How to Start a Business in California (16 Crucial Steps)

If California is your first choice for a new business venture, look no further than this guide because it lays out all the relevant information on the steps you need to take. 

The guide will make clear how to:

• Develop your business idea in detail,
• Make a business plan,
• Choose your legal business entity,
• Register your business,
• Choose an appropriate location,
• Acquire funding,
• Get licenses and permits, and much more. 

We’ll explain how to name and promote your business and provide useful expert tips to avoid potential missteps and stress.  

Also, this guide will walk you through the taxes you need to pay, the types of bank accounts you can open, and the insurance you need. 

And finally, we get you covered with links to the most important government websites you should consult to obtain documentation and precise instructions. 

Without further ado, let’s dive in.

Is California a good state to start a business? Key takeaways

California is nicknamed the Golden State of the US, and it’s not only because of its sun-drenched beaches, abundance of golden poppies (its official state flower), or its gold deposits. 

In the business world, California is known as the home to some of the world’s biggest corporations such as Apple, Google, PayPal, and Amazon. What’s more, according to Forbes, there are 186 billionaires living in California — more than in any other US state. 

This is not surprising because, as the California Small Business Economic Profile 2022 report states, California has 4.2 million small businesses, which make up 99.8% of California businesses. 

In 2018, California had the 5th world’s largest economy. Back then, California’s GDP outperformed that of the UK, while only the US total GDP and that of China, Japan, and Germany ranked above it.

Four years later, the Office of Governor cited a Bloomberg article that stated that California was ready to become the 4th largest economy in the world and surpass Germany.

In July 2022, the California Jobs Market Briefing report stated the unemployment rate in California was 3.9% — which is the lowest unemployment rate ever recorded in the state. 

As of January 1, 2023, the minimum wage in California has been $15.50 per hour, which is double the federal minimum.

We can’t help but notice that California is doing a great job in developing its economy. Now, let’s see what its cost of living and tax scores have to say.

Cost of living score in California

California — the land of Hollywood, Disney World, and Silicon Valley — is the most populated state in the US. Based on the data provided by the United State Census Bureau on July 1, 2022, California has a population of 39,029,342 and ranks number 1 in the country based on the number of residents. 

On the other hand, California has the highest rate of unsheltered people among the homeless population — 67.3%, as stated in the report for 2022.

When it comes to the Cost of Living Index in the US for 2023, California is above the baseline (i.e. 100.) in all aspects. The baseline represents the national cost of living average — and being above the baseline means that life in this state is more expensive. 

California has:

• The 3rd-highest cost of living score in the US,
• The 2nd-highest transportation costs, and 
• The 3rd-highest housing costs in the whole country.

The table below shows how California ranks in all relevant categories when compared to other US states.

California’s Cost of living score and USA ranking*
Cost of living index	142.2*	48th
Groceries	113.7*	45th
Housing	201.9*	48th
Utilities	124.3*	46th
Transportation	131.7*	49th
Miscellaneous	111.3*	42nd
*Scores above 100.0 indicate cost above the average

Tax scores in California

As regards taxes, California has a graduated state income tax, which means that your tax rate increases as your income increases. In California, graduated tax rates range from 1.0–13.30%. 

Also, California has a 7.25% state sales tax rate — the highest in the US.

If you take a look at the 2023 State Business Tax Climate Index, you can see that — with an overall score of 3.56 — California ranks 48th compared to other US states. 

The maximum score is 10.0 — lower scores imply higher taxes. Being 48th places California among the worst-ranked states.

In the table below, you can see tax scores for different tax categories.  

California’s tax score and USA ranking
Individual taxes	2.06	49th
Corporate taxes	4.05	46th
Sales taxes	3.36	47th
Property taxes	5.33	19th
Unemployment insurance taxes	5.03	24th

California ranks 13th among US states in a study on tax-friendly states conducted by MoneyGeek. On a scale from A–F,  California got a B (A is for states with the lowest tax burden, and F belongs to the states with the highest tax burden).

With high taxes and a considerable cost of living, California might not be your top pick for starting a business. However, there are many advantages to giving it a shot in California. 

Advantages of starting a business in California

One of the vital factors in the economic development of California is the network of local and governmental institutions and their cooperation.

The major state body in charge of business and economic development is the Governor’s Office of Business and Economic Development. The Office provides support, training, and no-cost consultations regarding site selection, regulations, and workforce seeking assistance.

Also, another important institution is the California Office of the Small Business Advocate (CalOSBA). This office makes sure that all small businesses and startups get relevant information on various CalOSBA programs, access to capital, and other resources.

In 2022, the Community Place-Based Solutions Team was formed to provide technical assistance and funding guidance for local governments, non-profit and community-based organizations, and other partners.

Across the state, there are local Chambers of Commerce to help with regulations and policies.

Other advantages that businesses have in California are:

• Networking opportunities,
• Logistics infrastructure,
• Highly skilled workforce,
• Diverse industries, and
• Business incentives.

Networking opportunities in California

California is a place offering a sea of networking opportunities. Throughout the year, big cities such as Los Angeles, San Diego, and San Francisco organize business events such as trade shows, conferences, and conventions.

Some of the most popular events are: 

• Dreamforce (San Francisco), 
• Startup Grind (Silicon Valley), and 
• DigiMarCon (San Diego).

Logistics infrastructure in California

California has one of the best logistics infrastructures in the world, which is also an advantage for its booming economy. 

There are 12 airports, 1 private and 11 public deep-sea ports, and 2 Class 1 railroads. These are supported by 5,800 commercial miles of highways. 

California’s freight system connects the state with the rest of the US and the world and enables fast and constant circulation of goods and labor. 

Highly skilled workforce in California

Another advantage of starting a business in California is the highly skilled workforce recruited from the Golden State’s world-renowned universities and colleges. By having a qualified labor force, California keeps its economy competitive. 

Workforce education is supported by various training programs and webinars funded by the state. On the CalOSBA website, you can find a trainings and webinars calendar with events small business owners and entrepreneurs can attend. 

California is particularly dedicated to meeting employment needs in different industries, and this is done through various programs and with the help of state institutions:

• Employment Training Panel — a program funded by a special tax imposed on employers with the aim of investing in workforce training to meet the needs of a particular business,
• Division of Apprenticeship Standards (DAS) — this division cooperates with employers and helps them create training programs that combine on-the-job training and post-secondary classroom education,
• California’s Workforce Development Board — a board in charge of workforce development policy, job quality improvements, and implementation of various work-related programs and training.
• California’s Veterans — the California Department of Veterans Affairs is committed to securing benefits that veterans deserve and providing training and education so they can become part of the skilled workforce, and
• Joint Venture Program (JVP) — a program designed with the aim of providing vocational training to inmates and employing them by offering benefits to employers.

Diverse industries in California

According to the previously mentioned California Jobs Market Briefing report for 2022, the state managed to recover more than 97% of job losses related to the COVID-19 pandemic. 

This report indicated that the following occupations are expected to get more job opportunities:

• Software development,
• General and operations management,
• Nursing and medical assistants,
• Elementary school teaching and teaching assistants, 
• Accounting, and
• Driving heavy trucks and tractor-trailers.

The same report provides projections for 1,292,200 job openings between the 2nd quarter of 2021 and the 2nd quarter of 2023.

Also, the following industries will experience the largest number of job openings:

• Leisure and hospitality,
• Professional and business services,
• Educational services (private),
• Health care, and
• Social assistance.

Business Incentives in California

The State of California is dedicated to the constant improvement of its business and economic growth. That is why it offers various business incentives to help new businesses. Some of the most popular government-backed incentives are:

• California Competes Tax Credit — an income tax credit for businesses that want to come to California or stay and grow here,
• Advanced Transportation and Manufacturing Sales and Use Tax Exemption — a financial incentive available to manufacturers that promote alternative energy and advanced transportation,
• Research and Development Tax Credit — a credit available to businesses conducting qualified research in California,
• ZEV Funding Opportunities — funding opportunities that include vehicle, infrastructure, and other incentives offered to property owners, businesses, and California residents to support the transition to zero-emission vehicles and ZEV infrastructure, and
• Economic Development Rate Program — a government-supported program that provides utility discounts to those businesses using high-energy loads.

How to start a business in California in 16 steps

Starting a business goes hand in hand with a lot of planning, filling in forms, and securing funding. The accompanying mental and financial stress in the process is hard to avoid. 

To help you kickstart your business, we’ll guide you through all the steps needed to make this happen.

Step #1: Develop your California business idea in detail

The road to starting a successful and profitable business is bumpy, so you should think carefully about what you want to do. Some of the following questions could be helpful:

• What do you want to do, and what are you passionate about?
• Is your business idea truly unique, or do you want to offer a more refined version of an existing product or service?
• If so, is the product or service you want to offer something people want to pay for?
• Are you ready to go through all the registration and licensing procedures?
• Do you have the necessary skills to start the business?
• Do you need office space?
• Do you need to hire employees?

Rome wasn’t built in a day, so take your time and don’t rush your decisions. Observe your surroundings, check out current trends, research the existing products/services, and consider how you could make yours stand out from the competition.  

Your own hobbies and interests might also become a good source of extra profit. 

Here are some business ideas for California including different types of businesses — those requiring minimum, modest, or significant investment.

California business idea suggestions

These are some suggestions of businesses popular in California you might want to think about: 

• Restaurant business,
• Fitness center,
• Recycling business,
• Laundry and dry-cleaning service,
• Car wash,
• Social media consultancy, and
• Digital printing,
• Barbershop,
• Billboard business, and
• Digital marketing agency.

Start-ups and other small businesses are continuously welcomed by the California Government in the following industries:

• Agriculture and ag tech,
• Aerospace and defense,
• Biotech,
• Climate and clean energy,
• Film and television,
• High tech,
• Manufacturing,
• Tourism,
• Wood product and biomass, and
• Zero emission vehicles. 

It is well known that California is a global leader in the high-tech and entertainment industries. However, a major industry in California is agriculture, and this state is one of the largest US producers and exporters of dairy products, vegetables, fruits, and nuts. 

The manufacturing industry produces goods for many other industries such as aerospace, ZEV, computers, and electronics.

All in all, whichever industry you choose, you are on a good path to success if you do your research. If you have the opportunity, test your product or service to see how people react and ask them for feedback.

Step #2: Research the business potential of your California business idea

Once you come up with your business idea, you should test its business potential and see whether you can make something out of it. 

Market research might be your first step to getting the lay of the land. Your research should provide answers to the following questions:

• Is there a demand for your product or service on the market?
• What problem does your product or service solve?
• Who are your target customers?
• Who are your competitors?
• What can you do better than your competitors?
• How much money do you need to start your business?

Carefully analyze the market and make sure it isn’t too saturated. If it is, think twice if it’s worth your time and effort.

However, your market analysis might show there is enough room for more businesses of the same kind to run and grow. If so, you should think of how to improve the product/service and distinguish yourself from your competitors.

Let’s take a laundry business as an example. Nowadays, not many people have time to do their laundry, and it is easier for them to have it done by professionals. 

According to the U.S. Laundry Facilities And Dry-Cleaning Services Market report, the market size for laundry and dry-cleaning services in the US will reach 16.10 billion by 2030. 

Also, California is one of the states with the highest employment level of workers in the laundry business.

So, bearing in mind the huge California population and the fact that laundry services are needed all year round, a laundry business can bring home the bacon.

Once you determine your business idea has potential, go to the next step and choose its legal entity.

Step #3: Choose your legal business entity 

This step is a crucial one because the choice of a particular business entity determines the documentation you’ll need to prepare and the tax and licensing regulations you’ll have to follow. 

To check what legal and tax obligations your business must comply with, it is highly recommended to hire an accredited professional to help you with the paperwork.

You can form the following business entities in the State of California:

• Sole proprietorship,
• General partnership,
• Limited partnership,
• Limited liability partnership,
• Limited liability company, 
• Additional LLC entity types depending on the way of taxation
• Corporation, and
• Charities and nonprofits.

Entity type #1: Sole proprietorship

A sole proprietorship is a common type of business entity that allows an individual to own and run a business. In legal terms, you and your business are considered as one i.e. you’re self-employed. 

With this business type, you (the owner) get the entire profit, and you are taxed through your individual income tax return. To report your tax return, you need to file Form 540 with the Franchise Tax Board (FTB). 

To report your business income and expenses, you submit Profit or Loss from Business (Schedule C (Form 1040)) with the IRS website. For the payment of your estimated taxes, you need Estimated Tax for Individuals Form (Form 540-ES).

As a sole proprietor, should any debts or lawsuits arise, you are personally liable for them — in which case your personal assets are in danger.

California belongs to the group of 9 US community property states, which means that a married couple can own a sole proprietorship. They can choose to file their sole proprietorship income in 2 ways:

• File jointly — a single return is required and tax rates are lower, or
• File separately — the income is shared between partners, tax rates are higher, and community and separate property rules apply.

This type of business structure can operate without registering with the California Secretary of State. Yet, you still have to pay taxes, obtain licenses and permits, and meet other regulations connected to your business.

If your sole proprietorship has income in and out of California, visit the apportionment and allocation page to check whether you are subject to the apportionment and allocation rules.

Entity type #2: General partnership

A general partnership represents a business structure owned by 2 or more persons. 

Within this entity, general partners have equal rights in distributing profit and losses. General partners are also liable for all business debts.

However, it is advisable for all partners to reach an agreement on the percentage of ownership and share of profit and losses. 

Each partner in a business structure such as a partnership pays taxes through their individual tax return.

General partnerships are obliged to file the Partnership Return of Income (Form 565) if they:

• Take part in a trade or business in California,
• Receive income coming from California sources,
• Report ownerships in other business entities through Pass-Through Entity Ownership (Schedule EO 568),
• Have income or loss both in and out of California, in which case they need to file Apportionment and Allocation of Income (Schedule R) to determine the California part of the income.

Another obligation imposed on each partner is to report the share of the partnership’s income, deductions, credits, property, payroll, and sales. They have to fill in a Partner’s Share of Income Deductions, Credits, etc. (Schedule K-1 565). 

The latest information on how to fill the Schedule K-1 565 form is provided on the FTB website.

General partnerships don’t pay an annual tax. You can find more information and instructions on how to fill in the forms in the Partnership Tax Booklet.

Entity type #3: Limited partnership (LP)

A limited partnership includes at least 1 general partner and 1 limited partner. 

While a general partner controls and owns the business, a limited partner invests in it. Also, limited partners have liability for debts equal to their investment. 

It is recommended that all partners make a formal agreement on the functioning of their limited partnership.

Limited partnerships are subject to the same filing requirements general partnerships have. 

But, unlike general partnerships, limited partnerships pay an annual tax in the amount of $800.

The Franchise Tax Board website lists the due dates for tax payments for all California businesses.

Entity type #4: Limited liability partnership (LLP)

If you want to form a limited liability partnership, you need to have a license and work as a(n):

• Lawyer,
• Architect, 
• Accountant,
• Engineer, or
• Land surveyor. 

All members of the LLP should agree on the organization and procedures that will be applied to the partnership. It is best to have a written agreement signed by all members. 

An LLP must file the Partnership Return of Income (Form 565) if it:

• Runs a business in California,
• Has California source income, and
• Is registered with the Secretary of State (SOS).

Each member of an LLP pays taxes on their share of the partnership. To do this, they need to file the Partner’s Share of Income, Deductions, Credits, etc. (Schedule K-1 565).

Limited liability partnerships aren’t required to pay income tax, but they must pay $800 for the annual tax. However, businesses can get LLP annual payment exception if:

• They didn’t run a business in the state during the tax year in question, and
• Their tax year was up to 15 days.

Even though there are no estimated tax requirements for LLPs, partners usually have to make estimated tax payments for their own income tax returns.

To find more information on withholding, you can make a request for Resident and Nonresident Withholding Guidelines (FTB 1017) and the Small Business Withholding Tool.

Entity type #5: Limited liability company (LLC)

A limited liability company is a frequent business entity choice because it offers both the benefits of a corporation and that of a partnership. 

LLCs are separate business entities, and therefore personal assets of their owners are protected.

Also, since the profit goes to the owners, the owners pay tax for their share of the profit. 

When they file taxes, LLCs are required to have the same classification for both federal and California tax returns. They can be classified as: 

• Single member limited liability company (SMLLC),
• A partnership, and
• An LLC treated as a corporation.

So, if LLCs are classified as a partnership when they file state taxes, they also have to be classified as a partnership for federal tax purposes. 

Note: We will provide more information on these under Additional LLC entity types.

LLCs are required to pay the annual tax of $800 and submit LLC Tax Voucher (FTB 3522) with all the instructions included.

The annual tax can be paid in 2 ways: 

• Online — via Bank account (Web Pay) or Credit Card, and
• By mail — it is necessary to fill in an LLC Tax Voucher and send it to Franchise Tax Board, PO Box 942857, Sacramento CA 94257-0631.

Those LLCs that register, work, or file to do business in the period between January 1, 2021, and January 1, 2024, are exempt from paying the annual tax for their first tax year. 

LLCs that will earn more than $250,000 will also have to pay a fee. The form with instructions and the payment slip is Estimated Fee for LLCs (FTB 3536).

The table below shows the fee amount depending on California income.

California income rounded to the nearest whole dollar	The fee amount
$250,000 – $499,999	$900
$500,000 – $999,999	$2,500
$1,000,000 – $4,999,999	$6,000
$5,000,000 or more	$11,790

Another document to file is a Limited Liability Company Return of Income (Form 568). 

If you file on an extension, use Payment for Automatic Extension for LLC (FTB 3537). In case your LLC has some income or loss both inside and outside the state, add the Apportionment and Allocation of Income (Schedule R) form to tax papers. 

Entity type #6: Additional LLC entity types depending on the way of taxation

Limited liability companies can choose the way they’ll be treated for tax purposes. They can be classified as:

• Single member LLC (SMLLC) — a type of LLC with 1 owner. California allows a married couple to own an SMLLC. We advise you to check tax due dates because there are differences depending on whether an SMLLC is owned by a pass-through entity or by an individual or a non-pass-through entity). An SMLLC is a disregarded entity for federal purposes. The FTB provides more information on Single Member LLC. Filing requirements are the same as for LLCs.
•  LLC treated as a corporation — you need to file Entity Classification Election (Federal Form 8832) and choose to be classified as a corporation for federal tax purposes. There are 3 different forms depending on the tax you need to pay.
• LLC treated as a partnership — if treated as a partnership, it means that an LLC has more than 1 owner, and in this case, it can be regarded as:
• Limited liability partnership (LLP) — explained under entity type #4.
• Series LLC (SLLC) — a business entity representing a group of LLCs organized in a tiered-down structure. The top-tier LLC is the owner of lower-tiered LLCs, and the top one controls all the others. SLLC cannot be formed in California, however, if formed in another state, SLLC can be registered and do business in California.
• Limited liability limited partnership (LLLP) — this business entity allows 1 or more general partners and 1 or more limited partners. LLLPs cannot be formed in California, but if formed in another state, they can be registered. The FTB provides more information on the limited liability limited partnership business entity.

Entity type #7: Corporation

A corporation is owned by shareholders. Depending on the way they are taxed, there are 2 types of corporations:

• C-corporation — taxed annually on the earnings (as per the Internal Revenue Code  guidelines) when these are distributed as dividends, whereas shareholders are taxed separately from the business, and
• S-corporation — taxed as a pass-through entity, meaning that income, losses, credits, and deductions of an S-corporation are subject to the shareholders’ personal tax return i.e. shareholders pay tax on their share of a profit.

If they receive California source income and are doing business there, they must file California Corporation Franchise or Income Tax Return (Form 100).

S-corporations don’t pay federal income taxes, and they cannot have more than 100 stakeholders. They file California Franchise or Income Tax Return (Form 100S).

All corporations are required to pay the $800 minimum franchise tax. However, it is possible to get the exception in the first taxable year if you are a new or qualified corporation.

Also, the minimum franchise tax is not paid if:

• A corporation didn’t do any business during the tax year, and
• Its tax year was up to 15 days.

It is crucial to pay the estimated tax on the due date because, this way, your corporation avoids paying interest and penalties. 

Corporations are immediately given a 6-month extension if they file tax returns after the original due date. If they file after the extended due date, it is a serious violation of the law.

To make estimated tax payments, use Payment for Automatic Extension for Corporations and Exempt Organizations (FTB 3539).

The Franchise Tax Board has the Guide for Corporations Starting Business in California.

Corporations with California source income should check if they comply with Apportionment and allocation regulations. 

Entity type #8: Charities and nonprofits

Charities and nonprofits are business entities that are usually formed as corporations and are established with a certain humanitarian purpose.

Charities in California may have several legal forms, and the 3 main ones are:

• Nonprofit corporations, 
• Trusts, and 
• Unincorporated associations. 

Our main focus will be nonprofits, but you can read more about all of the forms in the Attorney’s General Guide for Charities.

The 3 most popular types of nonprofit corporations are:

• Public benefit corporations — most common, established for public and charitable purposes (e.g. educational institutions, hospitals),
• Mutual benefit corporations — established for the benefit of their own members (e.g. private clubs, professional associations), and
• Religious corporations — formed for religious purposes.

These can get tax-exempt status. There are 2 ways to apply for a tax exemption:

• Exemption application — you can make a request for Form 3500, and it will be emailed to you. Additionally, when you figure out your organization’s exemption type, you need to fill in the necessary information, print, and mail your application.
• Submission of Exemption Request — you need to fill in and submit the Submission of Exemption Request (Form 3500A) along with your federal determination letter. These are mailed to Exempt Organizations Unit MS F120, Franchise Tax Board, PO Box 1286, Rancho Cordova CA 95741-1286. 

If a tax-exempt status is approved, charities and nonprofit organizations receive a grant letter. 

The application process may last several months, but nonprofits can submit a rush request if they meet certain criteria. You can find more information on rush request processing on the FTB website. 

Step #4: Name your California business

Once you decide on the business entity, the next step is to think of a name for your business. 

When choosing a name, consider it a cornerstone of your business and make sure it represents your business in the best possible way. 

If you want to register a corporation, a limited partnership, or a limited liability company, you have to check the availability of the name you have chosen. This can be done online through the Business Search page on the California Secretary of State website (SOS). 

Bear in mind that this search is only preliminary, and you are advised to do some Google research as well and check if there are entities with the same name you have chosen. 

In case your business entity is a sole proprietorship or a general partnership, it usually contains the owner’s last name. However, you can opt for a fictitious business name (FBN), also known as a DBA (“doing business as”). 

A DBA is a great option for any business entity that wants to avoid having the last name of the owner(s) in its official name. 

Also, in case you want to have a trademark for your business, you can check if it is available through the California Trademark Search website and US Trademark Electronic Search System. 

There are certain name regulations, requirements, and restrictions that you should stick to when choosing a name for your business. For example, there should be a business entity identifier within a name such as Corp, Inc, PC, LLC, (e.g. Alpha & Beta Corp).

Step #5: Reserve and register your business name 

In California, the name of a business entity can be reserved for 60 days. 

Please note that the reservation can be renewed, but there has to be at least 1 day between the 2 reservation periods. 

To make a name reservation for your corporation, LLC, or LP, you need to submit a Name Reservation Request Form. 

If you submit the form online, you need to create a bizlife online account and access the reservation form. The online processing fee is $10. The information on how to set up a bizfile account is provided on the SOS website. 

You can also complete the form, attach a $10 check, and submit the request:

• By mail — send the envelope to the Secretary of State, Name Availability Unit, 1500 11th Street, 3rd Floor, Sacramento, CA 95814. 
• In person (drop off) — at the Secretary of State office in Sacramento. You will pay an extra $10 for the special handling fee. 

A DBA is not registered with the California Secretary of State office. To register a DBA, you need to contact the city and/or county clerk/recorder in the place where the business is located. You can find the local office via the CalGOLD Permit Assistance Tool. The fees for a DBA registration vary and depend on the county or city.

You are required to file a DBA within 40 days of the launching of your business. After filing a DBA, you have 30 days to publish a statement in a newspaper circulating in the county where a DBA was registered. The statement must appear in a newspaper once a week for 4 successive weeks. 

In addition, an affidavit of the publication must be filed with the county office within 30 days from the last publication. 

Register a trademark in California

After checking the availability of a preferred trademark, there are 3 ways you can file a Trademark registration:

• Online — trademark registration in California is enabled via the SOS website. The filing fee is $70 per classification. If approved, you will receive a free copy of the document you have filed via email. Each new certified copy is $5. 
• Mail — if you choose to send the Trademark Application for Registration (Form TM-100)  via mail, you can read the instructions provided in the form and fill in the Mail Submission Cover Sheet and the Application included in the form. Mail the document to the Secretary of State, Trademark Unit, P.O. Box 942870, Sacramento, CA 94277-2870. The filing fee is $70 per classification.
• In person — you need to print the Trademark Application for Registration (Form TM-100), complete and submit it to the Secretary of State Trademark Unit. The filing fee is $70 per classification.

Bonus step: Consider the URL domain for your business

Nowadays, it is preferable to present your business online, and if you are planning to build a website for your business, make sure you secure a domain name. 

Even if creating a website is not your priority, it is best to buy a domain with the name you desire because there is a risk that someone else may occupy it in the meantime. 

It is advisable to check the database and see if the desired domain name is available.

The US Small Business Administration (SBA) recommends you register your domain with a registrar service and consult accredited registrars to help you. 

Step #6: Make a clear business plan for your California business

Starting a business is not an easy task. There are a bunch of details to think about such as the registration process, location, licenses, etc. 

If you don’t want to lose sight of any important elements, making a plan of action might be a perfect solution to keep everything on track. 

Keep in mind that your business plan is not an official document, so there is no right or wrong way to write it. As long as your plan suits you and your business needs, you are heading in the right direction. 

Since your plan displays your business idea, it can be helpful in attracting investors or when applying for funding and grant programs.

To help you create a strategic business plan, we suggest the following substeps:

• Pick an appropriate business plan format,
• Draft an executive summary,
• Describe your business,
• Describe your product(s) and/or service(s),
• Make conclusions on the target audience based on market analysis,
• Outline your management and organization structure,
• Carry out customer segmentation,
• Make a marketing plan,
• Make a logistics and operations plan, and
• Make a financial plan.

Substep #1: Pick an appropriate business plan format

According to the SBA, there are 2 types of business plans: 

• Traditional — detailed and carefully outlined with segments such as market analysis, organization, funding, financial estimates, and more.
• Lean startup — summarizes the key elements of your business such as activities, resources, customer profile, estimated costs, etc. 

Depending on the business structure you opt for, you will choose a suitable plan — a sole proprietorship requires less planning than a corporation does, so you can opt for a lean startup plan for a sole proprietorship and a traditional plan for a corporation.

You can look for online ready-made templates or write your plan from scratch. Also, the SBA Learning Centre Page provides helpful tutorials on how to write and develop a business plan. 

Substep #2: Draw up an executive summary

A comprehensive executive summary involves your full business name and location and provides data on your product(s)/service(s). 

It explains what problems your product(s)/service(s) solve for customers and/or how your business helps other companies. 

Since the summary contains the basic elements of your plan, it should be 1 page long.

Also, an executive summary includes brief information on: 

• Your business legal structure,
• Your business goals,
• Your employees,
• Financial information,
• Future financial requirements, and
• Projected profits.

Substep #3: Describe your business

In this section of the business plan, you should elaborate on your company and its mission. Feel free to include information on:

• Your competitive advantages,
• Target market,
• Long- and short-term goals,
• Experts in your team, and
• Organizational structure.

In our laundry business example, the main goals of the business are:

• Saving time for busy customers,
• Professional laundry care, and
• Convenience (clean, dry, and pick-up and delivery service).

Your long-term goal might be to open a chain of laundry services in the city or even expand across the state. Options for business growth are great, especially if you offer the whole package. You can also offer your services to hotels, hospitals, and other businesses — everyone needs clean clothes, sheets, and towels.

To support your business plan, you can describe the advantages of opening a laundry service, e.g. it is an affordable service and not seasonally dependent, therefore it has great ROI. 

Also, you can set up specific working hours, or the shop can be open 24/7. What’s more, it doesn’t require many employees to run the business within the premises.

Substep #4: Describe your product(s) and/or service(s)

This substep should illustrate your product(s) and/or service(s) in the best way possible. You should explain the benefits your product(s)/service(s) have and why they will be attractive to clients. 

It is essential to present the production process, the equipment you need, potential partners, and suppliers. 

If your business offers services, specify what they are. In the case of the laundry business, you can offer washing and drying. However, you can add other services such as ironing, folding, or pickup and delivery service. 

Substep #5: Make conclusions on the target audience based on market analysis

Market analysis is a valuable part of your plan because it gives you the opportunity to analyze both your competitors and your potential customers. 

In the laundry business example, you need a complete understanding of the laundry industry as well as your target market to be able to create a competitive offer and get a market share. 

Make sure you get to know the latest industry trends and prices and conduct research on the strengths and weaknesses of your competitors.

Try to figure out what you can do differently and make it a stepping stone to launching your laundry business. 

Substep #6: Outline the plan for your management and organization structure

This is the part where you illustrate how your business will be organized and explain your legal structure. 

List your employees and describe their expertise. Include their résumés and state what roles and responsibilities they will take. 

In a laundry service business, you might be a sole proprietor and do all the work, but you can also hire employees to work in shifts. 

Substep #7: Carry out customer segmentation

When you start your business, you’ll probably only have some basic knowledge of your potential clientele. 

However, as your business grows and you get more clients, you’ll be able to make more precise segmentation and customer groupings.

For instance, in a laundry business, your customers can be individuals or other businesses such as hotels, restaurants, and beauty centers.

Another way to group your customers can be according to the services they choose — some may choose wash and dry services, and others may pay for a pickup and delivery service as well. 

Bear in mind that, to keep your customers satisfied, you should find ways to meet their needs and preferences. 

Substep #8: Make a marketing plan

A marketing plan for your business should focus on the way you are going to promote the business and attract and retain customers. 

To find the right tactics for promotion, you’ll need to know:

• Your target market,
• Your competitors’ marketing strategies, and
• Your budget.

Once you analyze these factors, it’ll be easier to identify your unique selling proposition and define your offer.

In a laundry business, try to highlight your advantages such as modern equipment, flexible working hours, fast pickup and delivery service, etc. You can also attract customers by offering lower prices during the promotional period or by issuing discount vouchers. 

Substep #9: Make a logistics and operations plan

This substep describes the way you are going to organize your business. You should mention what responsibilities each of your staff members will have and if you’ll have any external support.

If your company delivers products, it is important to explain the full process — from the purchase of raw materials to the moment of delivering the final product to customers. 

In our laundry business example, this substep refers to your decisions on the working hours, on-site laundry pickup times, day(s) for pickup and delivery service, etc. 

If you need external partners for your pickup/delivery service, you should mention that as well.

Another detail to include is how your customers can reach you — by phone, in person at a site, or they can book your services and pay online. 

Substep #10: Make a thorough financial plan

Last, but not least, you should make a plan on how to finance your business. You should give careful thought to the following: 

• Startup costs,
• Financial outlook for the first year, and 
• Financial outlook for the next 3–5 years.

If you are planning to apply for funding, grants, or incentives, make sure to check the eligibility requirements. 

It is a good practice to include charts and graphs to illustrate your financial projections.

As stated in the previously mentioned U.S. Laundry Facilities And Dry-Cleaning Services Market report, you need $100,000–250,000 to start a laundry business. This is a large sum of money, but there are ways to find great funding opportunities.

Step #7: Secure the necessary funding for your California business

If you need to secure funding to start your own business, the most frequent options in California are:

• Bootstrapping,
• Friends and family loans,
• Partnership,
• Crowdfunding,
• Lending,
• State loan programs,
• Financial incentives,
• Funding programs, and
• Other financing opportunities.

Funding option #1: Bootstrapping

Bootstrapping is a form of funding that involves starting a business by investing your own money. 

It can be quite rocky in the beginning, but as your business expands, you’ll soon be able to reinvest the money you have put into it. 

The most important advantage of this type of funding is that you make your own decisions and you are the only person in charge of the finances. 

Funding option #2: Friends and family loans

Friends and family loans are another form of financing your business venture. 

These loans can help set your business up, and you can agree on more favorable repayment conditions with your friends and family members than you would with a bank or some other lending institution.

But, to avoid potential misunderstandings that could damage your relationship with those who lent the money for your business, make sure you sign a written agreement on the repayment terms.

Funding option #3: Partnership

Another option to get your business off the ground is forming a partnership. 

This funding option implies that you join finances with someone and form a business entity known as a partnership. 

If you choose this form of financing, it is essential to have an agreement on the rights and obligations of each partner.

Funding option #4: Crowdfunding

Crowdfunding is a financing option that refers to the process of raising money from a large number of investors who usually provide smaller amounts of capital.

According to the Department of Financial Protection and Innovation of California, there are 2 types of crowdfunding:

• Donation-based — individuals donate money without expecting anything in return, and
• Securities-based — also known as equity funding; it is regulated by federal and state securities laws because it implies receiving an ownership interest, i.e. securities, after investing money in someone’s business. 

Equity funding is usually associated with angel investors and venture capitalists. 

In January 2022, the State of California added a new California state crowdfunding exemption to its California Corporate Securities Law. This exemption applies to issuers in California who will offer to California purchasers only. 

Crowdfunding is typically done through online crowdfunding platforms such as Kickstarter, GoFundMe, and Indiegogo. 

However, you have to be careful with crowdfunding sites because not all of them are safe. You can read some tips on how to evaluate crowdfunding campaigns on the California Office of the Attorney General website.

Funding option #5: Lending

To find a lender for your business, CalOSBA suggests you check the following resources:

• Financial Development Corporations (FDCs) — they provide direct loans and loan guarantees in partnership with the IBank Small Business Finance Center. 
• Community Development Financial Institutions (CDFIs) — these are private institutions that provide lending options to underserved communities.

Funding option #6: State loan programs

The State of California is committed to providing support to small businesses through state loan programs. 

These programs are intended to help brand-new and growing businesses as well as those that suffered due to COVID-19 restrictions.

Some of the State Loan programs for small businesses impacted by the COVID-19 pandemic are:

• Small Business Loan Guarantee Program — supports businesses with 1-750 employees that are running in lower-income communities throughout California. This program is aided by a group of lenders cooperating with FDCs.
• The California Rebuilding Fund — the Fund is supported by public, private, and philanthropic capital sources. The application is submitted online by sending a pre-application first. If approved, the applicant is matched with a lender who will then help him with the following award process.
• California Capital Access Program (CalCAP) for Small Business — includes various programs aimed at providing funding to financial institutions that give loans. 

Funding option #7: Financial incentives

The CalOSBA suggest many financial incentives and divides them into 4 groups:

• By industry — you can find financial incentives for 9 industry fields such as film and television, food processors, biotech/health care, and more.
• By type — there are 4 groups of financial incentives by type: bonds, loans, tax credits and exemptions, and utilities.  
• By business operations — depending on the area of business operations such as utilities, business expansion, or workforce development, you can have a look at 6 groups of financial incentives by the type of business operations.  
• Tax incentive programs — programs developed to support innovation and development. We have already mentioned 2 of these programs: the Employment Training Panel and California Competes Tax Credit, but there are 3 more that are currently active: 
• California Opportunity Zones,
• Work Opportunity Tax Credit, and
• Fidelity Bonding Program. 

Funding option #8: Funding programs

California offers various state funding options for small businesses including loans and grants. Some of them are:

• California Microbusiness COVID-19 Relief Grant Program — a program supported by CalOSBA and implemented by counties. Eligible microbusinesses affected by COVID-19 are given micro-grants in the amount of $2,500.
• California Small Business COVID-19 Relief Grant Program — a popular program that provides grants between $5,000 to $25,000. The program had 6 rounds in the period between December 30, 2020, and May 4, 2021. As of May 13, 2021, the Government has invested $4 billion in the program.
• California Nonprofit Performing Arts Grant Program — this program is aimed at eligible nonprofit performing arts organizations, and it provides $49,500,000,00, which should be allocated in 1 or more rounds. The grants are given on a first-come-first-served basis, and one of the qualification terms is the applicant’s gross revenue in the 2019 taxable year. 
• State Loan Programs — Loan Guarantee Program and Disaster Relief Loan Guarantee Financing are in the same group as the California Rebuilding Fund and California Capital Access Program.
• Federal Loan Programs — these programs refer to the SBA programs that can help you find loans and investors and research grants as well as assistance during a disaster.
• Local Grant and Loan Programs — these are funding programs offered by county or city agencies. You are advised to check these programs with your local Chamber of Commerce or Economic Development Agency in your place of living.

Funding option #9: Other financing opportunities 

The CalOSBA provides information on additional 5 groups of business financing opportunities depending on the type of business, industry, and other characteristics:

• Agriculture,
• Business Expansion/Facility Improvements,
• Green Business/Clean Tech,
• Exporting/Importing, and
• Start-up or Small Business Support.

In case your business belongs to one of these categories, we advise you to examine these financing options. 

Also, you can study California Business Investment Guide 2023 where you will find a list of incentives with due dates, contact information, and more.

Step #8: Choose an appropriate location for your California business

The right location is often crucial for the success of your business. Picking the right business location requires some time and effort. There are several factors to consider such as: 

• Building and land requirements,
• Cost of rent or renovation,
• Proximity to ports, rails, major roads, and airports,
• Nearby competitors,
• Zoning requirements, 
• Utilities, etc.

To help you with the location choice, CalOSBA offers the California Business Portal Mapping Tool. The tool covers 4 relevant areas and provides information on:

• Site Regions — the map offers data on 10 California regions, their major industries, and highlights,
• Workforce resources — the tool helps you find out more about high educational institutions, designated geographic areas, innovation hubs, etc.
• Business Assistance Organizations — the map helps you find the closest local organization to help you with registration, incentive programs, and training programs, and
• Institutions in charge of permits and regulations — this tool shows all the state and federal permitting institutions.

In the Entrepreneur’s article titled These are the Best and Worst States to Start a Business in 2023, California ranks 10th on the list with Utah being 1st as the best US state for starting a business.

Step #9: Register your business

Up to this step, you should have a business name, a location, and a business plan. The next step is to officially register your business entity.

We recommend you hire a professional to take care of the paperwork. A past master can provide valuable advice and save you from undue stress.

The State of California requires corporations, LLCs, LPs, and LLPs to appoint an agent for service of process to deal with the registration process on their behalf.

The Secretary of State authorizes 2 ways to file documents — online (fastest option) and physically, by mail or in person. 

However, corporations, limited liability companies, and limited partnerships must use bizfile Online to submit forms. It is necessary to create an account before filing any documents. 

As stated on the SOS official page for eForms submission, if forms for these entity types are filed as eforms (available for some entities on the SOS website), they won’t be accepted and the processing fee won’t be refunded.

When registered, corporations get a 7-digit entity number with a “C” at the beginning, and LLCs and LPs get a 12-digit entity number with no letter prior to numbers.

All business entities other than sole proprietorships must have an Employer Identification Number (EIN) to file taxes, hire employees, open bank accounts, etc. EIN is also known as a Federal Tax Identification Number.

The application for EIN is submitted through the Internal Revenue Service (IRS) website, and it is a free service. 

Each business entity has some specific requirements to meet, so let’s see what they are.

Register a sole proprietorship in California

In California, you can start a sole proprietorship without having to register with the California Secretary of State.

Sole proprietors can leave their own name or register a fictitious name.

Depending on their business type, they are still obliged to get the required licenses and permits. 

The owner of a sole proprietorship is allowed to get an (EIN), at least for the purposes of opening a separate business account.  

Register a general partnership in California

To register a GP, you need to submit a Statement of Partnership Authority (Form GP-1). It is possible to submit Form GP-1 online, and the fee is $70. If you choose to submit the form in person, you should add a $15 handling fee. Do not include the handling fee if you send forms by mail.

You will get a plain copy of the submitted document for free, but if you need certified copies, there’s a $5 certification fee that can be ordered online as well.

The standard processing time for review is approximately 5 business days from the day of receipt. Bear in mind that online submissions have priority.

You can check processing dates for all business filings at the SOS website.

Register a limited partnership in California

When you register a limited partnership in California, it is obligatory to do it via bizfile Online portal. 

You have to file a Certificate of Limited Partnership (Form LP-1) to register your LP. It is recommended to submit it via bizfile Online. The processing fee is $0 for the submissions between July 1, 2022, and June 30, 2023. 

The filing fees were waived for some business entities for the fiscal year 2022–23 as stated in the Budget Act of 2022. Make sure you check the price after June 2023.

If you choose to submit the form in person, you should add a $15 handling fee. The handling fee is not included if you send it by mail.

If you need certified copies of the certificate, the fee is $5 and can be ordered online.

In case you want to register a foreign limited partnership (out-of-state or out-of-country), there are slightly different documents to submit.

Register a limited liability partnership in California

As we have already mentioned, to register an LLP, you need a designated agent to help you with the procedure.

LLPs are required to submit an Application to Register a Limited Liability Partnership (Form LLP-1) with the Secretary of State office. There is an option to submit Form LLP-1 online and whatever option you choose, the filing fee is $70. 

If you choose to drop off the Form, there is a $15 handling fee. There is no handling fee for forms sent by mail. A certified copy can be issued upon request for an additional $5 fee.

The Form LLP-1 includes an additional sheet, which you can fill in to confirm an alternative security provision of an LLP. If you submit the document together with the Application, there is no fee, but if you submit it afterward, the filing fee is $30. 

After attorneys register their LLPs with the SOS, they need to register their business with the California State Bar as well. 

Register a limited liability company in California

Once you reserve a name and appoint a registered agent, there are other requirements to fulfill:

• Get an EIN,
• File the Articles of Organization (Form LLC-1) — the filing fee is $0 until June 30, 2023. Don’t forget to check the price after this date on the California Secretary of State website. You can file the Articles via bizfile Online, in person, or by mail. If submitted in person, a handling fee is $15. Submission by mail doesn’t impose any handling fee. The optional certification fee is $5.
• File the Statement of Information (Form LLC-12) — must be filed within 90 days of registration with the SOS and every 2 years thereafter. The filing fee is $20. It can be filed via bizfile Online. A certified copy is $5. There is no handling fee when you submit by mail. Failure to submit Form LLC-12 faces a $250 penalty.
• Create an Operating Agreement — LLCs in California are obliged to have an operating agreement, however, the agreement is not filed with the SOS. It is rather kept in the office records of an LLC. An operating agreement represents a bedrock of an LLC because it includes details on the ownership structure, distribution of profits, rights and responsibilities of each owner, etc.

Registration tips for LLCs depending on the way of taxation

If you want to register an SMLLC, the registration process is the same as for an LLC.

When registering a series of LLCs in California, the first LLC in the series should use the number provided by the SOS on the first payment vouchers. 

All other LLCs within the series leave the identification number field blank. They get their own numbers after the first payment. It is important to write “Series LLC # _ _ _ _ _ _” in red ink on top of all the forms you have to fill in. 

We advise you to check the IRS website for additional information on the LLCs filing as a corporation or partnership.

Register a corporation in California

To register a domestic corporation in California, you need to have a name for it and appoint a registered agent. You also need the following:

• An EIN,
• The Articles of Incorporation (Form ARTS-GS) — the processing fee is $0 until June 30, 2023. Make sure to check the price after this date. The optional certification fee is $5. Faster service is via bizfile Online. In-person submissions require a $15 handling fee. No handling fee needed if sent by mail. A corporation is active the moment the SOS approves the Articles.
• A Statement of Information (SI 550) — can be filed via bizfile Online, due within 90 days of the registration. It should be submitted every year. The fee is $25. The optional certification fee is $5. Bear in mind that you might pay a $250 imposed by the SOS for omitting to file a Statement of Information.
• Bylaws — written rules and procedures determining how your corporation operates. Bylaws direct how to hold meetings, keep records, and solve disputes. Also, they regulate the roles of directors and officers and voting procedures.
• First organizational meeting — a corporation needs at least 1 initial director to manage a corporation until the first shareholder meeting. The first organizational meeting is aimed at diverse points such as the creation and adoption of bylaws, election of board members, and adoption of conflict of interest policy. Another purpose is to determine the share structure.

Since January 1, 2021, California has new rules regarding board formation — corporations with head offices in the state must have at least 1 female board member as well as board members from underrepresented communities. 

Forms for stock corporations, such as professional, close, and foreign, are available on the bizfile Online portal. 

Register a charity/nonprofit corporation in California

Assuming you have a name for your nonprofit and a registered agent to guide you, you have to do the following to obtain registration:

• File Articles of Incorporation-Nonprofit — depending on the type of your nonprofit (public, mutual, or religious benefit), you submit Form ARTS-PB-501(c)(3) for public, Form ARTS-MU for mutual, and Form ARTS-RE for religious nonprofits. The filing fee is $0 until June 30, 2023. Make sure you check the price after this date. Submission is done via bizfile Online portal, in person (handling fee $15), or by mail. A certification fee of $5 is optional.
• Create bylaws.
• Draft an action of incorporator — this is done in case the Articles of Incorporation have been signed by an incorporator and not by an initial board of directors. The incorporator should sign an “action by a sole incorporator” to get the right to appoint the board of directors. If agreed, the incorporator may also adopt bylaws, choose officers, etc.
• Get an EIN.
• Organize the meeting of directors — this meeting is vital because the board decides on adopting bylaws and conflict of interest policy, opening a bank account, planning a budget, etc. The secretary is in charge of recording the minutes of the meeting. 
• File a Statement of Information (SI-100) — filed with the SOS within 90 days of registration and every 2 years thereafter. The filing fee is $20, and you can submit the Statement through bizfile Online, in person, or by mail. The optional certification fee is $5.
• Register with the Attorney General’s Registry of Charitable Trusts — applies to public benefit corporations. They file Form CT-1, and the registration fee is $50. 
• Apply for tax exemptions — use Form 1023 and Form 1023-EZ to apply for tax exemption with the IRS. 

Step #10: Obtain federal and state tax IDs

The State of California has a bit of a complex tax system, and it is recommended that you consult a professional to help you collect taxes levied on your particular business. You can consult California technical assistance centers for free or low-cost advice.

The following state and federal institutions are in charge of taxes imposed in California:

• The California Department of Tax and Fee Administration (CDFTA) — administers more than 30 tax and fee programs including sales and use, fuel, tobacco, cannabis taxes, alcohol, and others, 
• The Franchise Tax Board (FTB) — administers personal and corporate income tax, 
• The Employment Development Department (EDD) — administers payroll taxes, and
• The Internal Revenue Service (IRS) — administers all federal taxes apart from alcohol, custom duties, and tobacco. 

You can also check the California Tax Service Center, which serves as a liaison between these institutions and provides valuable information on the tax system. 

The CDFTA published Striking Gold in California, a booklet offering information on taxes, forms, and tax due dates. The booklet is mostly intended for sole proprietors. However, it provides a helpful index of publications covering other business entities. 

Let us now have a look at the most important federal and state taxes in California apart from the ones already mentioned in business entity descriptions.

Sales and use tax in California

The sales tax is imposed on the retailers selling goods, merchandise, and services but for those exempted by law. 

The use tax accompanies the sales tax since it is levied on the storage and consumption of goods bought without paying a sales tax. It also applies to those purchases getting to California from other states. 

Depending on the location of your business, the sales and use tax in California have 3 parts: 

• State tax rate,
• Local tax rate, and 
• District tax rate.

To find more information on local and district taxes, you should consult the Local and District Tax Guide for Retailers.

Special Taxes and Fees in California

The CDFTA is in charge of more than 30 special tax and fee programs, and it cooperates with other state agencies to manage all these. One of these state agencies is the California State Board of Equalization, which covers property tax, alcoholic beverage tax, and tax on insurers.

Other special taxes include: 

• Cigarette and tobacco products tax, 
• Diesel fuel tax, 
• Motor vehicle fuel tax, etc.

The CDFTA offers online registrations that enable you to obtain permits and licenses, as well as pay sales, use, and other special taxes.

Additionally, the CDFTA provides various online tax educational programs to help you deal with tax regulations. 

Payroll taxes

The state of California levies 4 payroll taxes:

• Unemployment insurance (UI) — a tax paid by employers to enable temporary financial support to unemployed people who lost jobs for reasons out of their control, 
• Employment training tax (ETT) — a tax paid by employers for the training of workers in selected industries,
• State disability insurance (SDI) — a tax withheld from employees’ pay used for paying employees in case of their illness or injury not related to work. 
• Personal income tax (PIT) — a tax on the personal income withheld from employees’ pay; administered in cooperation with the FTB; used by the government to maintain and improve public services such as schools, roads, health services, etc.  

To find out more about payroll taxes and how you can use e-services, we advise you to consult the 2023 California Employer’s Guide.

Step #11: Make sure to get the necessary licenses and permits

Along with tax regulations, businesses need to obtain various licenses and permits to begin their work.

California doesn’t require nor issue a business license as such. Nevertheless, depending on the type of business you have, you still may be required to obtain various federal, state, regional, or local licenses and/or permits. 

The CalGOLD Permit Assistance Tool, which we have already mentioned in Step #5, is a great assistant that helps you find all kinds of permits and licenses for your business no matter what official level they belong to. 

The CalGOLD tool is very simple to use — you select a city or county where your business is located and a business entity type, and you get all the permits and licenses you need enumerated along with additional resources and contact information.

Local licenses and permits in California

A business license, also known as a business tax certificate, is required for most businesses on a local level, i.e. in a particular city/town.  

A land use permit/zoning clearance is required for businesses operating within incorporated city limits.

Any new construction or a building that should be renovated requires obtaining a building and construction permit from the city.

All those businesses whose work includes discharging hazardous materials into the sewer need industrial wastewater discharge permits, e.g. dentists and pest control services.

Home-based business entities must obtain a home occupation permit.

State licenses and permits in California

One of the statewide permits applicable to all those entities selling or leasing any tangible assets is a seller’s permit. This permit is obligatory for:

• Individuals,
• Corporations,
• LLCs,
• Partnerships, and
• Organizations. 

The California seller’s permit goes hand in hand with the sales and use tax, and you can read more about it in the CDFTA’s Publication 73, Your California Seller’s Permit. 

An alcoholic beverage license is obligatory for any person or business selling alcoholic beverages.

Barbering and cosmetology licenses are required for barbers, cosmetologists, estheticians, and others working in hair, nail, and skin care services. 

Veterinary, pharmacy, and architectural licenses are some examples of licenses required on a state level.

Examples of state permits are an air tanks permit, industrial activities stormwater general permit, and solid waste permit.

The Department of Consumer Affairs (DCA) and the Department of Industrial Relations (DIR) provide professional licenses, permits, and many other business-related certifications and registrations. 

You can check the Professional Licensure Guide on the CalOSBA website.

Federal licenses and permits

Some businesses need to obtain licenses and permits administered on a federal level. According to the U.S. Small Business Administration (SBA), the following business areas are required to obtain federal licenses and permits:

• Agriculture,
• Alcoholic beverages,
• Aviation,
• Firearms, ammunition, and explosives,
• Fish and wildlife,
• Commercial fisheries,
• Maritime transportation,
• Mining and drilling,
• Nuclear energy,
• Radio and television broadcasting, and
• Transportation and logistics.

Step #12: Open banking and credit accounts for your business

To avoid being tangled in a web of personal and business expenses on your own bank account, it is vital to open a separate business account to keep track of your business expenses. 

Additionally, having separate business and personal accounts protects your private assets in case of any lawsuits. 

To open a designated bank account, you’ll need an EIN or a Social Security Number (the latter is an option for sole proprietors). 

You might also consider getting a business credit card to ease the start-up costs of your business. Another advantage of a business credit card is that it helps you build your company’s credit profile and enhances credibility when you apply for grants and loans.

Make sure you do in-depth research on several banks and their offers for businesses, compare the perks you get with each, and choose the offer that suits your business needs. 

Step #13: Get the insurance you need

Many people pay insurance for their health, homes, travel, and cars. However, you should also purchase it for your business. 

A business insurance policy covers both your business and your employees, and it protects you from various unfavorable scenarios that might occur while doing business, such as natural disasters, injuries at work, lawsuits, etc.

The type of insurance you need depends on the type of business you do. We advise you to consult a broker-agent and check the best options for your business.

According to the Small Business Guide to Commercial Insurance by the California Department of Insurance, there are 2 main types of insurance protecting businesses:

• Property insurance, and
• Casualty insurance.

Property insurance

This type of insurance covers property that is stolen, damaged or destroyed in some way. It includes coverage lines such as:

• Commercial property — covers buildings or any other structures you use, machinery and equipment, as well as the personal property of your business such as furniture or inventory. It also includes the personal property under the control of your business. 
• Inland marine — refers to insurance that covers damages and destruction of your business property while they are in transport,
• Boiler and machinery — also known as machinery breakdown or systems protector. It protects your business property and covers property losses or legal fees that happen due to malfunction. Machinery also covers heating, ventilating, and air conditioning.
• Crime — protects your business assets in case of a robbery, burglary, larceny, and other crimes.

Casualty insurance

Casualty insurance covers any accidental bodily injuries and property damages caused by an individual, business, or organization. There are 4 main types of coverage:

• Commercial Automobile — this insurance protects your business from any liability caused by automobiles used for work. It also covers any damages to the automobiles owned by a particular business,
• Commercial General Liability — a standard commercial liability policy, which covers premises liability, product liability, and completed operations. However, it also has exclusions, so it may not be enough to cover everything your company needs.
• Commercial Umbrella — intended to cover any losses not included in policies such as commercial automobiles, commercial general liability, or any other.
• Workers Compensation — this insurance is required for all employers in California. It covers job-related illnesses and injuries, and it is based on a “no-fault” system — meaning that employees receive medical help no matter who caused the accident.

The SBA provides great advice on how to pick and buy business insurance and mentions other types of insurance such as business owner’s policy and home-based insurance that might be suitable for those working from home.

Step #14: Hire the employees you need

As populated as it is and as popular as it is, California is a mecca for students, job seekers, and business people. Its world-class universities and colleges attract future workers, and workforce training programs are at the disposal of various businesses. 

The California labor market is able to offer a highly skilled workforce, but the state is very strict in terms of employers’ responsibilities toward labor rights. More details about labor laws and obligations of employers in California can be found on the CalOSBA website. 

Apart from California Competes and Employment Training Panel, the state offers many hiring incentives such as:

• New employment credit — an income tax credit given to employers for hiring full-time workers in designated geographic areas,
• EDD fidelity bonding program — a program supporting employers who hire ex-offenders and at-risk job applicants, and
• Work opportunity tax credit — a federal tax credit given to employers who hire veterans, ex-felons, and workers from other targeted groups. 

To connect employers and job seekers, the Employment Development Department offers a labor exchange system known as CalJOBS. This system allows you to search jobs, leave résumés, and search for potential job candidates.

California also has a network of American job centers that help employers in creating job ads and recruiting employees. These centers organize workshops and job fairs and provide training programs for employees.

Community colleges recognize the needs of the market and develop a highly skilled workforce that is in demand in companies across California. Colleges can also tailor training programs for employees to meet the needs of a particular company.

Step #15: Build a strong internet presence 

You are probably familiar with the famous saying of Jimmy Wales: “If it isn’t on Google, it doesn’t exist.”

This saying depicts the importance of being present online. If applied to business, it stresses the importance of advertising your business online so the news about it reaches the right audience. 

So, let’s see how you can build your online presence.

Substep #1: Create a Google business profile 

Creating a Google business profile enables you to:

• Make your business address, phone number(s), and working hours public,
• Add your business to Maps, 
• Display information on your products or services,
• Receive customer feedback,
• Communicate with customers, 
• Allow customers to book your services, and
• Attach relevant business photos.

Having a business profile on Google is a great way to attract customers and give more credibility to your business, but you can consider setting up a business website as well.

Substep #2: Build a compelling business website 

Now it’s time to use the business domain you secured earlier and put your business on the map. 

The website represents your company and introduces your brand to the world. Therefore, make sure it is user-friendly and informative. 

Your products and services should be clearly listed on the website along with prices, promotions, and discounts. If relevant, you can also add information on your employees’ expertise. 

You can hire a professional to build a website, but you can also do it on your own using website builders such as GoDaddy, WordPress, and Zyro.

Substep #3: Create social media profiles for your business

With the growing popularity of social media, many businesses decided to expand their internet presence and use social media for promotion.

You can use social media for free advertising and promote your business by regularly posting, commenting, and replying to your customers’ comments. 

Social media can be beneficial to your business promotion and help you build up your business reputation.

Substep #4: Create your digital footprint

The State of California supports the Get Digital CA! e-commerce initiative. This initiative is aimed at promoting accelerators and training that help businesses become competitive in an online marketplace. 

The initiative includes:

• Technology learning center,
• Digital bootcamps,
• Online tools, and
• Digital pop-up festivals.

We advise you to visit the Get Digital CA! page on the CalOSBA website and watch training videos on using social media for business promotion. 

Step #16: Consider the software your business may need

As your business grows, the need for keeping tasks organized and managing teams grows parallel to it. This is why, nowadays, many successful businesses use organizational software to handle projects and track their progress. 

This type of software eases and encourages project collaboration and enables faster communication among team members. That said, no matter the size of your team, the software boosts team productivity and facilitates project workflow. 

Platforms that support business management enable teams to keep their data in one place and have a detailed overview of their past, in-progress, and future tasks. This way, everyone is on the same page, and the risk of missed project deadlines is minimized. 

The market offers many types of business software, and those companies that have sales activities, for example, might consider using the platform that enables their sales team to organize all sales processes, including onboarding customers and tracking prospects.

Depending on the size of your business and what business processes you want to organize, you can choose the software according to your business needs. Business software can be quite expensive though and, therefore, the best option for small businesses might be a free plan such as the one offered by task management tool Plaky. 

FAQ about starting a business in California

This section covers the most frequently asked questions about starting a business in California.

What are the 7 steps to starting a business in California?

Starting a business is a process that takes time, effort, and patience. If we had to decide what the 7 necessary steps to starting a business were, we would say:

• Name your business,
• Choose your business entity,
• Register your business,
• Get your Employer Identification Number (EIN),
• Get the necessary licenses and permits,
• Pay taxes, and
• Open a business bank account.

These steps would be crucial, but as you can see in this guide, there is much more to do. When naming a business, for example, you have to make a name reservation as well or apply for a fictitious name.

Also, it would make the whole process easier if you had a plan and carefully considered the potential of your business idea. 

Another important factor is funding. There are various ways to secure finances such as loans, grants, or state incentives, and you should consider them all before you choose the best option.

Many businesses need to find the right location, and the majority choose to buy insurance and protect the equipment, business vehicles, employees, etc.

Hiring employees is also one of the steps in the process. Finding qualified experts and making a winning team to help your business grow is not as easy as it seems.

Next, you have to think about how to organize your projects, team(s), and customers. There are also various business platforms to consider. 

And finally, to promote your business, think of ways to reach customers such as TV ads, social media, business websites, etc.

How much does it cost to register a business in California?

California waived prices for the registration of entities such as LLCs, corporations, nonprofits, and LPs, so they don’t pay registration fees during the 2022–23 fiscal year. 

Business entities such as general partnerships and limited liability partnerships pay a $70 registration fee.

If your business requires certain licenses and/or permits, you can count on additional fees. Please check with your registered agent what licenses and/or permits you need to run your business legally. 

Is it worth starting a business in California?

Yes, it is worth starting a business in California. Despite the high cost of living and high taxes, California is a place that offers plenty of opportunities for small businesses. 

California has a great network of local and governmental institutions, which cooperate and support businesses.

Next, the state offers many incentives to encourage new businesses, and its logistics infrastructure is one of the best in the US. 

California supports diverse industries and can offer a high-skilled workforce. Its community colleges and universities educate students for in-demand jobs, which makes the search for qualified workers easier. 

What do I need to establish a business in California?

To establish a business in California, you need to: 

• Choose a name and make a reservation for it, 
• Decide on the type of business entity, and 
• Register your business with the Secretary of State. 

Additionally, depending on the type of your business, you need to obtain relevant licenses and permits as well as file the necessary taxes.

Other steps are to:

• Find a location,
• Get an EIN, 
• Secure funding,
• Open a business bank account,
• Buy insurance, and
• Find ways to promote your business.

And, to avoid the accompanying stress, make sure you make a solid plan and hire a professional to help you with all the conundrums that might pop up.  

Additional tips for starting a business in California

A desirable addition to business guides would be expert tips on various business matters. So, we have reached out to a few experts from California-based businesses for their professional advice. 

Here are their handy tips.

Tip #1: Surround yourself with experienced professionals

One of the most important tips coming from Simone Kelly, Founder and Brand President of Grasons Co., the leading estate sales and office liquidation company, is to surround yourself with professionals: 

Tip #2: Pay attention to taxes

Taxes are the main concern of businesses in California. According to Alexandre Robicquet — the CEO and co-founder of Crossing Minds — filing taxes accurately is essential:  

Tip #3: Get more customers by investing in marketing

Another great expert we reached out to is Robin Brown — CEO of ViViPins — who stressed the value of marketing: 

Tip #4: Draft a detailed plan for your business

Robin also highlights the importance of having a clear plan: 

Tip #5: Create your own network 

Being a CEO of a company, Robin knows the benefits of creating your own network of professionals within your industry:

Tip #6: Keep your cool

The last tip comes from Peter Evering who works in business development at Utopia Property Management:

California business resources for further reading

For the very end, here’s a list of business websites you should refer to for further research if you are planning to open a business in California.

• Business Quick Start Guides — the CalOSBA website offers great business guides for a number of industries within its Business Learning Centre section.
• Email Subscriptions — a section on the CalOSBA website that lists state agencies and departments important for businesses along with links to their email subscription pages. 
• California Grants Portal — you can find all grants and loans offered by California state agencies in one place. 
• Federal Grants Portal — a great source for all federal grants, grant policies, and agencies.
• California Occupational Guides — these guides are found on the EDD website, and they provide information on wages, job outlook, education, and licensing requirements for almost 800 different occupations.
• Women-owned businesses — a great resource of information provided by the U.S. Small Business Administration on training and funding opportunities for women entrepreneurs.
• Minority-owned businesses — a page on the SBA website dedicated to providing support to minority-owned businesses and entrepreneurs from underserved communities.
• Veteran-owned businesses — the SBA page dealing with promoting veteran entrepreneurship and providing funding programs, training, and other opportunities.
• Self Employment program for people with disabilities — a section of the Department of Rehabilitation website dedicated to supporting people with disabilities to choose vocational occupations. 

Starting a business in California — Conclusion⧵Disclaimer

We hope you liked this guide and found it useful and informative. 

Please pay special attention to the links we have provided because they will lead you to the official government websites and relevant documentation. 

This guide serves for informational purposes only and should not be treated as an official document. We strongly recommend hiring a professional to help you in terms of taxes, licenses, and registration. 

Please note that this guide was written in Q2 2023 and most likely does not contain any changes of requirements imposed after this period.

We kindly advise you to consult relevant institutions before acting on any legal matters. 

Keep in mind that this guide refers to the state of California only. Legal requirements for other states may differ significantly. 

Plaky is not responsible for any losses or risks incurred, should this guide be used without further guidance from legal, tax, or other advisors.