Start‌ ‌a‌ ‌Small‌ ‌Business‌ ‌in‌ ‌California‌ ‌in‌ ‌8‌ ‌Easy‌ ‌Steps‌

Deciding to start a small business in California can be a great move as long as you're prepared. Following these 8 easy steps to start a small business in the state will help, along with your own market research, because there are challenges to doing business in California. This includes numerous regulations, high taxes, and intense competition that is simply a part of operating in such a popular and populous state.  

While small business owners face many roadblocks, thousands of new businesses are established and thrive each year in California. Some of that success is attributed to smart and savvy planning from inception. Use this blog as your guide to give your new business the solid foundation you need to compete and grow in one of the most popular states in the nation, California.

Why Start a Business in California?

There's a lot of upside in establishing your business in California, but three reasons stand above the rest compared to similar states. 

• Diverse population
• Multiple cities to serve
• Large economy

These factors create the conditions for small businesses in virtually every industry to succeed.

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

The exact cost of starting your business in California will vary, but in most cases, be prepared to spend over a hundred dollars, no matter your business entity choice. General partnerships in California are an exception and only pay a $70 Statement of Partnership Authority fee.

Regardless of your selection, certain costs are the same, including $10 for Name Reservations.  

8 Steps to Establishing Your Business in California

Step 1: Business Idea

The first step in starting your small business in California is to develop a business idea. What's the next big thing that Californians can't live without? Asking tough questions and conducting market research will help you form and tweak your vision, all while considering how you'll expand, fund, and plan your California small business.

Creating a business plan to flesh out your idea is also helpful. A business plan should include

• What product or service you will be selling
• Total startup costs
• Where you will get the funds (loan, investment, credit card, etc.)
• Competitor profile
• Target market or demographic

Step 2: Entity

Now you’ll choose a business entity. This may be the most critical step because it determines liability, ownership, and taxes. The state of California allows you to choose from several business entities:

• C corporation
• General Partnership
• LLC
• Limited Liability Partnership 
• Limited Partnership
• S corporation
• Sole proprietorship

Unlike other states, California has more specific requirements with a limited liability partnership. They are limited to professional practice types, such as accountants, engineers, and land surveyors.

1-800Accountant provides complimentary formation services to owners and entrepreneurs seeking to establish businesses in California. Just pay the state fees, and we'll work with California on your behalf! 

Step 3: Name

You’ll want to choose a business name that’s both available and unique. California has business naming rules you’ll want to keep in mind:

• If your business name doesn’t include your last name, you’ll file a Fictitious Business Name Statement (or D.B.A., or “doing business as”).
• If your business name is a corporation that isn’t doing business using its legal name, you’ll file a Fictitious Business Name Statement.
• For partnerships or sole proprietorships not using the small business owner’s surname, these entities will file a Fictitious Business Name Statement.

Finding the perfect brand name and web domain can be time-consuming, which is why free tools from Business Name Zone and others quickly generate name and domain combos for you based on your parameters. 

Step 4: Registration

You’ll register with the California Secretary of State if your business is a corporation, LLC, or partnership.

The registration process can differ for every type of business entity. You won’t need to file with the California Secretary of State if your small business is a sole proprietorship. Typically, you will provide the following information:

• Business address
• Purpose of your business
• Owner 
• Business name
• The California-based registered agent you are working with

Step 5: EIN

An EIN (aka Federal Tax ID) is like a Social Security number for your business, which the IRS uses to identify you for tax purposes. Without an EIN, you won't be able to hire employees, open a business bank account, and do other things essential to the successful operation of your business in California.

There is no cost to obtain an EIN, but the process does involve a lot of paperwork. And if there's an oversight or mistake on your application, it may delay you in obtaining your EIN. 1-800Accountant's EIN filing service removes that hassle and gets you your EIN fast! 

Step 6: Bank Account

If you haven’t applied for a business bank account, you’ll need to at this point. Opening a business bank account for your California small business has several benefits, including

• Building a credit history.
• Keeping business funds separate from personal funds.
• Providing a line of credit in case of emergency

Step 7: Licensing and Permits

There are additional licensing or permit requirements that may apply to your small business. 

• If your business collects sales tax, you’ll file state income tax with the California Franchise Tax Board. By doing so, you’ll receive a sales tax permit, known as a California Seller’s Permit.
• If your business will sell property, you’ll work with the California Department of Tax and Fee Administration to receive a seller’s permit. 
• For businesses with employees, there are additional requirements for employment, wages, and workers’ compensation. There are two departments to work with: the California Department of Industrial Relations and the California Employment Development Department.
• If your business will export or import goods in California, you may need a sales and use tax permit. To receive this permit, you’ll work with the Department of Tax and Fee Administration.

Step 8: Reports

In California, annual reports are also known as a Statement of Information. There are two schedules for corporations and LLCs to complete.

Corporations will file the Statement of Information annually, while a California LLC must complete the Statement of Information every two years. 

New corporations and LLCs must complete the Statement of Information within the first 90 days of filing either Articles of Incorporation or Articles of Organization.

Other Considerations (location/funding/etc.)

The population in California is diverse and spread out, but Southern California is the state's most populated area. Your business’s location within the state matters. For instance, technology industries excel in central California, whereas entertainment and similar industries excel in different parts of the state.

In addition to location and population, it’s important to consider federal funding. There are grants and loans available for businesses that can be a valuable source of cash. 

Let Us Help You Start Your Business in California

Establishing your new business in California is exciting but can also be overwhelming, especially if you're just starting out. That's why so many California owners and entrepreneurs use 1-800Accountant, America's leading virtual accounting firm for small businesses, for their needs.

Whether it's small business taxes, tax advisory, or any of our professional accounting services, we have the solution you need at a price that works for you. Schedule a quick consultation – usually 30 minutes or less – to learn how we can help.