How to Start a Business in California

No other state competes with California when it comes to where to start a business. With both the best economic climate and the most access to venture capital in the nation, the Golden State boasts sacred soil for entrepreneurs. Not to mention, California is the fifth largest economy in the entire world.

California has the largest population of all states, and small businesses make up 99% of all in-state businesses. Do you need more reasons to set up shop on the west coast? Some of the world’s top business talent resides in California, and the weather is perfect almost all year long.

What follows is the American Business Credit 9-step guide to starting a business in California. Good luck! Call us today with any questions.

Step 1: What’s your Business?

It’s likely you already have an idea of what business you want to start. If not, that’s okay too! Your business should reflect your interests and passions, as well as your abilities and strengths. Most importantly though, you need a product or a service. What are you going to sell? Once you have this question answered, there are four things you need to do in order to complete step one:

Name Your Business

California has rules and regulations for naming a business. Click here to read the Name Regulations and Additional Statutory Requirements and Restrictions of California. Make sure your business name speaks to your target customer base. (Don’t open a skateboard shop called Broken Wheel, for example!) Pro tip: make sure an applicable domain name is available.

Locate your Business

Where will your headquarters be? Are you going to have a storefront or work from home? It’s critical to know the answers to these questions before moving forward. Your location informs which types of permits and licenses you’ll need, as well as how you’ll grow.

Research the Market

So, you know what your business will sell, what its name is, and where it’ll be. Now you need to get a feel for how your business will do. Conduct surveys and/or focus groups to better understand your target market. Also find out who your competitors are and how you can stand out.

Write a Business Plan

This is the meat and potatoes of step one. Your business plan is the first of many milestones along the path to success. Not only does a solid business plan help keep you organized, it’s also used in obtaining funding. There’s no universal template, but a good business plan should minimally contain the following seven elements:

  • Executive Summary
  • Company Description
  • Products and/or Services
  • Market Analysis
  • Strategy and Implementation
  • Organization Structure
  • Financial Plan and Projections

Step 2: Fund the Business!

It takes money to make money. In starting a business, this couldn’t be truer. From payroll to utilities, from inventory to permit acquisition, it’s expensive to launch a business. So, you need to calculate how much you’ll need, make a financial plan, and then get that money! There are numerous funding options out there, but when you boil it down, either you fund it yourself, get a grant, or borrow money. Here are the differences:

D.I.Y.

If you’re among the lucky ones and you personally have enough capital to launch your business, then do it yourself! Otherwise known as bootstrapping, the D.I.Y. method of funding a startup utilizes your checking/savings accounts and your current income. (We are lumping funds from friends or family into this method). Any profits from business are then invested back into the business itself.

Business Grants

A business grant is the single greatest way to fund a startup. That’s because it’s free money. Obviously there’s an application process and not every businessowner qualifies, but the gist is that a grantor would invest money in your business without payback required. Click here and scroll down to the section ‘Resources for Small Businesses and Start-Ups’ for more information on applying for business grants in California.

Business Loans

Getting a business loan is the most traditional method of funding a startup. However, finding a lender (and which type) can be quite a process. Be sure to practice due diligence in shopping for one. A business loan is the quickest way to get funds, but if mishandled can also be the quickest way to fall into debt. Give us a call today to discuss what the best loan options would be for your business.

Step 3: Determine your Business Structure!

Registering your company in California as a legal business entity has countless advantages. Two main ones are increased credibility and protection from liability. However, before moving forward, you must determine which business structure best suits your company. Five common structure types are LLC, corporation, sole proprietorship, partnership, and nonprofit.

LLC

A limited liability company, or LLC, is a business structure that protects owners from personal responsibility for debts or liabilities. There are no shareholders. Profits are shared and taxed as income. Most small business owners prefer the LLC structure because it combines the asset protection of a corporation with the flexibility of a sole proprietorship. Not to mention, LLCs tend to receive favorable tax treatment comparatively.

Corporation

A corporate business structure means the company is owned by shareholders but is a separate legal entity. Corporations may engage in most business activities that individuals can, such as entering into contracts, loaning and borrowing money, owning assets and paying taxes. Larger companies tend toward this structure, as it’s rather lucrative for investors.

Sole Proprietorship

Consider this the D.I.Y. version of business structures. Sole proprietorships are informal, non-incorporated, and not at all separate from their owners. All the profits go to the owner. So do all the financial responsibilities. There is no legal difference between business and owner in a sole proprietorship.

Partnership

The only difference between a sole proprietorship and a partnership is how many entities own the business. In a partnership, two or more entities own the business. Often it’s people who are business partners, but that’s not always the case. Partners in a partnership can be people, businesses, organizations, schools, and even governments, among other entities.

Step 4: Register the Business!

Regardless of which structure you’ve chosen, there are now three basic steps to take in order to register your business in California, shown below. For sole proprietorships and partnerships, there isn’t much more to business registration than these three steps.

  1. Acquire a registered agent. This is a person or entity designated to accepting legal and taxation documents on your business’ behalf.
  2. Acquire an EIN. Once a business is established, the IRS assigns a unique nine-digit number to that business, known as the Employer Identification Number, or EIN. It’s mainly used by the IRS to track the tax filings of individual businesses.
  3. File all necessary business formation documents. This generally includes the certificate of incorporation, the memorandum of association, and the articles of association.

For an LLC in California, you’ll also need to file an Initial Statement of Information and create an LLC Operating Agreement. Click here to read the Instructions for Completing the Articles of Organization in California.

For a corporation in California, you’ll also need to hold organizational meetings, file a Statement of Information, and file the Articles of Incorporation. Click here to read the Instructions for Completing the Articles of Incorporation of a General Stock Corporation in California.

For a nonprofit in California, there is a list of other steps that need to be taken, shown below. Click here to read the Instructions for Completing the Articles of Incorporation of a Nonprofit Public Benefit Corporation.

  • File a Name Reservation
  • Appoint Board Members/Officers
  • Adopt Bylaws and a Conflict of Interest Policy
  • File Articles of Incorporation
  • Apply for 501(c)(3) status for tax exemption, if applicable

Step 5: Business Accounts!

It’s critical to use dedicated business bank and credit accounts. Personal asset protection is guaranteed this way, keeping your personal assets (home, car, etc.) safe in the event of loss or a court case. This may not apply as much to sole proprietorships and partnerships, but it’s still important to know how and why business-dedicated accounts can protect your California business.

Business Bank Account

Opening bank accounts in the business’ name separates your personal assets from your company’s assets, thereby protecting your personal wealth in the event of a heavy loss and/or lawsuit. Not to mention, it makes filing taxes (and accounting in general) a whole heck of a lot easier.

Business Credit Card

Establishing a credit card or two in the business’ name separates personal assets from company assets even further, all while building credit for your business. Personal credit scores are different from business credit scores, and both can be raised by proper use of credit cards.

Business Accounting

Finally, having an organized and systematic accounting system allows for easy tracking of your business’ performance. It’s worth it to splurge a little on high-quality accounting software, or on a business accountant. Fast, easy, and most importantly accurate: that’s how accounting should be.

Step 6: Get Insured!

Business insurance is not negotiable. Not only is some form of it almost always required, insurance also protects your business from a wide range of risks. The three most common types of business insurance are general liability, professional liability, and workers’ compensation.

California businesses with one or more employee are lawfully required to have workers’ compensation insurance. We strongly recommend you also opt for General and Professional Liability. The rewards far outweigh the risks when it comes to having business insurance.

Step 7: Get Permits and Licenses!

In order to operate your business in California, you’ll have to comply with federal, state and local regulations. Almost always this means obtaining one or more business permits/licenses. We recommend utilizing professional services for this step, and as always we’re standing by! Give us a call today! Determine which permits and/or licenses you’ll need:

Federal:  Refer to the US Small Business Administration guide to applying for licenses and permits.

State:  Refer to the CalGold website run by the Governor’s Office of Business and Economic Development.

Local:  Contact your county clerk for guidance. Click here for a full list.

Step 8: Hire People!

Now that you’ve obtained all necessary documentation and insurances, it’s time to start hiring! Before you go building your team though, be sure to register with the IRS regarding employee taxation and to register with California regarding reporting new hires. Select people who you believe will lend to the success of your business. We also recommend utilizing a professional payroll service. Call us today for more information.

You’ll also have to register for California State Employee Taxes. Click here for sales tax information and click here for employer tax information.

Step 9: Market the Business!

Now you’re going to need a mission statement, a logo, a website, lots of advertising, various marketing strategies, and endless promotion. But don’t worry because this is the fun part! Write your mission statement from the heart. Choose a logo that you think your customers will appreciate. Build a user-friendly website. Hold press releases. Go on every single social media platform there is and create accounts for your business. Take out ads in papers or even on TV. Reach out to everyone you know and everyone they know.

By the time you open your doors, there should be plenty of awareness around your area of what’s coming. Reach out to us today with any questions, comments or concerns, and we’ll continue to guide you toward success in business. Good luck!




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Chris Fuller