There are more than 4 million small businesses in the state of California. If you want to get out there and start your own business, there is no doubt it may feel overwhelming. What do you need to do, and what paperwork do you need to submit? If you’re unsure where to start when forming your own business in California, this guide will take you through the entire process step-by-step. Whether you are starting a sole proprietorship or a corporation, this guide will cover everything from choosing your initial idea to marketing your business.
Step 1: Choose Your Idea
Behind every successful business is a great business idea. The first step to starting a new business in California is coming up with a good business idea that you can turn into a successful business. When coming up with a business idea, there are a couple of questions that you can ask yourself to pick an idea that will work in today’s market.
Here are some questions to get you thinking:
- What are my passions and hobbies?
- Am I able to turn what I love doing into a profitable business?
- Will I be able and willing to work with this business every day?
- Is there a gap in the market for my business?
Step 2: Pick a Name
Your name is an essential part of your business. It is what people will see and hear first. Therefore, when choosing a name, it is a good idea to make sure that it is easy to pronounce and read, is relevant to your business, and is unique.
You cannot choose a name already registered with the state of California. To check if your desired name is still available, you can search online through the Secretary of State’s website.
Sometimes, picking a name can be pretty daunting, so here are some ways you can get those creative juices flowing:
- Create a mindmap with words related to your business.
- Create a word dump. This is where you jot down any words that come into your mind; you don’t need to think too hard about each word.
- Ask your friends and family for help. They might come up with a name you like.
- Make use of free name generators online.
Step 3: Write Your Business Plan
Once you have decided on what business you are starting and its name, you must create a business plan. This business plan will include information about the business and all the research you gathered to support it. A business plan will help keep your business organized and is an excellent tool for attracting investors.
A good business plan should answer the following questions:
- How does your business solve a gap in the market?
- How will it differ from your competitors?
- Who is your target market, and how do you plan on turning them into paying customers?
- How do you plan on marketing your business?
- What roles will you need to be filled in the business? How will you hire new people?
- What is your financial target?
- How do you plan on making a profit?
Step 4: Get Funding
Starting a business requires money for startup costs. If you cannot fund the business using your savings and current income, you can look for funding in different ways. There are at least four ways to get funding.
A grant is the best way to get funding for the business as you do not need to pay this money back. California does offer programs that provide grants to small businesses should they meet the requirements. You can search what grants you may qualify for on the California Grants Portal.
You can apply for a business loan if you do not qualify for a grant. You can get a loan from your local bank or friends and family. As a top tip, when borrowing money from friends and family, make sure you have the deal in writing. Having a written contract can help avoid potential disputes.
Another way of acquiring funds for your business is to attract the attention of investors willing to help you start your business. Often, this money may come with strings attached, like the investor owning a small percentage of your business, so just be aware when accepting money from an investor.
Finally, if your business is something that will benefit the community in some way, you can try to fund your business through donations. You can use a platform like GoFundMe to appeal to the public and raise enough money to start your business.
Step 5: Choose a Business Structure
In California, you have a choice of four different business structures to choose from. Each has its benefits. Read on to learn more about these business structures.
This type of business structure is informal and has no legal structure. A sole proprietorship has only one owner, and there is no separation between personal and business assets. This business structure is commonly used for businesses with very low risk and is usually started as a hobby. A sole proprietorship is the easiest business structure to form.
A partnership is almost identical to a sole proprietorship except that two or more business owners own it. Just like in a sole proprietorship, there is no separation of assets. The owners are liable for the business. However, the limited partners won’t share in the company’s liability in a limited partnership.
Limited Liability Company
A limited liability company, commonly known as an LLC, is one of the most frequently used business structures for small to medium-sized businesses. What makes an LLC such a popular choice is that it has the flexibility and ease of a sole proprietorship or partnership with the liability protection of a corporation. Forming an LLC is the best of both worlds.
C or S Corporation
The fourth business structure you can choose is a C or S corporation. A corporation is an entirely separate legal entity from the owners. Multiple shareholders own a corporation. Generally, business owners of larger companies choose to be structured and taxed as a corporation due to the tax benefits.
Step 6: Register Your Business
To operate legally in California and manage your taxes correctly, you will need to register your business with the California Secretary of State. The process differs depending on the type of business structure you choose.
A sole proprietorship does not need to be registered in California as it is not a formal business structure. You can simply set up and start the business.
While a partnership is not a formal business structure, you still need to register the business. Registering a partnership in California is relatively easy. To register, you must create an account online with the Secretary of State. After that, select the register partnership option and follow the site’s instructions.
Limited Liability Company
Registering an LLC in California is also a reasonably straightforward process. To do so, you must complete the Articles of Organization and submit them to the California Secretary of State. Once approved, they will issue you the approved documents. For a more detailed step-by-step guide, check out this California LLC formation guide.
C or S Corporation
Registering a corporation is a similar process to registering an LLC. You must complete and submit the Articles of Incorporation to the California Secretary of State. You can find all the forms you may need and the instructions for submission on the state’s website.
Step 7: Set Up Your Finances & Accounting
Setting up your finances and accounting is crucial in starting a business in California. This step simply involves opening a bank account for the company. It may also be worth getting a business credit card if you want to keep track of your business expenses.
Payroll software is a great way to ensure all employees’ salaries are paid on time and manage employee taxes.
Finally, consider hiring an accountant if setting this up and managing taxes during tax season seems daunting. Hiring an account to manage your business’s taxes is strongly recommended to ensure all taxes are paid and filed correctly. In addition, they can take a load off your shoulders and ensure you don’t overpay your taxes or make any other costly mistakes.
Step 8: Get Business Insurance
Investing in insurance for your business is strongly recommended. You can never predict when disaster might strike; if it does, you want to be prepared. There are many different insurance policies you can choose from, but you should at least consider getting general liability insurance. This broad policy covers all the basics of running a business and protection in case of injury or damage.
Some other popular types of insurance policies are:
- Workers Compensation Insurance
- Professional Liability Insurance
- Business Owners Insurance
- Commercial Property Insurance
- Commercial auto insurance
If you’re unsure what kind of policy to get, consider consulting a business attorney or broker.
Step 9: Obtain Any Permits or Licenses Needed
You must apply for a seller’s permit if your business sells goods or services. This is a requirement to charge and collect sales tax. You can apply for this permit online.
Other permits and licenses may be necessary depending on the type of business you have and where it’s located. You can find out more about California business licenses here. For local licenses you may need, contact your local clerk.
Step 10: Build a Website
A website for the business is a definite must, and building one is very simple. Building a website is no longer a bunch of complicated coding. You can simply use an online website builder for free or for a small monthly subscription. These websites have ready-made templates that make website building possible, even for those not very handy with technology.
When building a website, ensure that the business name is easily visible, all the fonts are easy to read, your contact details are easy to find, and you’ve linked your website with your other social media business accounts.
Step 11: Hire Employees (If Any)
If your business has more roles than you can take on, then you will have to hire employees to help you. When hiring people, it is best to ensure they have the skills you desire and will work well in your team. In California, you must legally report any new hires to the California New Employee Registry within 20 days of hiring them.
Step 12: Market Your Busines
Once you have successfully started your business in California, you must market the business. There are so many ways to advertise nowadays, and you can market on various budgets. Staying consistent with your marketing strategy is vital for building brand awareness.
Here are different ways you can market your business:
- Use your business website to promote your business and engage with customers.
- Use social media like Facebook, Instagram, and TikTok, where you can advertise and create events for free.
- Create a Google Business Profile and use Google ads.
- Market your business by attending business expos and events.
- Advertise through your local newspaper.
- Create and distribute a weekly newsletter for the business.
- Make use of cold emailing.
- Advertise on your local radio and television stations.
- Kick it old school and hand out flyers.
Questions? Shoot us a note.