Frenzy of new business formations this year in Colorado

Given a choice between applying for one of the numerous job openings out there or starting their own ventures, Coloradans appear to be taking the entrepreneurial route, forming an unprecedented number of businesses this year.

The state experienced a record number of new business filings in the first quarter — 55,787 — followed by a near-record number in the second quarter — 54,890. The first quarter’s increase was 27.6% year over year, and the second quarter was up even more, 39.1%, according to the latest data from the secretary of state’s office.

Most of the filings were for LLCs, preferred by sole proprietors, and it isn’t entirely clear why so many businesses are forming this year compared with prior years.

Normally, business filings go up in tough economic times, when job losses are mounting and opportunities to find work are scarcer, said Richard Wobbekind, a senior economist at the University of Colorado Leeds School of Business, which prepares the quarterly report.

Colorado has a low 2.8% unemployment rate, below the U.S. rate of 3.6% in June and tied for 20th among all states. And it has the fourth-highest labor force participation rate, meaning residents here are some of the most diligent when it comes to going out and finding employment.

But Colorado has seen a shift in its economy, moving from having one of the strongest rates of job growth during the pandemic recovery to having one of the weakest this year. June job growth came in at 1.5%, which ranked 44th-slowest among states.

Brian Lewandowski, executive director of the Business Research Division at Leeds, said slower job growth more likely reflects a lack of people to fill positions rather than a lack of available jobs.

Colorado had 212,000 open positions in May, down from 259,000 in April, but still one of the highest rates of openings of any state, according to the U.S. Bureau of Labor Statistics. There were 91,600 people in June actively looking for work.

So if anyone who wants a job can find one, or work two if they so desire, why go out and start a business to make income?

One possible explanation is that people took advantage of reduced business filing fees of $1. Those fees went back to $50 in July after the Colorado legislature declined to extend the discount. Some people might have been looking to lock down names for future use. Future filing activity will clarify if that was the case.

But a more likely explanation is that people, many already employed, are looking at side gigs to help them keep up with inflation. They are trying to find a more flexible way to generate extra income.

“The cost of living is incredibly expensive. These could be second or third jobs. We shouldn’t forget the hardships that many Coloradoans face,” said Jena Griswold, secretary of state, during a news call Thursday morning.

On the whole, the report shows the state’s economy is likely to defy forecasts of a recession this year. New business filings represent a positive indicator for the economy, in that they historically point to future job growth.

In another positive sign, the number of businesses disbanding and making dissolution filings was 11,785 in the second quarter, pretty much flat with the second quarter of 2022 and down 15.8% from the 14,000 dissolution filings made in the first quarter. And the number of entities in good standing rose 9% year over year, another indicator of health.