How to start a business in New Mexico in 8 steps
"Red or green?" It's an age-old question, but entrepreneurs only choose the latter because what's better than cold, hard cash?
In 2019, all the chile was in the New Mexico economy, and its robust $97 billion and spicy 1.7% growth rate. But then the COVID crisis came along, and the retail, food, and entertainment sectors folded up like a tortilla and left thousands unemployed and countless businesses scrambling to meet payroll, with their accounts firmly in the "red."
For many, it's out of the financial frying pan into the fire, but amidst the flames is a group of brave would-be business owners who are ready to innovate, disrupt, and capitalize on all the changes. So if you have a burning passion for launching a successful company, read on to avoid the pitfalls made by many first-time entrepreneurs and find out how you can serve up your own brand of magic to customers in the Land of Enchantment.
1) Think about the type of business you want to start
Entrepreneurs who aspire to build a personal brand in business must first choose what type of firm they want to lead. While some elements, such as online operation or physical location, might be clear, others are harder to decide. As a result, it's a good idea to do some research and examine other local small businesses in your industry to see how you can learn from their achievements while avoiding their mistakes.
Aside from the practicalities of your day-to-day operations, you must also decide if becoming a business owner is suitable for your situation. Certain company structures take years to establish, and when something goes wrong, are you prepared to deal with all the difficulties of ownership?
Still, if nothing seems more gratifying than the startup grind, it's time to dive into your business idea. While each stage may be divided into smaller, workable to-dos, the process must be promptly finished so that you can reach your prospective customer base.
2) Set up your legal structure
Sometimes the legal structure is called the business structure, business entity, or legal entity. Nonetheless, all the terms relate to how your company is legally set up. Every New Mexico business must select a registered agent as the owner or employee to receive all communications from the state. These are the many methods to form your new company:
- Sole proprietorship: One of the easiest ways to organize your new business is to run it as a sole proprietor. Profits from your work are paid to you as the business owner, but any business debt is your personal responsibility. Because they are not incorporated, sole proprietorships need the least amount of paperwork. Since there are no employees, these companies report all revenue on personal tax returns with the owner's Social Security Number.
- Partnership: A general partnership may be ideal for setting up a business with another individual. As with sole proprietorships, partners in a small business are personally liable for company debt and lack liability protection for their respective personal assets.
- C Corporation: C corporations are owned by their stockholders, making them more attractive to entrepreneurs seeking funding. C corporations are legal entities distinct from the individuals who work for them, and they are often big enterprises. This structure involves annual reports, a board of directors, and the filing of Articles of Incorporation with the New Mexico Secretary of State (SOS). Furthermore, shareholder-employees must pay state income taxes on their individual state tax returns, and the business must pay New Mexico corporate taxes.
- S Corporation: Businesses with 100 or fewer shareholders can choose to start an S company, also known as a small business corporation, to take advantage of particular Internal Revenue Service (IRS) regulations and avoid federal corporate taxes. You may have to complete further paperwork, such as IRS Form 2553.
- Limited Liability Company (LLC): This form combines the ease of sole proprietorships or partnerships with the financial safeguards of corporations. As a New Mexico LLC, you'll have to file Articles of Organization with the New Mexico Secretary of State (SOS). Moreover, although though it is not needed by law, you may wish to draft an operating agreement, particularly if you have a partner, which specifies ownership percentages, profit splits, duties, and what happens if one of you leaves your LLC.
- Nonprofit: Consider creating a nonprofit if your group focuses on social problems and generates money via donations. In most cases, nonprofit organizations are excluded from paying income taxes.
Once you've settled on the best structure for your company, you must create a business plan. And, your business plan should contain a market study, company model, and financial forecasts.
3) Name and register your business
After spending time on your business structure, you deserve a bit of fun. While selecting a business name is undoubtedly one of the most creative and enjoyable aspects of starting a business, there are a few considerations.
If your business needs a website (and almost every company does), you may want to register your name and logo with the U.S. Patent and Trademark Office. You can do preliminary research on their site, but you will eventually need to apply. The last thing you want is to get a cease-and-desist letter from a lawyer asking you to stop using the name you've selected because it's trademarked.
And, if you're starting a sole proprietorship or partnership that's doing business as any trade name that differs from your legal name, you must register a "dba" with the local county clerk.
After securing a name, the next part of the business registration process involves heading to the IRS's website to get a federal Employer Identification Number, if applicable. You'll need this ID number when it comes time to file your state and federal taxes.
4) Apply for licenses and permits
New Mexico doesn't issue general business licenses. Instead, it leaves that up to counties and municipalities, and local business licenses usually cost $35 per year. The U.S. Small Business Administration (SBA) website and the field office in Albuquerque can help you find the necessary licenses and permits, along with the respective filing fees. For example, establishing a restaurant has different requirements than launching a gym, and Santa Fe has unique laws not found in Las Cruces. Thus, your research can only illuminate the journey to your first customer.
If you want to sell goods in New Mexico, you must first register with the New Mexico Taxation and Revenue Department (TRD), so you can collect the state gross receipts tax (also known as sales tax). Plus, if you'll be hiring employees, your registration will include employer withholding tax. You may file for both kinds of taxes (and others) by getting your Combined Reporting System (CRS) ID number from TRD's Taxpayer Access Point (TAP) website. If you prefer snail mail, use the Application for Business Tax Identification Number, Form ACD-31015.
5) Choose a location
Many novice business owners mistakenly jump to this step because they saw an ad for a superb location. While it is critical to evaluate prospective properties, proceed with caution before signing a contract.
At this point, you presumably know what kind of business you'll be running, and your business plan describes your vision for your actual site. Likewise, you've probably decided whether you'll fly solo or start with some employees. Finally, you might be conscious of how quickly you want to scale up, and you're aware of who your closest competitors are.
All these variables will affect where you set up shop, so it's wise to wait until this phase before picking a place. Additionally, zoning restrictions may apply to particular buildings, so getting your store or office up and running may take longer than expected.
6) Open a bank account and prepare for future taxes
While sole proprietors may process transactions with a personal bank account, other company structures need a business bank account. Because LLCs and corporations separate revenue and debts from an owner's personal liability, any commercial activity will require an independent account. With your banking configured, you may finance your company via credit cards, business loans, or even investors.
You've probably already obtained an IRS and state tax ID number and paid filing costs for licenses and permits. While you're still planning to open for business, be sure you're prepared to file both federal and state taxes. If you're not a math whiz, you might receive help from a bookkeeper or accounting software.
7) Purchase business insurance
New business owners sometimes overlook one of the most important administrative tasks in launching a venture in New Mexico. Small business insurance is critical, just like other types of coverage when you're preparing for the unexpected—after all, you would never drive without insurance, right? And, when you're trying to drive growth for your startup, the state may require business insurance before you can even rev your sales engine. Depending on your business entity and industry, here are some coverages to think about:
- Workers' compensation insurance is required for businesses with three or more employees (an owner who works in the business counts as an employee). This insurance helps to cover an employee's missed earnings and medical care if they get sick or injured on the job.
- General liability insurance may protect you if someone sues your company for bodily injury or property damage. If your workers visit a customer's property, such as a landscaping company, this coverage may be helpful.
- Business interruption insurance is another option to explore, which may help you pay your expenses if your company is forced to close temporarily for a covered reason.
- Both business property insurance and business personal property insurance are also wise protections to think about. For instance, the former may cover your building if it's damaged or destroyed, while the latter may cover damages to the items inside your building.
Except for workers' compensation, you may unite all the insurance options mentioned above into a single package called a Business Owner's Policy (BOP). BOPs offer significant peace of mind alongside potential savings when compared to buying coverage a la carte. Additionally, unemployment insurance for your employees may be required to satisfy the New Mexico Department of Workforce Solutions (NMDWS).
8) Create a marketing plan, hire employees, and more
If you've read this far, you're at least seven steps closer to making some green. But before you can start reeling in the profits, you should create a marketing plan and settle on an advertising budget., depending on your business, you may already have a sizable number of customers expecting your grand opening depending on your business.
Now might be the right time to build a website, print those business cards, and create your social media profiles so that you can generate buzz amongst your ideal clientele. Naturally, you'll consult your business plan to see which tasks make the most sense.
Unless you're planning on a sole proprietorship or partnership, you'll need to recruit your first couple of employees at some point, which means you'll need workers' compensation insurance. But, again, the Small Business Administration is one place to check for knowledge of the hiring process, and you can find other helpful tips there, too.
Launching your own business can be more than a lot to digest in the Land of Enchantment, but once you're done, the results could feed you for life. There are so many business resources to put on your soon-to-be prosperous plate, so you can help the customers you're passionate about. Here's one for your small business insurance:
Huckleberry can help you get a policy in about the time it takes to make your favorite burrito, with your choice of chile, disappear—most small business owners can easily get a policy in minutes.