How to Start a Business in California In 5 Easy Steps

California is the state for entrepreneurs. If you have a brilliant idea for a business, then the golden state is probably the place for you.

Still, starting a business can be complicated, which might lead you to wonder how to start a business in California.

Though California is welcoming to small business owners, the taxes and regulations of the state are tough.

What’s more is that operating a business in California is expensive, which makes it even harder to break even!

Luckily, there are numerous advantages to starting a business in California that make it all worth it, from the resources and programs to the CalGold permit assistance.

How Difficult Is It to Start a Business?

It can be difficult to start a profitable business.

Not only should you have a thorough knowledge of the market, but you also have to get the initial funding and market the business before the launch.

That said, the logistics of starting a business are fairly easy, especially when it comes to small businesses.

Once you have a clear idea of your business, you can easily register it and get the proper licensing.

The hardest part would be managing the business. You must know that start-ups pay off after a long time. That’s because most businesses break even two to three years after starting.

What Qualifies as a California Business?

There are specific regulations for businesses in California.

Moreover, businesses are subject to strict tax laws. Yet, not all stores or products can be considered a business.

For example, if you have a yard sale or if you regularly sell baked goods to raise money for a charity, that wouldn’t be a business! In contrast, selling handmade crafts online is a taxable business.

The Franchise Tax Board of California qualifies your venture as a business if you do any of the following:

• Engage in transactions with the purpose of financial gain or profit
• Base your business or organization in the state of California
• Your sales within California exceed certain amounts

Is California a Good Place to Own a Business?

California is one of the best places to own a business for various reasons.

The state has the largest economy in the U.S. After all, it’s home to Silicon Valley.

There’s plenty of scope for growth in the golden state.

If you don’t have sufficient starting capital, you might pitch your idea to one of the many investors in California.

Is California a Good State for Small Business?

Living in California supports start-ups in the following ways:

• You’ll have access to a diverse customer base, qualified workers, and a professional network.
• The state offers resources and programs to help you along with your business.
• You’ll find all the services you need for business in California due to the solid infrastructure and the high number of imports.

Still, there are some drawbacks to starting your business in California, including the following:

• The high cost of living means costly business expenses.
• The market can be competitive as California is home to over four million small businesses.
• You’ll have to keep up with the ever-changing California law and regulations.

What Businesses Are Profitable in California?

There’s no doubt that you’ll find a market for your small business in the heavily-populated California.

Yet, some businesses are more profitable than others due to the nature of the golden coast.

Here are some of the most profitable businesses in California:

1. Gas Stations

California has a notorious highway and road system.

In most places, you’ll need a car to get by.

That’s why there are over 14 million cars in the state of California alone and plenty of tourists going on road trips across the state.

Naturally, gas stations are incredibly profitable.

All you have to do is select the right location and provide optimal services! You don’t need to have any previous experience or special skills.

Not only will you be able to make a profit on gas sales, but you can sell food, beverages, and car essentials.

As if that’s not enough, you might also operate a car wash.

2. Tourism Businesses

Tourists flock to California due to the gorgeous weather and activities.

So, you can never run out of customers for your tourism business!

You might think travel guides are a thing of the past, but tourists actually get the best rates and services through local agencies.

As a tour guide, you’ll have access to different perks.

The best part about starting a tourism business is the endless possibilities as well.

Restaurants, bakeries, car rental services, or even photography studios might be tourist spots if you target the right demographic!

3. E-Commerce Businesses

Plenty of successful businesses started online.

This online business model is one of the most profitable models.

While you won’t be able to reach the same number of customers as you would with a traditional store, you don’t need to pay for rent or for employees.

Instead, you operate the business from home.

As such, e-commerce gives you freedom and flexibility.

You can start an e-commerce business full-time or as a side hustle!

4. Beauty-Related Businesses

Beauty is an ever-growing industry.

Plus, once you gain a client in the beauty industry, you get them for life! It’s not a one-time service.

You don’t need to be talented in aesthetics or grooming.

You can hire professionals or learn the craft yourself!

If you’re passionate about beauty and have a basic understanding of the market, you can easily start your beauty business.

This can be anything from a simple nail studio to an elaborate spa and salon.

5. Health and Wellness Businesses

There’s nothing more important than self-care.

Since most California natives value healthy lifestyles, your customers are readily available by the hundreds!

Here’s the kicker:

Your health-related business can be a restaurant, a gym, or a yoga studio.

You might even save up on rent by offering online or at-home workout sessions!

How Long Does it Take to Register a Business in California?

The time it takes to register your business varies depending on when you sent your documents, their accuracy, and the method of filing.

Generally, you should expect the California Secretary of State Office to process your papers within three weeks.

Luckily, California makes registering your small business significantly simple.

You can file your documents online instead of heading to the State Office.

Online submissions even take priority over mail and in-person submissions!

Visiting the official website of the California Secretary of State office will also allow you to view the processing date of your documents.

If you don’t want to wait three weeks, you can expedite the documents online for faster processing.

How Long Does it Take to Get a Business License in California?

As a small business owner, you must get a business license.

The business license you need depends on the local jurisdiction of the city where your small business is located.

Getting your business license can take up to 45 days.

Business licenses differ depending on the nature of your work as well as the business’s profit.

Yet, every business owner needs to have the proper permits all the same.

While some industries, such as law and medicine, require a statewide business license, even selling homemade crafts will require a local license.

There’s also an age requirement to meet.

You’ll have to renew your business license annually or every few years too.

How to Obtain a Business License in California

One of the most important steps to start a business is having valid licenses and permits.

To obtain a California business license, you should do the following:

1. Form and Name Your Business

You need to have a registered business to get a business license.

So, you must decide whether the small business is a company, a limited liability company, or another entity.

You should have a unique name for your business that follows the state’s naming guidelines.

Before settling on a name, make sure another business didn’t register it though! Then, you’ll need business insurance, a business address, and a business number.

2. Apply for a License

Once you have all the necessary information, you can apply for a California business license at the Secretary of State Office.

Depending on your county or city, you might also need a separate local license.

3. Figure Out What Other Licenses You Might Need

The state of California greatly supports small businesses.

Luckily, business owners rarely run into the issue of operating without the proper permits due to the assistance of CalGold.

Simply put, you’ll have to get a separate license if you sell certain products such as tobacco, alcohol, used auto parts, gunpowder, and firearms.

You might need a special business license in case of physical activities, including:

• Landscaping and home maintenance services
• Transportations and hauling businesses
• Massage parlors and cleaning services
• Mobile businesses such as food trucks or car washes

4. Apply for Tax Treatment and Federal Licenses

Federal licensing isn’t typically necessary for most small businesses.

That said, some businesses require federal licenses from different agencies. 

Here are some federal agencies responsible for business permits:

• Food and Drug Administration (FDA): Preparation of meat products
• Department of Transportation (DOT): Ground transportation
• Federal Communication Commission (FCC): Broadcasting and advertisements
• Securities and Exchange Commission (SEC): Investment advising and financial planning

How Much Does it Cost to Start a Business in California?

The cost of a small business depends on its type.

You can start your business with zero or thousands of dollars.

Naturally, you’ll have to take into account the startup capital.

This is the cost of any materials, rent, shipping, wages, and other operational expenses needed for your business.

Yet, there are some fees every small business has to pay in California.

Here’s the breakdown of the expenses of starting a business in California:

1. The Business Registration Fees

Since the golden state is all about assisting small business owners, California has waived the business registration fees in 2022 and 2023 to encourage new businesses.

Usually though, the business registration fees cost are as follows:

• Limited Liability Company: $70
• Partnership: $26
• Corporation: $100

2. The Statement of Information Fee

You need to file a statement of information to the Secretary of State annually.

This includes a breakdown of your business activity in the previous year.

The statement of information costs between $20 to $25.

3. Annual Taxes

Businesses must pay taxes in the United States.

These will depend on the profits of your business.

You’ll need to pay the annual franchise tax though, which equals $800 annually.

4. Website Domain Fees

Even if you don’t run an e-commerce business, it’s crucial to register a website domain.

You might use it someday, so it’s best to register the domain earlier.

This way, you’ll have a domain that matches your business name.

The website domain can cost between $9 to $15.

Do Small Businesses Pay Taxes in California?

Small businesses pay taxes in California, regardless of their income.

That’s because the businesses might be subject to corporate tax, corporate alternative minimum tax, franchise tax, and state income tax.

Taxes in California can be pretty complicated.

The golden coast has one of the highest tax rates in the United States after all.

Yet, the taxes you pay depend on your business entity.

If you set up your business as an LLC or an S corporation, you’ll need to pay both business and personal income taxes.

This double taxation is rare in other states.

You might register the business as a sole proprietorship or general partnership.

As a partner or sole proprietor, you only have to pay income tax, as all the business profit passes on to you as income.

How to Start a Business in California

A lot of careful planning goes into a successful business.

First, you need to find a business idea you’re passionate about.

Then, you should thoroughly study and research the market.

Lastly, a realistic business plan is crucial for the success of your business.

1. Find Your Passion

One of the main reasons people start their businesses is to do something they love.

You shouldn’t spend your resources and money on a business you dislike.

This will surely backfire.

Instead, find something you excel at or a unique service only you can offer.

You must also figure out if you want your business to be a side hustle or a main source of income.

This way, you’ll be able to dedicate the right time and effort for it.

2. Research

Just because you like something doesn’t mean it’s necessary! You have to figure out the balance between your passion and the market needs.

Ideally, you’ll find a business idea that you love and that customers require.

After that, analyzing the competitors is a must.

Not only should you understand their shortcomings so you can exceed them, but you can find their strengths and learn from them.

3. Set Realistic Expectations

Starting a small business isn’t a quick get-rich method.

You need to make a detailed business plan that includes everything related to your business.

An excellent business plan should have the following:

• Executive summary
• Company description
• Market analysis
• Organization and management
• Marketing strategy
• Startup budget
• Financial projections

How to Start a Business in California With No Money

Starting a business can be difficult without sufficient initial funding, especially in California where everything is expensive.

Fortunately, if you have a great business idea and a clear plan, you can launch a successful business with no money.

Here are some ways to do so:

1. Find Investors

Finding investors is easier than you think.

You don’t need to go on Shark Tank or have a one-of-a-kind invention!

All you must do is prove your passion and the profitability of your project!

There are many angel investors in California.

Still, you can take it one step at a time and ask your friends and family to invest.

You might also find investors in your local community through crowdfunding campaigns.

2. Get a Loan

Getting a loan is an excellent way to fund your small business.

Startup loans offer competitive rates and are pretty flexible.

If you have the right credit history, this might be the best option for your small business.

3. Keep It Simple

A strong launch strategy is crucial for the success of a business or a product.

However, if you don’t have sufficient capital, you shouldn’t go overboard with your initial planning.

You can do some modifications to your business to reduce the overall costs.

For example, if you’re renting a location in an upscale area, try to cut back on the furnishing and renovations.

Starting a Business in California Checklist

Now that you know everything needed to start a business in California, you need to have a final checklist of all the necessary steps.

Here’s the checklist for starting a business in California:

1. Create a Business Plan

So, you’ve got the million-dollar business idea ready?

Create an in-depth business plan that includes an outline of the future of the business.

This roadmap should include the business name, location, budget of your business, projected profit, marketing plan, and a valid company description.

If you don’t have a specific business idea in mind but still want to be a business owner, you can buy the business instead!

2. Get Financing

The next step is to evaluate the necessary costs for your business. Then, figure out your funding options.

You can either self-fund your venture, apply for a loan, apply for a small business grant, or even ask for the help of your family and friends.

3. Choose Business Structure

There are numerous California business entities to consider for your small business.

This decision depends on tax, liability issues, directorship, ownership, and federal obligations of each entity type.

Ideally, you should consult with a tax attorney or a lawyer to establish which of the following would be the most appropriate structure:

• Corporation
• Limited Liability Company
• Limited Partnership
• General Partnership
• Limited Liability Partnership
• Sole Proprietorship

4. Register With the Secretary of State

Once you’ve figured out what your business is, you’re ready to register it at the California Secretary of State Office.

You can do this from the comfort of your home by submitting all the necessary documents online.

5. Choose a Location

The right location can make or break a small business. You want to pick a location with high foot traffic, yet is still appropriate for your business.

It’s essential to consider local zoning regulations, as you might need additional permits depending on the location.

Your small business address might require building permits, zoning permits, as well as fire department permits.

6. Get the Necessary Licensing and Permits

After you’re done with all the logistics of launching your business, you must take care of the due diligence. Naturally, you’ll need business licenses and registration.

That said, many small business owners overlook crucial aspects that can make their business transactions significantly easier.

These include:

• Business insurance
• Business bank account
• Business checking account
• Liability protection
• Liability insurance.

7. Get EIN and Employer Responsibilities Taken Care of

Employer ID number (EIN) or federal tax number is pivotal for all businesses.

The Internal Revenue Service (IRS) assigns your business a number.

This way, the IRS can assess your business revenue and determine taxes.

8. Figure Out Tax Information

Each business entity has specific tax information. You must figure the information out to evaluate and stay up to date on your annual taxes.

You can refer to the California Franchise Tax Board for all the tax information regarding your business.

Wrapping Up

While California has plenty of opportunities for new businesses, navigating the expensive state with its numerous regulations might be tricky.

So, before launching your golden coast startup, you should do in-depth research on how to start a business in California.

A successful business must have a strong business plan, sufficient funding, a competitive edge in the market, and an ideal location.

That’s not all, though. It’s essential to get the correct licenses and permits for your business.

Moreover, you need to register your business at the Secretary of State Office as soon as possible.