How to Start a Business

Always dreamed of owning your own business? Starting a business is a multi-step process that involves planning, making key financial decisions and completing a series of legal activities. With these steps, you can plan and prepare for managing your own business.  

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.

PREPARE YOUR BUSINESS PLAN AND MATERIALS

One of the most important steps in preparing your business is drafting a business plan that defines your business, products and services, operating procedures and the route your company intends to take to achieve its goals. It summarizes the sense of your business in a single document.  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.  This is also helpful for if your company needs funding from loans or venture capitalists.

PREPARE YOUR BUSINESS FINANCIALLY

Open a business bank account. Even the smallest sole proprietorship should keep a separate business bank account from your personal bank account. Most banks require company details, such as formation date, business type, and owner names and addresses. If your business is not incorporated, most banks will require a DBA or fictitious business name.

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.

Prepare your business accounting and apply for loans if necessary.  Make sure you account for all business disbursements, invoices, payments received, accounts receivable, accounts payable, etc. If you don’t have enough capital to start a business, seek funding from banks or through loan programs.

PERMITS

California is a well-regulated state, and practically every business requires one or more California business licenses or permitsto 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.

TAXES

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.

For California state taxes, and of course all your taxes, your accountant is the best place to start. For more reference, here are the California and IRS web pages.

LOCATION

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.

PREPARE TO FORMALIZE YOUR BUSINESS

Decide what type of business entity best fits your company structure. If you choose to start a legal entity, begin the steps to formalize this. Make sure you incorporate your business or form your LLC with the state to protect yourself from personal liability from business debts and liabilities. Other benefits of forming a corporation or LLC can include tax advantages and an increase in credibility with customers, business partners and vendors. Please see LLC VS. Corporation for further information. Included in your filings, you will typically need to designate someone to be your registered agent for legal process.

Also make sure you get the necessary Employer Identification Numbers, licenses and permits for your business.

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.

DON’T BE AFRAID TO ASK FOR HELP

Take advantage of free training and counseling services, offered for an array of business starting aspects, from preparing a business plan and securing financing, to expanding or relocating a business. You may also refer to our How-To guide for assistance.

SEEK PROFESSIONAL ADVICE

Consider finding an attorney and/or an accountant. Many business owners seek advice from accountants and attorneys since there will be many rules and regulations, ranging from building covenants to city ordinances, county permits, state requirements, taxes, fees, contracts, shares, partnerships, and more. As you search for an accountant and attorney, it is wise to look for professionals who have worked with other small business owners or companies in your specific industry and have a proven track record of trustworthiness.

SEEK STARTUP RESOURCES

There are a number of available programs to assist and provide information to help start businesses. A list of some of these resources can be viewed on the U.S. Small Business Administration website under “Business Types”.  Also, if you 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.

CONCLUSION

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.