How to Start a Business in California: 7 Steps to Success

by | Dec 27, 2022 | SMB/Startup

California has a long history of innovation and entrepreneurship, so it’s no surprise that millions of small businesses call it home — 4.2 million of them, according to the U.S. Small Business Administration. Together, they account for a staggering 99.8% of California businesses.

So if you’re looking to start a business in the Golden State, you’re not the only one. And if you want to set it up for success, these seven steps can help.

1. Validate Your Business Idea

When forming your initial business ideas, be sure to consider your:

  • Personal interests and passions
  • Amount of available time
  • Skills and areas of expertise
  • Preferred working environment (i.e., working from home or in the field)
  • Financial resources (more on that later)

By doing so, you can come up with ideas that are well-suited to your needs. For instance, if you love working with animals, have free time during the day, and prefer to work from home, you might consider starting a doggie daycare business at your house. (And with California’s pet grooming and boarding industry expected to grow to over $1.5 billion by 2027 according to IBISWorld, it certainly wouldn’t be a bad idea.)

But before committing to a business idea, it’s crucial to validate it. That means determining whether people are actually willing to pay for the products or services you plan on selling. To do so:

  • Clearly identify your target customers, such as by creating a buyer persona.
  • Consider whether your customers actively need or want your products or services.
  • Find out whether similar businesses exist and whether they’ve succeeded or failed.
  • Research overall industry growth, both on a national level and in California specifically.
  • Talk to some of your potential customers, either in person or online, and ask them if they’d be interested in your products or services.

Even though validating your idea may take some time, it’ll be well worth the effort. If you’re able to validate your idea successfully, you can move forward with confidence, knowing you’ll likely have paying customers. But if you aren’t able to validate, you can move on to your next idea without having lost any undue time or resources.

2. Name Your Business

Every business needs a name by which its customers can recognize it, and yours is no exception.

While you’re brainstorming business names, be sure to keep the following considerations in mind:

  • Originality: To avoid confusion and potential copyright issues, strive to pick an original name not already in use by California businesses in your field. For help determining if your preferred business name is already taken or not, use our Business Name Search Tool.
  • Trademark potential: If you plan on trademarking your business name in the future, try to pick one that will make for a strong trademark. According to the U.S. Patent and Trademark Office (USPTO), the strongest trademarks are those that are fanciful and arbitrary (i.e., Apple), while the weakest trademarks are descriptive and generic (i.e., Bob’s Donut Shop). However, weaker trademarks can be easier for customers to remember, so put some thought into striking a balance that’s right for you.
  • Spelling and pronunciation: To ensure customers can easily find your business amongst the millions of other California companies, choose a business name that’s easy to spell and pronounce.
  • Logo design: Remember that your business’s name will be displayed right alongside its logo and can even be incorporated into it. So, try thinking of a name that will mesh well with your logo’s design and size.
  • Online availability: If you want your business to be discoverable by as many customers as possible, then you’ll need to give it a website and build a strong online presence. So before locking in a business name, make sure the appropriate domain name and social media handles are available.

And if you’re feeling stumped (or just want some extra inspiration), try using our free Business Name Generator to get the ball rolling.

3. Research Your Market and Make a Business Plan

You already performed some initial research by validating your business idea, but now it’s time to take a close look at your market and create a comprehensive business plan.

To perform in-depth market research, evaluate:

  • The number of potential customers in your area of operation
  • Your potential customers’ spending power
  • Your potential customers’ locations and your business’s ability to reach them
  • The number of other businesses offering similar products and services in the same area of operation
  • The amount of money customers tend to spend on similar products and services

For detailed tips on conducting market research and analyzing your competitors, the U.S. Small Business Administration (SBA) has a helpful guide.

Once you have a solid understanding of your market and competition, you can move on to creating a business plan. While not strictly necessary, taking the time to write a thoughtful business plan can help you define your goals, prepare for the future, and anticipate challenges before they arise.

What’s in a Business Plan?

To make your business plan as thorough and complete as possible, be sure to include the following core elements:

  • Executive summary: After you’ve finished writing the rest of your business plan, summarize its most important points here.
  • Primary goals: List the main objectives you hope to achieve with your California-based business. For instance, you might want to make a certain number of sales within a specific time frame.
  • Company description: Outline the industry you’re entering, and identify your business’s unique niche. Also, include any relevant context or background information about your company and why you’re starting it.
  • Market research findings: Explain the main takeaways from your earlier market research and competitive analysis.
  • Size and management structure: Will your business be a one-person company for the foreseeable future? Will you be hiring employees, and if so, how many? Are you planning on running the business alone or with a partner? All these questions should be answered here.
  • Marketing and sales plan: Describe how you plan to spread the word about your business via various marketing methods, plus how you’ll make sales to customers.
  • Funding and financing: Give an approximate estimate of your startup expenses, as well as your estimated revenue, potential funding options (more on that in the next section), and any other pertinent financial information.
  • Appendices: If you have any notes or references you want to save, record them here.

How to Find the Right Location

If you’re planning on starting an online-only business, such as an e-commerce company or consulting business, you don’t have to worry about choosing a location.

But if your business will be a brick-and-mortar one, or if you’re planning on meeting clients face-to-face, then you’ll need to find a location that meets your wants and needs.

Start by considering the type of space you’ll need. This can vary significantly between businesses — a hair salon, for instance, will require a fairly large space with specialized plumbing and electrical wiring. A consulting firm, on the other hand, may only need a small office with room to see one client at a time.

Next, compare the prices of the options in your area, and decide if you want to rent or buy. Remember that rental rates and property prices are wildly different throughout the state of California, so you’ll need to do local research to determine what’s right for you.

For example, as of 2021:

When choosing your location, also consider the location of most of your target customers. In many cases, the closer you can be to your target audience, the better.

4. Get Funding

Some businesses take very little money to get up and running. For instance, some of the cheapest businesses to start include personal training, landscaping, cleaning, home repair, and tutoring businesses.

But if you’re starting a certain type of business, you may need significantly more funding to get started. That’s especially true in California, the most expensive state for commercial real estate in the U.S.

If you’re starting a brewery, for example, you’ll need a large brewing facility and several pieces of costly equipment. And if you’re starting a laundromat, you’ll need ample retail space and multiple sets of commercial washers and dryers.

But fortunately, you don’t necessarily need to drain your savings to fund your business’s startup phase. Instead, you can explore several other funding options. These include:

  • SBA loans: Just enter your ZIP code into the SBA’s Lender Match tool and you can find potential lenders in your area.
  • California state loans: The Small Business Loan Guarantee Program and California Rebuilding Fund are some of the state-level loan programs available to small California businesses.
  • Local funding opportunities: Through the California Office of the Small Business Advocate (CalOSBA), you can get technical assistance for your business and learn about city- and county-level loans and grants you may be eligible for.
  • Business lines of credit: Some business lines of credit require your company to have been up and running for as little as six months, making them a viable choice for new businesses.
  • Business credit cards: The best credit cards for startups offer perks like cash-back programs, little to no fees, low interest rates, and more.
  • Traditional loans: Though traditional loans from major national banks can be difficult for new businesses to qualify for, their low interest rates make them worth looking into.
  • Crowdfunding: The top crowdfunding sites make it possible for small businesses to get funding from a wide array of people.
  • Venture capitalists and investors: California sees far more venture capital investment than any other state ($157 billion in 2021 alone, to be exact), so be sure to check if any investors in your area are interested in funding businesses like yours.

5. Form the Right Business Entity

Ready to make your business official? Choose the right business entity for you and file your business with the California government.

To make sure you pick an entity type that suits your needs, first consider all the possibilities:

  • Limited Liability Company (LLC): With its relatively affordable setup fees, straightforward maintenance, and robust personal asset protection, an LLC is the most popular choice for small business owners.
  • Sole proprietorship: A sole proprietorship (or its partnership equivalent) requires no additional paperwork to set up but also offers no additional liability protection. In other words, your personal assets could be on the line if your business goes under or encounters legal trouble.
  • Nonprofit organization: If you want your business to serve a good cause rather than focus on generating revenue, you might want to consider starting a nonprofit.
  • S Corp: Although S Corps can offer tax benefits to publicly traded corporations with fewer than 100 shareholders, they’re typically not a practical choice for new businesses.
  • C Corp: With their complex paperwork, elaborate upkeep, and high setup costs, C Corps rarely make sense for new small business owners.

Thanks to its combination of low setup costs and comprehensive asset protection, there’s a good chance an LLC will meet your needs.

But if you’re still not sure which type of entity you should form, try taking our business entity quiz to get a personalized recommendation based on your needs.

6. Set Up a Bank Account and Organize Your Finances

As soon as your business is established, you’d be wise to set up a business bank account. Why? By doing so, you can separate your business assets from your personal ones, simplify your taxes and bookkeeping processes, and reap benefits only offered to business accounts.

When you open a business bank account through our Bank of America partnership, for example, you can earn a bonus of up to $500 for completing certain activities.

And while you’re setting up your bank account, be sure to also consider how you’ll tackle your bookkeeping and accounting tasks going forward. This can entail:

  • Keeping detailed records of every transaction
  • Monitoring cash flow
  • Preparing and delivering invoices
  • Paying bills
  • Tracking business expenses
  • Paying both annual and quarterly taxes
  • Recording purchases, deliveries, and inventory
  • Storing and organizing receipts
  • Pay California’s applicable business taxes and fees

Not feeling up for completing all those tasks yourself? We don’t blame you. Our affordable Bookkeeping and Accounting service can help.

7. Adhere to California Laws and Regulations

California is a wonderful place to start a business for many reasons, but a lack of regulations isn’t one of them. In fact, it’s the most heavily-regulated state in the country.

So for small business owners in the Golden State, it’s crucial to stay up-to-date on all the laws and regulations that are relevant to your business.

California’s various business permits and licenses provide a prime example. Depending on the type of business you own and the activities it takes part in, you may be required to obtain one or more of the following:

And depending on where in California you’re located, you may also need to obtain a general business license — check with your city and county governments to find out if that’s the case. (Hint: You can use Incfile’s Business License Research service to identify all the licenses and permits you need in one fell swoop.)

That’s not all: California also requires LLCs to pay a minimum annual tax of $800 regardless of revenue, pay a separate revenue-based LLC fee, and submit various annual statements.

If you don’t keep up with all of California’s rules and regulations, your business could be subject to costly fees or even fall out of good standing. In that case, you’d have to go through the process of reinstating your business to get up and running again.

Suffice it to say, you should strive to stay compliant with all applicable state and local regulations. Not sure where to start? California’s complete list of business regulations can point you in the right direction.

What Makes California Great for Small Businesses?

Don’t let California’s strict rules and regulations discourage you. For various reasons, the state is a fantastic place to start a small business. Some of those reasons include:

  • Booming economy: California has the largest statewide economy in the U.S. and as of 2022, is poised to become the fourth-largest economy in the world.
  • Huge population: With approximately 40 million residents as of 2022, California is the most populous U.S. state by far.
  • Industrial diversity: From professional services to warehousing and transportation to entertainment and recreation, California’s small businesses occupy a wide variety of thriving industries.
  • Funding opportunities: As we mentioned earlier, California sees more venture capital investment than any other state, which means more funding opportunities for you.

How Much Does It Cost to Start a Business in California?

For California LLCs formed online between July 1, 2022, and June 30, 2022, the processing fee is $0. The optional certification fee is $5, and the processing fee for forms filed in person is $15.

To find out how much it costs to form types of businesses other than LLCs, see the California Secretary of State’s fee schedule.

Do You Need a Business License in California?

While there is no state-level general business license in California, your municipal or county government may require you to obtain one. For help determining which business licenses and permits your new business may need, try our easy-to-use Business License Search Tool.

December 27, 2022



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