Colorado sees a record number of new businesses launch in 4Q

Leaving multiple unfilled jobs openings behind them and ignoring the economic storm clouds ahead of them, Coloradans filed to create a record number of new businesses last quarter, according to a report Monday from the Colorado Secretary of State Jena Griswold and the University of Colorado Boulder’s Leeds Business Research Division.

Time will tell if the state is witnessing a doomed Armada of entrepreneurship or explorers sailing toward a brighter economic future, but an unprecedented 48,806 new entity filings were made in the fourth quarter, a 37.2% increase from the fourth quarter of 2021 and an 11.8% jump from the third quarter.

A majority of those fourth-quarter filings, 42,003, were for limited liability companies, the type of business entity favored by sole proprietors. Those were up 50.2% over the past year, more than three times the 15.2% annual growth rate averaged over the past five years.

For the year, the state counted 175,650 new business filings in 2022, an 11.5% increase from 2021.

“With another strong year of employment gains and continued job growth, new business entity filings growing at a record pace and inflation diminishing faster than the national average, Colorado continues to lead when it comes to owning and operating a business,” Griswold said in comments accompanying the quarterly update.

New business filings signal optimism about the future. People are less likely to launch a venture when they think the bottom is ready to drop out of the economy and their efforts will be wasted. A certain percentage of startups will reach the point where they can add jobs, so the measure is a good predictor of future job growth.

That said, the choice isn’t always voluntary, and periods of high layoffs oftentimes coincide with an increase in business starts. But that isn’t the current situation. The state’s unemployment rate ended 2022 at a historically low 3.3% and employers added a net 8,600 jobs last month and 104,700 over the past year, a very strong showing, according to the Colorado Department of Labor and Employment.

Work is plentiful for those wanting a job, and employers remain desperate to hire. So why go start a business, especially with supply-chain problems still an issue, money more expensive to borrow and some forecasts calling for a recession this year?

One factor that hasn’t raised its head in four decades is inflation, which was running at a 6.9% pace in November in metro Denver. Higher prices may be forcing more people to look for ways to boost income. Starting a business or side gig may offer more flexibility and upside than taking a second job.

It is also worth noting the state offered a break on fees for new business filings, lowering them from $50 to $1. But given the amount of money and effort required to launch a legitimate business, that $49 savings probably isn’t a deciding factor.

Markers of economic distress were also up. Business dissolutions came in at 13,293, a gain of 17% over the year, while the number of delinquent businesses was up 9.7% over the year to 798,981. But those gains didn’t come close to matching the measure of optimism represented in increased new business filings.

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