How to Start a Business in California
Step-by-step guide for new business owners.
1. Determine your Business Structure
There are around 3.9 small businesses in the state of California, according to the Small Business Profile of 2018. These small businesses employ around 7 million people, so you’re certainly not going to be alone in wanting to start a small business!
One of the very first things you’ll need to consider is what kind of business you’re aiming for. You really have a lot of options here, and each option works well for different kinds of businesses. These include structures like LLCs, general partnerships, sole proprietorship, corporations, limited partnerships, and limited liability partnerships.
Let’s take a look into the basics of each kind of business so that you can get an idea of what situations each option works well for.
An LLC is an option worth looking into if you’re trying to keep it simple. This type of business can have one or more members or owners, and you still receive some liability protection. It’s also a choice that includes less paperwork than other options out there, and it allows potential customers to see that you run a credible business.
A general partnership is a choice that may be simpler for two or more people working together, but it can also come with a little less protection. It’s also worth noting that profits gained through the business are treated just like personal income for all of the partners who are involved.
As the name implies, this is the option people can choose when they are creating a business run by a single person. That one person receives all the profit from the business, pays the taxes and handles any liabilities involved in the process.
Corporations are often among the largest options out there as far as businesses go. Within this kind of entity, the business itself is viewed as separate from the owners. As a result, taxes, liability and things like bonds or stocks are handled a bit differently than with other options.
When there are multiple people involved in a company, a limited partnership can be a useful thing. This includes a partner with more power, and one with less power. This can be useful for the partner with less power because their liability is also more limited.
Limited Liability Partnership
A Limited Liability Partnership is a unique option for those who practice architecture, law, engineering, public accountancy and similar jobs. Essentially, those who use this kind of business type are often in a partnership, engaging in a certain kind of career, and who want to keep the insurance they need.
To learn more about all of these company types, take a look at the California Secretary of State’s guide to entity types!
2. Name your Business
Your next task is going to be in choosing a name for your company. While this might seem like a small task, it’s one that will require some thought, and the ability to make sure your name isn’t already taken.
As you get started thinking about a name, it’s wise to think about the kind of business you’re starting. Make a list of words that are related to that kind of business. For example, if you’re looking to open a bakery, you might consider words like bakery, baking, bake, cookies, cakes, etc.
After you’ve done that, you can start to string words together in ways that sound appealing. It can be a good idea to come up with a few options. It’s a good idea to choose names that are going to be easy to remember and spell for potential customers.
You’ll then need to check to make sure that your name isn’t already taken. Looking for trademarks on any or all parts of your selected name can be a good place to start.
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3. Put Together a Business Plan
Remember that the more detailed your plan is, the better prepared you’ll be to handle the different obstacles that come up. In your planning, it’s a good idea to consider things like how your products will be made, sold and distributed as well as how profits will be handled.
Furthermore, make sure to think about the amount you’ll need to make in order to earn back any money you’ve put into it, allowing you to break even. After that, it’s a matter of creating goals for the amount of profit your company can achieve, and what to do with it.
You’ll also need to think about the hiring process. How many employees will you need, if any? What kind of pay will you be able to offer? Who can you partner with to help make the business a success overall? Taking some courses, or getting a consultation can help with figuring these things out!
There are a lot of variables within a business that you’ll need to cover. It’s really no small feat! From hiring to taxes to selling and marketing, you’ll need to make sure you’re familiar with the California-specific business taxes in order to give yourself the best possible chances for success.
Keeping finances in check is extremely important for allowing your business to run as smoothly as possible. While it might seem tedious, keeping track of every penny you can allows you to know where those funds are going, where there coming from, and how they can be used in the most efficient ways.
Depending on whether or not you feel comfortable handling the accounting aspects yourself, there are some different routes you can take to ensure that you’re tracking expenses well. Taking a look at software like Quickbooks is a great way to get started with tracking funds, determining quarterly taxes and helping you to stay on top of your funds in general!
If you’re planning to hire employees anyway, it can also be a good idea to find an experienced employee or contractor to keep tabs on your business expenses for you! This is a great idea if you don’t have a lot of accounting experience yourself.
4. Register your Business
Registering your business is going to be a necessary part of the process, which allows your business to be a legitimate entity. When you get your business registered, you’ll receive a Federal EIN, which is used for things like filing taxes and making use of business-specific bank accounts.
You’ll also need to consider what’s required for registration in the state of California. There are a variety of resources you can use to help with making sure you’re in line with California laws. These include taking a look into agencies like the Employment Development Department, the Franchise Tax Board, the California Tax Service Center and the State Board of Equalization.
Keep in mind that if you’re going to be selling something physical, then you’ll need to make sure your company is registered to work correctly with the sales tax in California.
In addition to that, make sure your business is prepared for employer taxes in California if you’re going to be hiring any employees. This typically includes things like unemployment insurance, withholding tax and insurance for those with disabilities. Having an understanding of how these taxes work will be an important part of being a good employer!
5. Getting Your Federal Employer Identification Number
A federal employer identification number, or EIN, is a unique number that will identify your company and yours alone. It’s a useful tool for making things like taxes, hiring and other business-specific tasks a little bit easier. Typically, this number is 9 digits long and is provided to you by the IRS, so that your business can then be identified easily by that number.
For those who aren’t familiar with what this number actually represents, it’s worth noting that it’s very similar to a social security number. The major difference is in that while social security numbers represent people, the EIN represents the business as an entity.
Not all businesses require an EIN, but if your business is one that will do any hiring or function as a partnership or corporation then you’re going to need one. If you’re uncertain, then it can also be a good idea to take a look at a convenient guide to make sure the needs of your business are covered!
If you discover that you will need an EIN, the best method is to go through the EIN Assistant provided by the IRS. This system will help you get through your application, though you can also opt to apply for an EIN through either the mail or fax if you choose.
Remember to take your time as you’re creating a plan and going through the paperwork needed for your business. It’s certainly not a race, and rushing through it can lead to more road bumps later on. Instead, it’s far better to move slowly, make sure you understand each aspect of creating a Californian business and prepare yourself as best you can for the journey ahead!
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