13 Steps to Starting a Business in California
A SunDoc How-To Guide
You’ve decided to start your own business. Now you need to know how. Take the 13 Steps in our definitive SunDoc guide, and check off all the things you need to cover to start a business in California.
1. BUSINESS PLAN
Planning will save you countless operational problems. The Business Plan is the first test of entrepreneurship. Any business, small or large, should be able to explain itself - to customers, to a bank, to investors, to employees, to partners. Your business plan shows that you’ve thought about the details and challenges of starting a business in California, and that you have a roadmap for moving forward. Also, your business plan gives you a way over time to lift up out of the daily workload and revisit the founding vision of the business, adjusting course if necessary.
Start with the Small Business Administration's video to show you how to write a business plan.
2. GETTING HELP
What outside services will you use to help you with your business? If you're new to this and would value mentoring, look to SCORE, an organization with thousands of retired and working professionals who volunteer their time to offer free business advice. SCORE is partnered with the Small Business Administration and has chapters across the country and in many California cities.
You'll probably use an accountant, at least for initial advice even if you plan to handle your own taxes. Find a good one through word of mouth - ask business people you respect and family and friends. Ask about a good business lawyer while you're searching - it's empowering to know of one, even though you may well not need one. Also consider a filing service like SunDoc to handle the paperwork required to start and run a business registered with the state.
Even the smallest sole proprietorship should keep a separate business bank account. Paying expenses and contractors (or even refunding a customer) with company checks inspires confidence. Keeping track of personal and business finances is crucial for taxes. Your bank may extend a line of credit through your business account. Credit can also be obtained on outstanding receivables, but everyone you deal with will want to see a business account. The bank you choose may depend on your financing or expansion plans. Find out the requirements for an account to see if you can open it before you register the business. If you pay filing fees from your personal account, be sure to keep a paper trail to reimburse yourself from business finances.
Are you home-based, or do you require a physical office, storefront, or manufacturing location? Different cities in California are advantageous for different needs, while city and county tax rates and licensing fees vary greatly. To help you choose, the California Business Investment Services Unit provides no-fee, tailored site selection services. The big picture with demographic location is to weigh the elements of: (1) real estate (2) markets (3) worker pool (4) lifestyle and (5) expansion prospects.
If you simply need start-up equipment that you can't buy in the beginning, consider a Business Incubator. California has a bourgeoning infrastructure of business incubator programs sponsored by universities, cities and counties, associations, and private companies. Also be aware that the business incubator has now given rise to the Business Accelerator, a program of assistance that takes over where the incubator ends, and helps raise a business to its fuller potential.
Establish your financing requirements in your business plan. Choose your business structure in part based on financing. More than 60% of young entrepreneurs today are avoiding professional investors and instead rely on self-financing (family, personal credit, employee stock options, etc) to bootstrap their start-up company as they grow sales. Don't fall into the trap of underestimating your monthly costs or overestimating your revenues. Make sure your planning allows you to last long enough to succeed.
6. BUSINESS STRUCTURE
The business structure you choose affects your exposure to liability, how you file taxes and how you accept funding from investors, among other things. It can be a critical factor in your success, so spend some time studying your options.
Many factors go into choosing the right kind of business entity to create for your business. Growth expectations and stocks and dividends, along with outside investment, will play a role. If you're small, simplicity of paperwork and most favorable taxes will influence your choice. Having employees or accumulating physical assets into the business will also make a difference. Your accountant is your principal source of advice here. California's corporate income tax is quite high, and this becomes a factor to consider also. You should be able to state all the reasons for your ultimate choice of business entity in your business plan - over time you may want to revisit those reasons and see if they still hold true.
To get familiar with your options and the pros and cons of each business structure, see the SunDoc Definitive Guide to Choosing the Right Business Entity. Then learn How To Form an LLC in California or How To Incorporate in California.
7. BUSINESS NAME
Business wisdom says that over time a company trades on its name rather than its product or service. Everyone wants the perfect business name, and there's no shortage of advice on the art of creating one. The best quality of a name for your business is being available for use, and available to trademark or service mark.
When you've decided what type of business entity is your best company structure for starting a business in California, begin the steps to formalize this. Different structures - LLC, corporation, partnership, etc - will have different filing requirements with the State of California.
You can find out what steps to take fairly easily at the California Secretary of State website, and even more easily by choosing SunDoc to file all the necessary papers for you - get started at our Service Overview page or call us toll-free for a live voice at 1-888-595-2747. If time is a crunch we offer rush service. We're located in downtown Sacramento and we hand-deliver filings to the state offices several times a day.
Included in your filings, you will typically need to designate someone to be your registered agent for legal process, and again you can choose SunDoc to provide this service for you. See our article Why Do I Need a Registered Agent?
California is a well regulated state, and practically every business requires one or more licenses or permits to operate. Typically these are issued at the city level rather than through state offices. Fortunately, a central resource is provided by the State of California to eliminate confusion, the CalGOLD database. Use it to find the requirements for your business.
A note of caution - absolutely DO check the CalGOLD site, even if you think your business doesn’t need a permit. You may be surprised. For one thing, many California counties require a home-based business to hold a Home Occupation Permit. Again, if you sell items that may be subject to a sales tax, typically you will need a California Seller’s Permit. The list goes on, and CalGOLD has the definitive answers for your California business.
You must be registered for taxation purposes with the IRS at the federal level. Unless you're a sole proprietor using your Social Security number as identification, you will typically need to file for an Employer Identification Number (even without employees). SunDoc can file your EIN request for you if you wish.
If you’re starting a California business, you should be aware also of your state and local (city and county) tax obligations. Most municipalities will require you to hold a Business Tax Certificate, for example – otherwise known as a Business License. It’s all part of your cost of doing business in your part of California. As in the Permit section, use CalGOLD as your resource to figure this cost.
In your initial planning stages you'll have decided what kind of in-house help you need to run your business. If you plan to use independent contractors rather than employees, make sure they really are independent, and check with your accountant to make absolutely sure you're not breaking any labor or tax laws.
In California, be aware of not only federal but also state and local requirements for: equal opportunity (make sure you hire correctly), safety, health, insurance and taxes. Also be clear as to your rights and responsibilities with partners and stockholders in the company if they work in the business. Again, your accountant is your initial advisor here.
Obviously your insurance needs will depend on the scale and type of your business. Depending on your industry, your exposure to liability will vary. Employees and physical property are two obvious flags to raise the stakes. Even with a home-based business you may need to hold some liability insurance. Bonding, licensing, surety and insurance are part of a mix to get clear on with your particular business. Talk to your accountant and your insurance agent.
13. DOING BUSINESS - COMPANY DOCUMENTS
To do business with customers and clients, at the very least you'll need invoices and receipts. You may also need a flood of legal documents including purchase orders, refund policies, disclaimers, warranties, non-disclosures, non-competes - the list can be long. Figure it out in your planning and try to get it all done in advance to save operational headaches. Use ready-made templates or engage that attorney you discovered in the Getting Help stage.
With partners and Limited Liability business structures you'll have an Operating Agreement - which you won't be required to file with the state, but which you need to take seriously. Make sure all parties (especially you) are protected, and rights and responsibilities are spelled out.
Congratulations on your goal of starting a business in California! It's a great economy. There's no reason a diligent entrepreneur can't make a go of any viable business here.
SunDoc Filings is here to help you with your company paperwork, both getting started and routinely through the years. Located in downtown Sacramento, we handle thousands of business startups and registrations in the state. If you'd rather spend your time and energy with the hands-on nuts and bolts of the business, let us take care of your paperwork, and don't give it another thought.
See us on the Web at www.sundocumentfilings.com
And call us toll-free at 1-888-595-2747
You've decided to start your own business. Now you need to know how. Take the 13 Steps in our definitive SunDoc guide, and check off all the things you need to cover to start a business in California.