Thinking about starting a small business in New Mexico? Becoming your own boss is exciting, but it’s common to be a little overwhelmed and nervous at the same time. To help you out, we’ve put together a simple guide to help walk you through the important steps.

Steps To Start A Business In New Mexico

Step 1: Choose a Business Idea

The journey to starting your own business in New Mexico starts with a fundamental choice: selecting a business idea. It’s not mandatory, but finding one that aligns with your passions, abilities, and skills is often better than finding the most profitable idea.

Whether you already have a solid idea or are on the lookout for inspiration, our collection of business ideas offers in-depth information on industries, the costs involved, and practical tips to guide your decision.

Step 2: Write a Business Plan

After you’ve done your homework and found an idea you think customers would be interested in, it’s time to put together a business plan. A business plan isn’t just paperwork; it’s your battle plan for working through how (and if) your business will work. It helps you spell out your vision, your strategy, who your customers are, and why they are going to shop with you. You’ll also work through the financial projections to see if the idea is feasible.

Also, if you’re looking for money to fund the business, banks or investors are going to want to take a close look at it too.

Related: How to write a business plan

Step 3: Find the Money

After working through the business plan and calculating the costs to start your business, you will have an idea of how much money is needed to make your idea a reality. If personal savings won’t be enough, there are several funding options available, a few of which include:

Conventional bank loans: Traditional banks and credit unions offer a range of business loans, such as term loans, lines of credit, and commercial real estate loans. To qualify, you’ll need a solid business plan, good credit history, collateral, and personal investment of typically between 15% and 25%. Banks typically offer competitive interest rates but may have more stringent lending requirements compared to alternative financing options.
SBA loan guarantees: The Small Business Administration (SBA) offers loan guarantee programs, such as the 7(a) loan and 504 loan programs, to help small businesses secure financing from participating lenders. These loan guarantees reduce the risk for lenders, making it easier for small businesses to obtain loans with favorable terms and interest rates.
Microloan programs: Microloans are small, short-term loans designed for small businesses and startups that may not qualify for traditional bank loans. In New Mexico, organizations such as Accion, The Loan Fund, and WESST offer microloans ranging from $1,000 to $50,000. Some of these programs also often provide technical assistance and business support services to help entrepreneurs succeed.
Investors: Equity financing involves raising capital by selling ownership shares in your business to investors. This can include angel investors, venture capitalists, crowdfunding, or even friends and family. In exchange for their investment, these shareholders receive an ownership stake in your business and may require a say in decision-making. While this method can provide funding without the burden of debt, it also means sharing future profits and potentially relinquishing some control over your business.

Step 4: Select a Business Structure

The next step to starting a new business in New Mexico is selecting a business structure. A business structure (also called a business entity) is how a business is legally set up to operate. Choosing the right one determines the legal and financial responsibilities of the business owner(s) and the extent of personal liability for business debts and obligations.

In New Mexico, the four common types of business structures include the sole proprietorship, general partnership, corporation, and Limited Liability Company (LLC).

Sole proprietorship: This is the simplest business structure, where the owner is solely responsible for all aspects of the business. Pros include ease of formation as there is no formal paperwork or registration with the state, and the owner has complete control over the business operations. However, the owner also bears unlimited personal liability for the business’s debts and obligations, putting personal assets at risk.

General partnership: This business entity involves two or more individuals who agree to share in the profits and losses of a business. Similar to a sole proprietorship, the formation process is relatively simple. Pros include shared decision-making and pooled resources. However, each partner has unlimited personal liability for the business’s debts and obligations, potentially exposing personal assets to risk.

Corporation: A corporation is a separate legal entity from its owners, providing limited liability protection. Pros include limited liability, easy transfer of ownership, and potential tax advantages. However, corporations face more complex regulations and reporting requirements and the possibility of double taxation.

Limited Liability Company (LLC): An LLC combines the benefits of a corporation’s limited liability with the flexibility and simplicity of a sole proprietorship or partnership. Pros include limited liability for owners, flexible management structure, and potential tax benefits as profits can be passed through to owners’ individual tax returns. However, New Mexico LLCs have more complex formation and annual report requirements than sole proprietorships and general partnerships, though they are easier than corporations.

Forming a corporation or LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.

Some popular formation services include:

IncFile - Great service and free registered agent the first year.

Northwest - Privacy-Focused: Free registered agent and private business address for 1 year!

ZenBusiness - Easy to use and free registered agent for 1 year!

Step 5: Register the Business

With the business structure set up, the next phase is making the business legal. Each business will have different requirements depending on where the business is located in the state and what it does, but here is an overview of the common registrations:

Business licenses: The state of New Mexico doesn’t require a general New Mexico business license; however, many cities and units of local government require business licensing or registration to operate. Check with your city or county government offices for information on local requirements, such as a city business license, zoning permits, health department permits, or occupational licenses.
Combined Reporting System Number: All businesses will need to register for a New Mexico Combined Reporting System Number from the New Mexico Taxation and Revenue Department. The business tax identification number is commonly used to report gross receipts tax (which is similar to sales tax).
Employer Identification Number (EIN): An EIN is a federal tax identification number assigned by the Internal Revenue Service. This number is used to identify a business for tax purposes and is required if you have employees, operate a corporation, partnership, multi-member LLC, or have certain tax-related obligations. You can apply for an EIN for free online through the IRS website.
State professional licensing: If you are operating in a state-regulated profession, such as an accountant, barber, handyman, interior designer, and others, licensing is required in New Mexico. The New Mexico Regulation & Licensing Department (RLD) oversees many of the regulatory boards for licensed professionals.

Step 6: Open a Business Bank Account

Keeping your finances in separate personal and business bank accounts is the next step to take care of when starting your business. Separating your business finances from your personal ones makes it easier to manage your money, track expenses, and understand your business’s financial health. It also simplifies the process of handling taxes and can make tax time less stressful.

Every bank is different, but in general to open a business bank account, they will need the following:

Sole proprietorship & partnership: Trade Name Certificate, EIN or SSN, and owner(s) driver’s license.
Corporation: New Mexico Articles of Incorporation, bylaws, Certificate of Good Standing, EIN, and owner(s) driver’s license.
LLC: New Mexico Articles of Organization, Operating Agreement, Certificate of Good Standing, EIN, and owner(s) driver’s license.

Step 7: Hire Employees

If you plan to hire employees, new employers in New Mexico have a lot of responsibilities to be aware of.

For starters, employers must obtain an Employer Identification Number (EIN) from the IRS, get a Withholding Tax Account Number from New Mexico Taxation & Revenue, and an Unemployment Insurance Account from the New Mexico Department of Labor.

Additionally, employers must also ensure that all new hires are eligible to work in the U.S. and report them to the state within 20 days of their start date. Employers will also need to withhold income taxes from employee wages, pay unemployment insurance taxes on wages paid to employees, pay payroll withholding taxes, including Social Security and Medicare taxes on wages paid to employees, and provide any other benefits required by law, such as health insurance or vacation time.

Step 8: Obtain Business Insurance

Getting business insurance is an often overlooked step, but it can protect you from financial losses due to accidents, natural disasters, or lawsuits. Understanding the different types of insurance policies available and how they can benefit your business is important.

When starting a small business in New Mexico, general liability insurance is usually at the top of the list for most small business owners. This type of policy covers any bodily injury or property damage caused by your company’s products or services.

Professional liability insurance (also known as Errors & Omissions Insurance) is another type of policy for small businesses. This type of coverage protects against claims related to professional negligence or employee mistakes while providing services to customers.

Finally, it is important to consider purchasing commercial auto insurance if you use vehicles for your business operations. Commercial auto policies provide coverage for physical damage to vehicles used by the business as well as liability protection for any injuries or property damage caused by an accident involving one of these vehicles.

Step 9: Track Income and Expenses

Another important step in starting a small business is setting up the bookkeeping. Bookkeeping involves maintaining records of all financial transactions, including sales receipts, accounts payable and receivable, payroll, taxes, and other important financial documents. A good system helps you not only stay out of trouble with the tax man, but you will have a better understanding of the financial health of the business.

To organize and record your financial information, there are a few methods:

Paper filing system: Not the most efficient, but a paper filing system can be used. Be sure to keep these documents in a secure location and maintain a consistent filing method.

Accounting software: Accounting software, such as QuickBooks, Xero, or FreshBooks, is available to automate keeping records, generate financial reports, and make tax reporting easier.

Outsourcing: If the thought of managing your bookkeeping looks overwhelming or you just want to spend your time elsewhere, consider outsourcing the process to a professional bookkeeper or accounting firm. They can help you maintain accurate records, save time, and ensure compliance with tax regulations.

This material is property of StartingYourBusiness.com

Common questions when starting a business in New Mexico

What are the steps to starting an LLC in New Mexico?

There are three main steps to starting an LLC in New Mexico. These include:

1. Making sure the LLC name is available
2. Appointing a New Mexico Registered Agent
3. Filing the Articles of Organization

To get more details, check out our guide on how to start an LLC in New Mexico.

How much does it cost to start an LLC in New Mexico?

The filing fee for filing the Articles of Organization with the New Mexico Secretary of State is $50.

Does a sole proprietor need a business license in New Mexico?

In New Mexico, whether a sole proprietor needs a business license depends on the type of business they are running and where it’s located, not on the type of business structure.

The state itself does not require a general business license, but local governments often do. This means you’ll need to check with the city or county where your business will operate to find out if you need a license.

New Mexico Small Business Resources

There are 158,296 small businesses in New Mexico, which is 98.9% of all businesses in the state,¹ and 52.9% of New Mexico employees work for a small business.² Because of the economic impact of small businesses, there are a number of small business resources to help New Mexico businesses start and grow. Some of these include:

New Mexico Economic Development Department: EDD provides support and resources for small businesses in New Mexico to stimulate job creation and expand the tax base.
New Mexico Procurement Technical Assistance Program: The NMPTAP provides counseling and training for businesses interested in securing contracts with government entities.
New Mexico Small Business Development Center: The SBDC offers business counseling services and low-cost workshops.
Service Corps of Retired Executives: SCORE is a network of retired business executives who offer their expertise and experience to mentor and support emerging entrepreneurs and small business owners.
Veterans Business Outreach Center: The VBOC specializes in providing advisement, training, and outreach services to veterans interested in starting or growing their own businesses.