How To Start A Business in California 
California is known as one of the best places in the world to start a business. With its thriving economy, diverse industries, innovative spirit, and supportive ecosystem for startups, it’s easy to see why so many entrepreneurs are drawn to the Golden State. California’s entrepreneurial culture encourages innovation, risk-taking, and collaboration, making it an ideal environment for startups and established businesses alike. In addition, California is also home to some of the world’s top universities, research institutions, and venture capital firms, providing access to talent, expertise, and funding for entrepreneurs.
California Small Business Stats
- There are 4.2 million small businesses in California (99.8% of California businesses) that employ 7.4 million employees (47.9% of employees in the state). (2022 SBA Small Business Profile)
- Exports by small California firms reached $58.3 billion. (2022 SBA Small Business Profile)
- Small businesses accounted for 47.9 percent of California employment. (Statistics of US Businesses)
- Forbes ranked California as the 12th best state to start a business.
- California was ranked by CNBC as the best state for technology and innovation.
It can be really intimidating to start a small business in California. But don’t worry, our checklist can help guide you through the process! Our checklist breaks down all the most common steps a business will need to take care of into small, easy-to-follow tasks. This way, you’ll make sure that the important things are done – like getting all the licenses and paperwork taken care of, finding enough money for your business, and coming up with a plan for how it will work. This helps avoid any unexpected problems that could stop your business from even getting started!
Step 1: Choose a Business Idea
With so many potential opportunities, it can be difficult to decide which type of business is right for you. To help you get started, we compiled a list of popular small businesses in California:
Coffee Shops: With a strong coffee culture in California, coffee shops are a popular small business option. Many Californians enjoy starting their day with a great cup of coffee and a pastry.
Food Trucks: Food trucks are a popular trend in California, offering a variety of cuisine options at affordable prices. They are popular in busy cities like San Francisco, Los Angeles, and San Diego.
Boutique Clothing Stores: California is known for its fashion-forward culture, and boutique clothing stores are a popular small business option for those looking to capitalize on this trend.
Health Food Stores: With a focus on health and wellness, many Californians are turning to natural and organic foods, making health food stores a popular small business option.
Fitness Studios: With a focus on health and fitness, many Californians are turning to fitness studios for their exercise needs. Yoga, Pilates, and CrossFit studios are particularly popular.
Craft Breweries: California has a thriving craft beer culture, and craft breweries are a popular small business option for those passionate about beer.
Pet Services: With many pet owners in California, pet services such as dog walking, pet grooming, and pet daycare are popular small business options.
Art Galleries: California has a thriving arts community, and art galleries are a popular small business option for those looking to showcase local artists.
Event Planning: With a busy social scene in California, event planning is a popular small business option for those looking to help plan and execute events such as weddings, parties, and corporate events.
If these ideas aren’t what you are looking for, or you are looking for specific information for a different industry, check out our library of business ideas to get detailed industry information, trends, costs to start, tips, and lots more.
Step 2: Write a Business Plan
Writing a business plan is an important step for any small business to start right. A business plan helps to define the goals and objectives of the business, as well as provide a roadmap for how to achieve those goals. It also serves as a tool for potential investors and lenders to evaluate the viability of the business.
Additionally, having a comprehensive plan in place can help entrepreneurs stay organized and on track and ensure that they have taken all necessary steps to set themselves up for success.
Writing a business plan can seem overwhelming, but it doesn’t have to be. With the right guidance and resources, you can create a comprehensive plan that outlines your company’s goals and objectives and how you plan to achieve them. Check out our guide on how to write a business plan to get started.
Step 3: Select a Business Entity
When starting a business, one of the first steps is to choose the right type of business entity (also referred to as a legal structure or business structure). The most common forms of business entities are sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type has its own advantages and disadvantages, so it’s important to consider all options before deciding which one best suits your needs.
A business entity is an organization that’s formed to conduct business, and the type of entity determines how a business is taxed and its owner’s or shareholders’ liability for debts and other obligations.
A sole proprietorship is the simplest form of business entity and involves one individual who owns all aspects of the company. This means that the individual is personally liable for any debts or obligations incurred by the company. While a sole proprietor (and partnership) doesn’t register the business, a Fictitious Business Name Statement will be needed from the county clerk’s office (in the county where the business is located) if the business name will be different from the owner(s) full first and last name.
General Partnerships involve two or more individuals who share ownership of the company and are jointly responsible for the work, profits, and any liabilities incurred by the company.
Corporations are separate legal entities from their owners with limited liability protection for shareholders against debts or obligations incurred by the company. Corporations have more complex structures than other types of businesses but offer greater protection from personal liability for shareholders as well as potential tax benefits.
Limited Liability Companies (LLCs) combine elements from both corporations and sole propreitorships/partnerships as the LLC offers limited liability protection for owners similar to corporations but fewer formalities than corporations require, such as annual meetings, board members etc.
No matter which type you choose, it’s important to understand all aspects of each option before making a decision so you can ensure that you select the best structure for your particular situation.
Related: Comparison of business entities
Forming a corporation or LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular formation services include:
IncFile - Great service and free registered agent the first year.
Northwest - Privacy-Focused: Free registered agent and private business address for 1 year!
ZenBusiness - Easy to use and free registered agent for 1 year!
Step 4: Register the Business
Starting a new business in California requires several licenses and registrations, depending on the type of business you are starting and its location. Here are some common licenses and registrations required for a new California business:
Business Licenses: There is no general state of California business license, however, many cities require a business license in order to operate, even for home-based businesses. Local licensing may be administered by city hall, city planning department, planning division, economic development department, etc.
Seller’s Permit: Most businesses will need to register for a Seller’s Permit with the California Department of Tax & Fee Administration.
Building Permit: A building permit (or home occupation permit for a home-based business) may be needed in some areas depending on local regulations.
Employer Identification Number: The Employer Identification Number or EIN (sometimes referred to as the Federal Employer Identification Number, FEIN, or federal tax ID number) is a nine-digit tax identification number that is assigned by the Internal Revenue Service (IRS).
An EIN is required for certain entities (partnerships, corporations, most LLCs) or any business that has employees.
Professional Licensing: Some services, such as auto repair shops, cosmetologists, and pest control, require specific licensing from the state of California.
Related: What business licenses and permits are needed in California?
Step 5: Open a Business Bank Account
Opening a business bank account is important because it helps to separate personal and business finances, which can make it easier to manage cash flow, track expenses, and file taxes. By keeping business finances separate from personal finances, business owners can avoid confusion and potential legal issues down the road.
Opening a business bank account requires certain documents and information. Depending on the type of business, you may need to provide your Employer Identification Number (EIN), articles of incorporation (corporation), Articles of Organization (LLC), or other proof of ownership. Additionally, you will likely need to provide personal identification such as a driver’s license or passport.
When opening a business bank account in California, it is important to compare different banks and their offerings. Some banks offer free checking accounts with no minimum balance requirements, while others may charge fees for certain services. It is also important to consider how accessible the bank is and what services they offer, such as online banking, mobile banking, and cash management tools.
Step 6: Find Financing
Starting a business in California can be expensive, but there are several ways to get the money you need. From loans to Small Business Administration guarantees to crowdfunding and angel investors, there are many options available for entrepreneurs looking to start their own business.
Obtaining the funds to start a small business is a challenging process for many.
Not only are there unfamiliar terms like collateral, equity, assets, liabilities, and others, but there are several sources of funding with different rules, processes, and costs.
Getting funding for a small business can be a critical step in turning your entrepreneurial dreams into reality. To prepare for this process, it’s important to start by developing a solid business plan and research and explore the various funding options available.
Related: Understanding the different types of business funding.
Step 7: Hire Employees
Hiring employees is a big step for small business owners to take, but before hiring, certain steps that must be taken in order to ensure compliance with state and federal labor laws.
Employers have a number of responsibilities such as reporting new hires, verifying employees are eligible to work in the U.S., income tax withholding, unemployment taxes, and payroll withholding taxes including Social Security, and Medicare.
Learn more about the necessary steps to hiring your first employee in California
Step 8: Obtain Business Insurance
Most types of insurance are optional, however in California, businesses with employees are required to obtain workers’ compensation insurance. In addition to worker’s comp, businesses in California should look into other types of insurance coverage to protect themselves from unexpected losses due to accidents, property damage, or other unforeseen circumstances.
Step 9: Set up an Accounting System
Having an accounting system in place is critical for any California business, both for managing the business and for complying with tax requirements. Here are some reasons why:
Financial Management: An accounting system provides a clear picture of a business’s financial health, including cash flow, revenue, expenses, and profits. This information can be used to make informed business decisions, identify areas for cost savings or revenue growth, and track progress toward financial goals.
Budgeting and Forecasting: An accounting system can help businesses create budgets and forecasts based on historical financial data. This can help identify potential financial challenges and opportunities and allow the business to adjust its strategies accordingly.
Compliance with Tax Requirements: In California, businesses are required to file various tax forms and pay taxes on time to avoid penalties and interest charges. An accounting system can help keep track of income and expenses, generate financial reports, and prepare tax returns.
Record-Keeping: An accounting system provides an organized way to keep track of financial records, including invoices, receipts, and bank statements. This can make it easier to prepare financial statements, respond to audits or inquiries, and monitor financial transactions for accuracy and completeness.
Business Valuation: If a business is seeking investors, a loan, or planning to sell the business in the future, having accurate financial records is essential for business valuation purposes. An accounting system can help provide a clear picture of a business’s financial performance, which can be used to estimate its value.
Related: Setting up accounting for a business
This material is property of StartingYourBusiness.com
Common questions when starting a business in California
Is California a good place to start a business?
California is known as a hub for innovation and entrepreneurial spirit, making it an attractive place to start a business. Here are a few reasons why California is a good place to start a business:
Access to Funding: California has a robust venture capital industry, which is crucial for startups seeking funding.
Large Market: California has a population of over 39 million people, making it the most populous state in the United States. This large market provides businesses with ample opportunities to grow and expand.
Diverse Economy: California’s economy is diverse, with strengths in technology, agriculture, entertainment, and more. This diversity creates opportunities for businesses in a wide range of industries.
Supportive Ecosystem: California has a supportive ecosystem for startups and small businesses, with resources such as accelerators, incubators, and mentorship programs.
What are the steps to starting an LLC in California?
There are three main steps to starting a California LLC. These include:
1. Making sure the LLC name is available
2. Appointing a Registered Agent
3. Filing the Articles of Organization
There are a few more details to consider depending on the business. Learn more about starting an LLC in California.
How much does it cost to start an LLC in California?
The cost to start an LLC in California is $0 until June 30, 2023 to file the Articles of Organization with the California Secretary of State.
Do you need a business license in California?
There isn’t a general business license required by the state, however, there are potentially several different licenses and permits a business will need to obtain before starting.
Related: What business licenses and permits are needed in California?