How to start a business in California.

One of the most essential steps to start a business in California begins with a business plan for your business idea.

By Brad Nakase, Attorney

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This article discusses steps to start a business in California to give you a jump start on planning for your business. Starting a new business in California begins with having a business idea; then, you must have a business plan that serves as a roadmap.

In this article, our business startup attorney discusses steps for entrepreneur to get their business off the ground as follows:

Step 1: Pick the right idea for a business

The first step toward owning a California business is choosing what sort of company one wants to operate. An individual should think about their personal goals, their interests, as well as their natural talents and abilities. When the going gets tough, passion will help a business owner stay motivated.

Step 2: Plan the business

Creating a successful business in California demands a lot of careful planning. Before devoting a large amount of money and resources to a new business, an entrepreneur should be sure to analyze their idea and establish a plan of attack. At the very minimum, an individual should do the following:

  • Name the business

When choosing a name for their company, an entrepreneur should choose a name that resonates with customers and follows California’s naming rules. Before reserving an available name, it is important to make sure the domain name is also open for use.

  • Find a business location

Regardless of whether a business owner plans to open a physical location or work from home, a company’s location determines what kind of permits and licensing he or she will need. Location also plays a part in determining growth potential. It is wise to conduct research on popular areas in California, such as Los Angeles and San Diego, which can help an entrepreneur increase customer interest and drive foot traffic.

  • Perform market research

Before writing a business plan, an entrepreneur should be sure to conduct research about their target market. This may involve doing surveys, using SEO (search engine optimization) research, and leading focus groups. Market research is meant to help a business owner better understand their target market and any competitors. This research will inform an entrepreneur’s business plan.

  • Write a business plan

A well-written business plan not only helps an entrepreneur organize their goals, but it can also be used to get business funding. Some of the important components of a well-crafted business plan include:

  • Product development: What sets the product or service apart from competition? What problem does the business intend to solve?
  • Marketing and sales: How will the company attract people’s attention and turn them into buyers? Who are the target customers?
  • Partnerships and people: What professional relationships will an entrepreneur need to form, and what role will need to be hired?
  • Financial planning: How many sales or clients will be needed for the company to break even? How much money will be needed to break even, and where will the entrepreneur get the necessary funding?

Step 3: Choose a structure for the business

When an entrepreneur registers their California company as a legal business entity, such as a limited liability company (LLC), corporation, or nonprofit, they can enjoy two major benefits. First, registering a business entity can increase its credibility. Second, registering offers protection from personal liability in case the company is sued.

  • Sole Proprietorship

A sole proprietorship is an informal kind of business structure that is not separated from its owner or incorporated. This means that the sum of the company’s profits belongs to the owner. That said, if the business goes into debt or is sued, the financial liability falls on the owner’s shoulders.

  • Partnership

Similar to a sole proprietorship, a partnership is an informal kind of unincorporated business structure that has multiple owners. A partnership does not offer liability protection, as an owner would enjoy with a formal business structure.

  • LLC

An LLC, or a limited liability company, offers the flexibility of a sole proprietorship and partnership combined with the personal asset protection of a corporation. The majority of small companies choose to have an LLC structure thanks to its favorable tax treatment and easy maintenance.

  • Corporation

A corporation exists as a separate legal entity that is owned by its shareholders. With more formal regulations than limited liability companies, corporations tend to attract more attention from investors. Large businesses like Apple tend to be corporations.

  • Nonprofits

A nonprofit organization is a company that receives its funding from donations rather than investors. The purpose of a nonprofit is usually to advocate for a social cause. This type of business does not have to pay taxes. One example of a nonprofit is the Red Cross.

If an entrepreneur decides not to register their business as one of the above entity types, then he or she will be considered personally responsible for the company’s liabilities and debts.

It should also be noted that sole proprietorship and partnership business owners may have to file a DBA, which is a fictitious business name in California. This name does not qualify as a business structure and it does not offer liability protection as an LLC would.

Step 4: Register the business in California

After an individual has selected what business structure they would like for their company, they should then take steps to form the business. Regardless of what formal structure they have chosen, there are a few common steps, such as:

  • Name the company
  • Select an agent for service of process – this is a person or business that will accept legal and tax documents for the company.
  • File formation documents
  • Get an Employer Identification Number (EIN) – this is a number that the IRS provides as a way to identify companies for tax reasons.

Along with the above steps, each kind of business structure will have its own unique requirements.

  • Form an LLC

An LLC is the simplest formal entity to create and maintain. There is less paperwork to deal with, and an LLC can be formed in as few as six simple steps.

  1. Name the company
  2. Select a registered agent
  3. File the LLC with California
  4. File an Initial Statement of Information
  5. Make an Operating Agreement
  6. File for an EIN

To submit Articles of Organization for a limited liability company, an entrepreneur should file the formation documents with the California Secretary of State by mail or online.

  • Form a corporation

The following are the six simple steps for creating a corporation in California.

  1. Name the company
  2. Select a registered agent
  3. Have an organizational meeting
  4. Submit formation documents
  5. Submit the Statement of Information
  6. File for an EIN

To submit Articles of Incorporation in California, an entrepreneur should file their formation documents with the Secretary of State by mail or online.

  • Form a nonprofit

Forming a nonprofit in California requires much the same process as creating an LLC or corporation. However, this business structure is eligible for a tax exemption, which is also known as 501(c)(3) status. This is granted by the IRS.

  1. Reserve a name for the company
  2. Name the nonprofit
  3. Choose a registered agent
  4. Choose officers and board members
  5. Adopt a conflict of interest policy and bylaws
  6. File Articles of Incorporation
  7. File for an EIN
  8. Apply to get 501(c)(3) status

To submit the Articles of Incorporation for a nonprofit, an entrepreneur should file their formation documents with the Secretary of State by mail or online.

Step 5: Set up credit cards, accounting, and business banking

To protect personal assets, an entrepreneur should be sure to use business credit cards and banking. When business and personal accounts are combined, personal assets like one’s home, valuables, and car, are all put at risk in the event the company faces a lawsuit. Business law refers to this as piercing the corporate veil.

An individual can take steps to protect their business in California:

  1. Create a bank account for the business
    • This separates company assets and personal assets, which is essential to protect one’s personal belongings.
    • It makes tax filing and accounting easier.
  1. Get a credit card for the business
    • This helps separate business and personal expenses.
    • It builds the business’ credit history, which can be helpful when it comes to raising capital (such as small business grants and small business loans) down the road.
  1. Establish business accounting
    • Having an accounting system can help a business owner monitor their business’ performance. It also simplifies filing taxes each year. There is excellent accounting software available that allows a business owner to download their credit card and bank transactions, which makes accounting easy and fast. It is also possible to hire a business accountant who can help an entrepreneur manage all their tax and business accounting needs, ranging from sales tax to payroll.

Step 6: Pursue funding

Everyone knows that funding is an essential part of getting a new business off the ground, but there are some steps that an entrepreneur should take before securing the money needed to cover the costs of their startup. First, an entrepreneur should add up the costs of doing business prior to looking for outside funding. This will help determine the right source of funding for the business’ unique needs. The next step would be to create a financial plan that can help an entrepreneur get organized about their spending.

Funding options for California businesses

  1. Bootstrapping. This approach to business funding is a do-it-yourself method that involves the entrepreneur providing the funding for the company through personal savings and current income. After the business becomes operational, profit is then put back into the company to encourage its growth.
  2. Family and friends. Friends and family can offer loans to produce the capital that a young business needs to get off the ground. However, it is wise to create a written agreement with each individual to establish a repayment plan. Uncle Geoff is going to want his investment back!
  3. Small business grants. A small business grant is basically funding for a company that does not need to be paid back. Such a grant can be obtained by submitting an application to a grantor.
  4. Small business loans. An entrepreneur can apply for a small business loan through a bank or other lender. This method of funding demands repayment, but it can allow a business owner to cover startup costs or more, getting the company off the ground.

Step 7: Get insurance

Business insurance is an important way to manage risk and to maintain focus on growing one’s company. The most typical kinds of business insurance that an owner should consider include:

  • Workers’ compensation insurance
  • General liability insurance
  • Professional liability insurance

Every small business, including those based at home, should have a general liability policy. Businesses that sell professional services or advice, like accounting or consulting firms, would also be advised to purchase a professional liability policy.

Under California law, companies with one or more workers are required to provide workers’ compensation insurance.

Step 8: Get licenses and permits

To legally operate a California business, an individual will have to comply with local, state, and federal regulations. Often , this will involve getting one or more business licenses and permits. For instance, a restaurant will probably require health permits, signage permits, and building permits.

To start a California business, an entrepreneur will need various permits and licenses according to the kind of business that he or she is running. To find out what licenses and permits one may need, an individual may perform a business license search or use the following guides:

  • Federal: the US Small Business Administration (SBA) offers a guide.
  • State: Learn more about permits, licenses, and registration with California’s CalGold website.
  • Local: contact the local county clerk to request information about local permits and licenses.

Step 9: Hire workers

Unless an entrepreneur’s plan is to be the company’s sole employee, a successful business will need to build a team of talented workers. However, this is not just about identifying the right people for the job, but also about complying with the legal requirements for hiring employees in California. This process includes making sure that the company is registered with the IRS for employees taxes, and that any new hire is reported to the state of California.

After a new business owner has built their team, it is recommended that they use a payroll service to track time and issue paychecks, which can make taxes more manageable.

Step 10: Define the brand

The most memorable and successful businesses are built on a strong brand. When creating a brand, an entrepreneur should think about the following:

  • What the company stands for
  • What will earn customer trust
  • What are the company’s core values

When an entrepreneur has solid answers to the above questions, he or she should consider creating a logo for the business.

Step 11: Build the company’s website

After creating the brand and the logo for the company, the next step is to design a website. Creating a website is a necessary step for every business, but some owners may skip this step because they worry about not having any experience with building websites. This may have been a reasonable justification ten years ago, but web technology has since advanced to the point that almost any small business owner can do it on their own.

The following are some reasons why an entrepreneur should not hesitate to build their own website:

  • Every legitimate company has a website. The industry or size of the company does not matter – every business should have an online presence.
  • LinkedIn or Facebook social media accounts are not a replacement for a company website that an owner controls.
  • Website builder tools such as GoDaddy have made it very simple to create a website. It is not necessary to hire a designer or web developer to make an excellent, easy-to-navigate website.

Step 12: Market and promote the business

There are many ways to promote and market a California business, though the most effective strategies include the following:

  1. Facebook

A Facebook page is an excellent, free way for a business owner to interact with customers. However, it requires continuous engagement to be successful.

A Facebook page may do the following:

  • Establish a local presence
  • Communicate with customers
  • Showcase business services and products
  • Receive and share reviews from customers
  • Promote the company through ads (if applicable)
  1. Press releases

Press releases are a good way of promoting a company brand and are one of the more cost-effective strategies available. They have the following advantages:

  • Provide publicity
  • Improve the website’s SEO, bringing more customers to the website
  • Establish the brand on the web
  • Have long-lasting benefits
  • A one-time cost in terms of money and effort
  1. Google My Business

This is a useful tool that allows business owners to control how their company shows up on Google’s search results page (SERP) as well as Google maps.

Google My Business may do the following:

  • Provide links to important information about the company like the physical address, phone number, hours of operation, customer reviews, and website.
  • Engage with customers and increase business legitimacy.
  • Increase brand awareness by boosting local SEO and bringing customers to the company website.
  1. Youtube

There are billions of Youtube users across the globe, meaning there is a massive potential customer base for a business. By starting a Youtube channel, a company can do the following:

  • Drive social media engagement and forge stronger connections with clients
  • Improve SEO by boosting Google ranking and conversions
  • Provide detailed explanations about services and products

Have a quick question? We answered nearly 2000 FAQs.

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