How to start a business in California

Editorial Team

6 min read
Sunrise at the beach

With a population of nearly 40 million potential customers, California consistently attracts companies of all sizes – from startups to multinational corporations.

Against this backdrop, you might also have dreams of launching your small business in California. Before you can make that first sale, there are several required and recommended steps to complete.

Fortunately, the state has published a comprehensive starter guide specifically designed to help you open a business in California. The California Office of the Small Business Advocate (CalOSBA) is another great resource.

If you’re looking for a more condensed roadmap, below is a checklist for starting a business in California. Use this step-by-step guide to help make the process easier and faster – all while staying legal.

Choose a business idea

If you’re reading this, you likely have a business idea already, but take some time to think about what you’ll be selling, why you’re selling this product or service, and to whom you’ll be selling. Before committing any resources, it’s important to identify whether there’s a ready market at the prices you hope to charge.

Write a business plan and acquire funding

Although business plans are technically optional, launching without one can be a bad idea. Business plans provide clarity and direction, allowing you to assemble the right resources to achieve your goals – from financing to personnel to equipment.

Business plans are usually not optional if you plan to secure outside financing from investors, banks, friends, and family members. Before giving you any money, these stakeholders will all want to see how you intend to use this financing to generate sales. If you’ve never written a business plan before, the U.S. Small Business Administration (SBA) offers clear steps on getting started.

Research business name availability, branding, and trademarks

The next step involves making sure that the name and trademarks you want to use aren’t already taken by any other Californian businesses in the same niche. To verify this availability, use the California Business Name Database. The U.S. Patent Office has a similar portal for trademark searches to help you see whether someone else has registered the name you want to use as a trademark. If they have, you may want to carefully consider your options by speaking with a lawyer or other expert.

If everything checks out, you can then start focusing on logos, colors, slogans, and your general brand identity. For many entrepreneurs, this is the most enjoyable step in the startup process.

Determine a business structure

For legal and tax purposes, every business in the state must designate a corporate structure, with the four most common being:

  • Sole proprietorship: This is the default for many entrepreneurs simply because it requires the least amount of setup. With sole proprietorships, however, there’s no distinction between your personal assets and liabilities versus those of your business.
  • General partnership: This structure is reserved for small businesses with two or more owners. Additionally, certain types of limited partnerships exist and may help keep personal and business assets separate.
  • Limited liability company: Sometimes shortened to “LLC,” this corporate structure represents a middle ground for small business owners. The setup process is relatively easy. LLCs can have as many owners as they want. As the name suggests, each owner enjoys liability protection that can help shield his or her personal assets.
  • Corporation: This structure is favored by mostly larger businesses due to the limited liability protection; however, it is seen as a less flexible entity than an LLC.

For a breakdown of registration requirements for starting a business in California, check out CalOSBA’s business structure guide.

Apply for an EIN (employer identification number)

An EIN is what the IRS uses to track your business for tax purposes (similar to Social Security numbers). The sooner you apply for an EIN, the better.

Acquire licenses and permits

Depending on your business, you may be required to obtain licenses, permits, or certifications at the local or state level. For example, retailers need state-issued seller’s permits, and restaurants must pass food safety inspections.

To see what rules might apply to your business, visit the California Secretary of State’s Business Resources portal, which features links to all the local and federal agencies you should contact to ensure proper compliance.

Set up employer obligations

From payroll to workplace safety to sick leave, there are several requirements employers must satisfy before they can hire their first employees. Some of these rules are industry-specific. Others are based on the size of your organization. Either way, it’s a good idea to visit the California Department of Industrial Relations before recruiting team members.

Obtain insurance

Insurance is often an industry-specific requirement. Plumbers, doctors, and childcare workers all need some type of occupational coverage. By contrast, a web developer who works from home may need a different type of business insurance depending on the circumstances.

To see what rules might apply in your situation, visit the California Department of Insurance.

File appropriate federal, state, and local taxes

This step is just a more involved version of what you already do for your personal taxes. Although many small business owners file their tax paperwork with the relevant agencies, it may be a good idea to hire a certified public accountant (CPA) to check your work for your first few years.

Be prepared to take payments

The next step involves selecting a payment processor. Small businesses choose Clover for our:

In addition, your Clover Account comes with 24/7 support by phone and email to help you troubleshoot any problems you might face.

Open a business banking account

Although having a corporate banking account isn’t a state requirement, many vendors, investors, suppliers, landlords, and government agencies may expect you to have one. Setting up a dedicated bank account and credit card for your business makes it easier to keep your personal finances separate.

To start, we’ve compiled some tips on opening a business bank account.

Initialize marketing strategy and continued business development

As you continue to prepare your business to launch, it’s important to write a marketing plan to help you make those first sales. However, continued business development is what allows you to keep generating sales long into the future. There are many strategies from which to choose. One of the most popular involves using loyalty programs to promote customer engagement.

We hope that this guide offers you some insight into starting a business in California. At times, the journey may feel lonely. Remember that Clover specializes in helping startups get off the ground.

To see how our suite of small business management tools and payment processing solutions can help you achieve your entrepreneurial dreams, schedule a free consultation with our merchant services team today.

This information is provided for informational purposes only and should not be construed as legal, financial, or tax advice. Readers should contact their attorneys, financial advisors, or tax professionals to obtain advice with respect to any particular matter.

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