdoor lifestyle and booming economic activity, largely within the tech and cannabis industries, Colorado has become a popular place to relocate. According to U.S. Census Bureau estimates, Colorado's population has grown by almost 239,000 people from 2014 to 2018, reaching a total of 5,695,564. Of that group, many are young entrepreneurs, and small business owners in Colorado report no shortage of startups in the area.
"Here in Boulder, it's a very entrepreneurial community for sure," said Tim Segraves, co-founder of real estate analytics company Revaluate. "Tech startups, natural food startups, biotech, aerospace – it runs the gamut in terms of people starting different businesses. You just walk down the main street downtown and you bump into founders of other companies, or you hear people talking about raising money."
Top industries to start a small business in Colorado
The regulatory framework and environment for businesses provide great opportunities if you're looking to start a small business in Colorado. Here are some small business opportunities for Colorado's entrepreneurs.
- Gym and fitness centers: With Colorado being full of active communities, fitness centers are in high demand. Gyms and related health services have seen a major boom over the last couple of years.
- Day care services: With so many working couples in the state, working professionals are often looking for good day care for both children and the elderly.
- Digital marketing agencies, copywriting services and advertising agencies: Colorado has an array of businesses and companies operating at small-scale margins. While large companies and corporations have expansive marketing budgets, midsize and small businesses need marketing – including copywriting, one of the most sought-after marketing services – at affordable prices. There's a wide market for advertising agencies as well.
- Party services: The state has seen a spike in the party business over the last few years. Party services that offer one-stop solutions for food, drink, DJs and other party paraphernalia are a growing industry in the state.
Colorado's collaborative and supportive communities
An active community of entrepreneurs means that business owners have a supportive environment in which to run their businesses. Small business owners told Business News Daily that there's a palpable sense of everyone wanting you to succeed – even your competitors – and networking is incredibly easy. Local support is unmatched, they said, and the municipal and state governments do their best to help entrepreneurs succeed and stay in Colorado.
"The amount of interest and interpersonal support is so high," said Steven Sashen, owner of Xero Shoes. "There are a lot of companies that have come out of basements and become giant companies. It's a very conducive environment in terms of assistance from the city or state as well."
In addition to local support, entrepreneurs have access to a rich community of accelerators, development centers, state programs and coworking spaces to boost businesses in their early stages. These institutions serve as important networking spaces, as well as places to gain important insights from mentors and forge connections with potential investors.
"I think the main reason I really like to have my business here is that it's just a great place for small business," said Niki Lopez, founder of Focus Marketing and PR. "There's a lot of support for entrepreneurs as far as associations and networking events. I feel lucky that I started my company here and met so many great entrepreneurs."
Manageable regulations and taxes
Most entrepreneurs didn't bring up regulations when asked about the challenges of doing business in Colorado, but when they did, they said state and local governments don't adversely impact them. In fact, many spoke fondly of public efforts to foster a healthy environment for startups and small businesses.
"The regulations and taxations are manageable," said Robert Thompson, CEO of restaurant and entertainment chain Punch Bowl Social. "We don't feel like it's a hindrance in any way. The city of Denver and the municipalities are great to work with."
Natural beauty and outdoor lifestyle
An ancillary benefit of doing business in Colorado, small business owners said, is living in a state that takes great pride in its natural beauty, from the Rocky Mountains and canyon depths to the Colorado River and sterling lakes. Entrepreneurs said that not only is living among pristine natural landscapes a great benefit, but it also helps to attract talented employees from all over the U.S. who are seeking an opportunity to enjoy the great outdoors.
"Colorado is very active in general. There's always so much to do," said Alexandra Weissner, co-founder of social fitness group bRUNch Running. "The community here is so active that we're able to continue doing what we do. We're selling out events, and there's tons of options – there's an event for everyone every single weekend."
The state is willing to help entrepreneurs take advantage of the business opportunities offered by the robust sporting and outdoor environment. As one business owner said, the state works to "export the brand of Colorado" to the rest of the country, and an integral part of that brand is the natural environment and the active lifestyle it promotes.
"The state started a new program called CO Active Colorado, which is a new division of the state specifically designed to cater to outdoor activity companies in Colorado," said Lanny Goldwasser, co-founder of Phunkshun Wear. "That's very new, but they're having more and more meetings, and the structure is definitely getting there to where it will be beneficial."
Rising costs of living
As a byproduct of the state's economic growth, the cost of living is increasing, making it more expensive to hire and retain employees. However, business is doing well enough that most entrepreneurs find the shift manageable. They said it's simply the other side of the coin when you have a burgeoning economy.
"The biggest obstacle we've experienced is that the costs involved were significantly more than we had budgeted for," said Jamie Gulden, co-founder of Feisty Spirits Distillery. "That can always set you back a little bit. It's getting much more expensive to live in the state, especially in our area, so the cost to hire people at a reasonable rate goes up."
Several entrepreneurs reported they haven't yet felt the impact of the rising cost of living. Those who can't afford to increase salaries in anticipation of it – like PJ Hoberman, co-founder of event planning company Two Parts – said they're happy to supplement wages and salaries with benefits like unlimited paid time off and flexible hours.
"As far as rising costs, it hasn't been too big a struggle just yet," said Hoberman. "We don't have the funds to pay everyone a crazy salary, but we try to make up for it with some awesome benefits. We do unlimited PTO, for example. There's no accrual; the basic policy is 'get your work done and then go have fun.' As long as it doesn't affect your work, then take the time off."
High demand for commercial space
Another byproduct of the economy churning at such a clip is the rising costs of real estate, both residential and commercial. For example, thanks to the boom in legal cannabis operations, warehouse space is virtually impossible to find, according to local business owners. The result is that many entrepreneurs are moving their companies to the suburbs or to slightly less desirable areas to keep costs down.
"The biggest challenge in Boulder was finding commercial space," said Sashen. "Boulder and much of Colorado has restrictions on growth, so with more people moving in and more businesses starting, there's only so many places you can put them."
Finding startup capital
Colorado is no different from so many other states when it comes to finding startup funding. Banks are still relatively hesitant to lend, though access to capital has been steadily improving since the recession. Still, many entrepreneurs report low levels of venture capitalist activity and some difficulty obtaining traditional financing through a bank.
"Raising enough money was the most challenging thing," said Jason Stengl, co-founder of Cannonball Creek Brewing Co. "We did it in the form of an SBA loan, partially, and then just used private investors. It was very challenging to convince the banks and SBA to lend us the money, but we managed to get it done."
Segraves said that because Colorado's growth is more recent, investors have yet to catch on in large numbers. Also, since there are so many startups and small businesses, it can be difficult to stand out from the crowd when you're looking for that much-needed capital.
"If you're a tech startup, per capita there's a whole lot less VC money here in the Front Range as compared to Silicon Valley or even New York," Segraves said. "That's definitely been a little bit of a challenge, trying to look outside the box."
But some Colorado entrepreneurs, like author and cannabis industry consultant Todd Mitchem, are optimistic that things will get easier.
"I think when people hear what a stable startup environment Colorado is, more investors will come in," said Mitchem.
How to start a small business in Colorado
How much does it cost to set up an LLC in Colorado?
You'll face various expenses in the process of setting up your LLC in Colorado. You'll need to file articles of organization with the secretary of state, and they cost $50 to process. Also, while most people can form an LLC without professional help, many people choose to hire a professional to ensure nothing slips through the cracks.
Is a business license required in Colorado?
Most businesses need a combination of licenses and permits from both federal and state agencies, depending on the specific industry and geographic location. Here are links to find out which federal, state and local licenses you'll need for your business.
Where should I start when opening a business in Colorado?
There are various things to consider when starting your own business in Colorado, including tax registration, local permits, incorporation filing, employer requirements and insurance requirements.
- Tax registration: When starting your own business in Colorado, you'll have to register for taxes related to your business's services. Common taxes for businesses in Colorado include the wage withholding tax and the sales and use tax. Depending on the services your business provides, you may have to pay the liquor excise tax, cigarette and tobacco tax, severance tax, and/or fuel excise tax.
- Local permits: Your city or county government may require you to register for specific permits and licenses. Each municipality has its own regulations. Some of the most common licenses and permits you may need are alarm permits, building permits, business licenses and/or tax permits, health permits, occupational permits, signage permits, and zoning permits.
- Incorporation filing: Corporations, nonprofits, LLCs and partnerships must register with Colorado's secretary of state, which you can do online by filling out a form here. Sole proprietorships don't need to register with the secretary of state, since all profits from these businesses are the owner's income. However, this makes the owner liable for the business's debts, and the owner's personal name is used as the business's name.
- Withholding tax: Following the filing process of the fourth quarter of the current year, employers should continue to track those employment records for at least four years. Those records should include the Employer Identification Number, employee information, copies of tax withholding allowance certificates and pension payment data.
- Insurance requirements: If you need to hire employees for your business, you'll need to pay unemployment tax as well as workers' compensation tax, which aids in-state workers who have been injured or taken ill in a work-related setting. Colorado's unemployment insurance tax provides financial aid to individuals who are capable of working but unable to find a job.
Resources for small businesses in Colorado
If you're a small business owner in Colorado looking for resources to help you move forward, here are a few organizations to keep in mind.
- Colorado SCORE: SCORE's volunteer business professionals and expert mentors provide counsel and guidance to entrepreneurs looking to start or expand their businesses. The services are entirely free and volunteer-driven. They can also help connect you with virtually any other resources you might need. Colorado chapters include Colorado Springs SCORE and Denver SCORE.
- Boomtown Accelerator: Boomtown offers a 12-week accelerator program that has helped launch dozens of startups and build the foundation they need to succeed. Based in Boulder, Boomtown offers a legion of mentors with a wide variety of experience to help your business grow.
- Techstars: Techstars is a nationwide accelerator with the flagship division based in Boulder. It offers a three-month, mentor-driven accelerator program in the technology industry and boasts a network of more than 400 companies.
- U.S. Small Business Administration district offices: The SBA offers financing and grants as well as consultations and counseling services. There are also opportunities to apply for federal government contracts and assistance after natural disasters through the SBA.
- Colorado Small Business Development Centers: Colorado hosts more than a dozen development centers for small businesses. Each is dedicated to supporting the development and retention of small businesses, helping entrepreneurs do everything from crafting business plans to navigating the state's tax code. Check out the Colorado SBDC Network site (linked above) to find your region's Small Business Development Center.
Adam Uzialko contributed to the reporting and writing in this article. Some source interviews were conducted for a previous version of this article.