How to Set Up a Small Business in California?

Where the venture capital flows like milk and honey and known for the hottest economic scene in the United States, California is a great place to be an entrepreneur. You are probably experiencing a rush of emotions, one of which may include a little worry because you do not exactly know how to set up your business in California. Look no further, because we’ve put together the guide for you to efficiently and, most importantly, legally get your business going.

First, create a business plan

Bypass your excitement to hit the ground running and take it slowly. Slow enough to write out your business plan. Your business plan will include an overview of the business, the product, whether it will operate out of a physical space, the sales and marketing plan, and a long-term vision. Make sure to avoid common mistakes like neglecting risk analysis or projecting unrealistic performance.

If you are unsure of how to prepare a business plan, there are plenty of online templates to guide you. Business plan software options are also available to simplify the process even more.

Choose a business entity

The most common forms of business in California are sole proprietorships, C-corporations, and limited liability companies. There is no best form; it depends on what works for you. The deciding factors are taxation and exposure to risk. Since this is a weighty decision and will influence how your business operates, it does not hurt to get a consultant or an advisor’s advice.

Name your business

To start a business, you will need to undertake the task of figuring out what you will call yourself. This will brand you to your market and forever indicate your personality, your values, and your offerings. In addition, your name should check the box of not being misleading to the public. You may have the perfect name in mind, but it does not end there.

You will have to check the California Secretary of State record for whether that name is already in use. You will need to send a name availability inquiry letter to the office in Sacramento. Then, you can reserve the name for up to 60 days and submit the name reservation form along with a fee of 10 dollars. If you drop off the form at the Sacramento office, you will have to pay a reservation fee of 10 dollars plus a 10 dollar handling fee.

Each name must be checked only against the record of specific entity types. So, if you have decided to go with the LLC form, you will have to check if any LLC is already using that name.

Register your business

Depending on the form of business you choose, you will need to fill out several forms and pay certain fees to officially register your business. You will also need to obtain a federal employer identification number (EIN) that will serve as your business tax identification number. This is a number used by the IRS to enable you to file tax returns and make business tax payments.

In California, businesses who hire one or more people need to register themselves with the Employment Development Department. If your business decides to use a fictitious name for their business operations different from their legal name, they will have to file a “doing business as” or a DBA. This will be filed with the county authorities where you are doing business and requirements vary by county.

Open a bank account

Your business is legally ready, but is it financially there yet? Starting a business arguably comes down to money management. The first step is having a business bank account and business credit card. Business bank accounts enable you to keep business separate from your personal life. You do not want your personal money habits affecting your business credit score. Plus, a business bank account will make it much easier for you to be clear on your business transactions for tax purposes.

When you have a business credit card, you get the opportunity to manage it well and boost your credit score. Building your credit score can give you easier access to finance should you need it.

Funding

In the beginning, it might be difficult to get a loan from a bank or large financial institution. They are wary of new ventures. However, as stated, building a credit score can help. You will need to decide how you will fund your business expenditure, especially since most new businesses do not break even in the first year, if not longer.

You may decide to take a loan from a relative, use some of your savings, pitch to an investor, or even try crowd funding. Deciding on your funding sources and being realistic about where you are will also help you pace yourself and slowly scale your marketing efforts.

Conclusion

Getting your business registered and having your permits and licenses in place is a good place to start. But, as part of your operations, there will be other hurdles, including hiring employees, finding an office space, getting business insurance, and constant marketing efforts. With that in mind, hard work and grit will get you far. Get the basics right so that your creativity can soar in other areas of your business. Our guide will help you with that groundwork.