Ready, Set, Launch: How to Start a Business in California

If you’ve been wondering how to start a business in California, you must have some exciting business dreams. But if you want to make it in the Golden State, you’ll need to understand the business landscape. 

Covering everything from how to register a business in California to drafting your business plan, here’s our guide on how to open a business in California. 

Why should I start a business in California?

There are many reasons you may want to start a business in the Golden State, but if you’re still wondering about the benefits, here are a few reasons California can help your small business get ahead:

Economic advantages

California boasts the largest economy in the U.S., offering a robust market for almost any type of business. With a GDP that rivals entire countries, the state provides a fertile ground for entrepreneurial ventures. Plus, its diverse population means a broader customer base.

Skilled labor pool

The state is home to some of the world’s top universities and a highly skilled workforce. Whether you need tech talent from Silicon Valley or creative minds from Hollywood, California has it all. This access to a skilled labor pool can give your business a competitive edge.

Thriving business climate

California is known for its innovation and entrepreneurial spirit. From tech startups to sustainable agriculture, the state supports a wide range of industries. The business climate here is not just about survival; it's about thriving and scaling your business to new heights.

Venture capital network

Starting your business in California grants access to major markets and one of the deepest talent pools globally. The state’s prime location makes it a hub for international trade, while its massive consumer base provides a built-in market. Need funding? California’s venture capital network makes it easier to connect with investors.

What challenges come with setting up a business in California?

California’s business climate also comes with challenges—things like a steep cost of living and a complex regulatory environment. Here’s what you should know about the challenges and how to work with them.

Costs and resources

Where you ramp up your California business impacts costs and resources. Real estate in cities like Los Angeles or San Francisco commands higher rents and overhead. And you’ll also encounter stricter zoning laws and more regulations to navigate. 

On the flip side, smaller suburban or rural areas offer lower operating costs. However, you’ll need to account for potentially longer commute times and less developed areas may lack some government resources that bigger cities provide.

Taxes and zoning

Rent and operating costs aren’t the only concerns. There are also taxes. California’s rates rank among the highest nationally. Strict zoning laws and environmental regulations add steep costs and time-consuming red tape.

Business type

Your specific industry also plays a role when starting a California business. While regulations exist in any state, regulations based on  operational needs may vary. For example:

• Restaurants must meet health codes
• Manufacturers face zoning restrictions on industrial activities
• Professional service firms require specialized California business licenses
• Retail stores need to factor in sales tax

Additionally, obtaining a business license and permits in California is essential for businesses to operate legally. This may include specific permits such as an alcohol beverage control license, seller’s permit, and general business license.

How to start a small business in California?

So what do you need to start a business in california? While each business is different, there are some things that every business will need to do to get started. Think of these steps as a new business checklist that will help you build a solid foundation for your business in California.

1. Develop your business idea

Your entrepreneurial journey begins with an idea. Identify the product or service you’ll offer. Then pinpoint your target market and research the competition. Assess current market conditions and demand to validate the idea.

2. Write a business plan

A business plan is a written document that defines your business and outlines your business strategy, future goals, and how you plan to reach those goals. Every business can benefit from having this type of document.

The key elements of a business plan are:

• Executive summary: This section introduces your company and the people involved.
• Products and services: Describe your products and services including price and benefits.
• Market analysis: This is where your competitor research and industry research go.
• Financial projections: Estimate what your business is going to spend money on and how much money you’re going to make. Think of it as the foundation of your venture.

3. Choose a business structure

How you legally structure your business impacts everything from taxes to personal liability. Each has its own unique pros and cons. It’s important to understand all your options before you commit to one.

Here are some of the most common business structures for small businesses:

• Sole proprietorship: The most common business structure for solo entrepreneurs. In this business structure, the company and the owner are considered the same.
• Partnerships: Used when starting a business with more than one individual. A partnership requires a partnership agreement.
• Limited Liability Companies (LLCs): Can be owned by one or more people and limit your personal liability for business debts. The benefits and structure of an LLC include liability protection, pass-through taxation, and simplicity of maintenance, making it advantageous for small business owners.
• Cooperatives: Businesses or organizations that run to benefit those using the services.

4. Register your business

Knowing how to register a business in California is crucial to get your dream off the ground. Choose a name for your business and make sure it’s available. It is important to choose a distinguishable and memorable business name and comply with state regulations. 

Next, file the required formation documents like articles of incorporation or organization with California’s Secretary of State. Make sure to comply with California Secretary of State’s requirements for business registration. You’ll also need an employer identification number (EIN) to handle taxes.

Remember the local and county-level requirements too. You may need operational licenses or permits to operate legally. Additionally, you must register a fictitious business name (DBA) for businesses operating under a name that isn’t the legal name. 

5. Fund your operation

Before going forward, think through your one-time and recurring expenses. This could be everything from rent to license fees. The number you come up with determines how much capital you’ll need. It’s important to know if you can self-fund or if you need investors.

6. Marketing strategy

You’ve built it, but will they come? Develop a marketing strategy to reach your target audience. Plan to build an online presence on your own website and social media. But don’t underestimate the power of networking and word-of-mouth.

7. Build your team

If you need employees to support your vision, consider who you’ll need to hire to start the business. For a restaurant, you may need wait staff and cooks. For a law firm, you may work with additional partners or an assistant. 

Whoever it is you need on your team, make sure your hiring process is both thorough and efficient.  

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How to register your California business

When you think about business registration in California, there are a few key points you should take into consideration.

How to check local zoning regulations

Before you even think about registering your business, make sure it’s allowed in your desired location. Zoning laws can make or break your plans.

• Importance of zoning compliance: Operating in a non-compliant zone can lead to fines or even closure.
• Contacting local zoning departments: Reach out to your city’s zoning department to confirm that your business type is permitted in your chosen location.

How to register your business name

Your business name is your brand’s first impression. Make it count.

• Naming tips: Choose a name that’s memorable, easy to spell, and reflects your brand’s identity.
• Checking name availability: Use the California Secretary of State's online tool to check if your desired name is available.
• Registering a fictitious business name (FBN): If you plan to operate under a different name than your legal business name, you’ll need to file an FBN statement.

How to register with the California Secretary of State

Registering your business with the state is a crucial step in making it official.

• Necessary paperwork: Depending on your business structure, you’ll need to file specific forms. For an LLC, it’s the Articles of Organization. For a corporation, it’s the Articles of Incorporation.
• Information required: Be prepared to provide your business name, address, and the names of owners or directors.

How to obtain licenses and permits in CA

You can’t operate legally without the necessary licenses and permits. This step ensures you comply with local, state, and federal regulations.

• Types of required licenses and permits: Depending on your business type, you may need health permits, zoning permits, and more.
• Local, state, and federal requirements: Research the specific requirements for your industry. For example, a restaurant needs health department permits, while a construction business needs contractor licenses.
• Ensure ongoing compliance: Keep track of renewal dates and any changes in regulations.
• Keep records: Maintain organized records of all your permits and licenses to avoid any legal issues down the line.

How to hire employees in California

Hiring employees means your business is growing—congrats! But it also comes with legal responsibilities you can’t ignore.

Steps to hire employees legally

Skipping legal steps when hiring can land you in hot water. Follow these steps to stay compliant.

• Obtaining an EIN: An Employer Identification Number (EIN) from the IRS is essential for hiring employees. It’s like a Social Security number for your business.
• Securing Worker’s Compensation Insurance: This is mandatory in California. It protects both you and your employees in case of work-related injuries.
• Providing mandatory notices: California law requires you to provide certain notices to new employees, such as wage and hour laws and workers' compensation rights.

How to get California business insurance

Business insurance protects you from unexpected events that could jeopardize your business. Here’s what you need to know.

• Types of business insurance: Consider different types of insurance based on your business needs. Common options include:
  
  • Workers’ compensation: Mandatory in California, it covers medical expenses and lost wages for employees injured on the job.
  • Auto liability: If your business uses vehicles, this insurance covers damages from accidents.
  • General liability: Protects against claims of bodily injury or property damage.
• Protecting against risks: Business insurance helps mitigate risks, ensuring your business can recover from setbacks. It’s an investment in your business’s future.

Manage your California small business with Homebase 

Starting a business in California can be a complex process, but with the right information and tools, you can navigate the challenges and set your business up for success. And remember, platforms like Homebase can make managing your business easier, from scheduling and time tracking to payroll and compliance.