Starting a New Business in California in 10 Steps
July 1, 2015
Starting a business can be daunting, frustrating, and confusing. If you’re planning on starting a business in California, follow this checklist of 10 easy steps to ensure your best chance of success.
1. Have an Idea
All businesses start with an idea. Usually, it begins when a prospective business owner becomes aware that he/she can be particularly effective at providing goods or services, or the individual identifies that the people around him/her have a need that is not being met. When you have a good idea of how to provide a solution for your potential customers, it is time to start planning and strategizing on how to effectively deliver that need, and make a profit in the process.
2. Choose a Business Name
Naming a company can be difficult, especially if you have limited access to the market research done in your particular field. The types of names that consumers consider effective vary widely with the industry and the modern trends, but this decision is an extremely important one for branding purposes. While it is often technically easy to change the official name of the business, it can be very difficult to get your potential customers to recognize the change when you are marketing to them. You also want to make sure it is a name you can protect, and that you are not using a name that violates another business’s intellectual property rights. It is always wise to consult with an attorney prior to picking your business name to avoid future headaches. Do not be lazy about this step – make sure that you pick an effective and appropriate name!
3. Write a Business Plan
When you have an idea for a business, the very first thing that you should do is begin to write a comprehensive business plan. These plans should include information about all relevant steps of getting your products or services to your customer (e.g. marketing, manufacturing, distribution, etc) as well as a plan for managing the finances and accounting. For many people who have never started a business, this can be a very intimidating task. Luckily, there are several resources for future business owners to access available for free on the internet. For example, The US Small Business Administration (SBA) has several instructional articles and tips on how to write a solid business plan. Make sure you have one of these in place before you do anything else – it will be important to present to potential investors, banks, and high-level executives. And if you ever feel like you are getting lost in the process, a business plan is a great reference to have to guide you back to your course.
4. Decide on the Optimal Location
For many businesses, location is everything. Finding a good location for certain types of businesses, such as retail stores or restaurants, can be the difference between success and failure. Any business, however, benefits by positioning itself in a strategic geographical location. Whether you require a large commercial space, small storefront property, or you can operate your business out of your home, make sure you do the necessary research and take the necessary time to determine what you will need to properly run your business. When you talk to your local business attorney, you can ask him/her about any local zoning ordinances, permits, or licenses that you will need to consider when you set up shop.
5. Secure Funding for your Business
Most businesses require a fair amount of money in startup costs, and once the business is running, businesses have overhead costs that require money to maintain. Additionally, if your new business is your new full-time position, you may want to set aside a small salary for your living expenses. No matter your business, you will want to determine how much money you think you will need, and start talking to potential investors or lenders to secure the funding. There are several funding types you can get, including Small Business Loans (SBA), venture capital, business startup grants, angel investors, or investing partners to name a few. Be aware that getting investments from non-relatives or qualified investors triggers securities laws, so if you are looking for initial investment capital from outside sources, you should speak with a business attorney and make sure you stay within the safe harbor protection rules for small business.
6. Choose the Proper Business Entity
In almost all circumstances, creating a separate business entity is an important step when starting a new business. While technically individuals can run businesses as sole proprietors or general partners, operating your business in this way can come with tremendous risk. If you ever run into any kind of legal trouble, people with claims against you can sue you individually, and you have no corporate-shield protection against lawsuits. Additionally, there can be several tax advantages to establishing a business entity. Consult with your local attorney or tax professional to determine whether a corporation, limited liability company, professional corporation, trust, REIT, or some other entity is the best fit for your business needs.
7. File the Necessary Documents with the Government
Most types of businesses require multiple filings with the Secretary of State where your business is located, and where you do business if you are in multiple states or countries. Occasionally, there are advantages to creating a business entity outside of the state in which you reside, but make sure to consult with a tax professional or business law attorney before you make that decision. If you are starting a corporation, for example, you will be required to file articles of organization, a statement of information, and several other documents from time to time with their respective filing fees. Building a relationship with a business attorney is a vital step in guiding you properly through this process. Additionally, before you can do several important things that are necessary for your business (such as setting up a bank account), you will need to receive an Employer Identification Number or Tax Identification Number from the IRS. This can be done through an online application, but if you need help your attorney or tax professional can help you through this process too.
8. File for the Appropriate Business Permits and Licenses
Most businesses are required to operate with some type of license or permit. There are several resources at your disposal to help you determine what the necessary permits are for your particular business. You can consult with your attorney to help you determine what you will need, or you can use free government resources such as http://www.calgold.ca.gov to assist you in finding the information you require.
9. Hire Employees
Most businesses are difficult to run with one person, and it quickly becomes necessary to hire some additional help. Navigating the waters of properly establishing an employer or contractor relationship can be one of the most treacherous, difficult, and confusing undertakings for individuals starting a new business. Do not attempt to do this by yourself. California law heavily favors employees whenever an employment dispute arises, and the regulations surrounding the proper practices when maintaining the employer/employee relationship are dense, complicated, occasionally overbearing, and always dangerous. Above all else, this is one part of establishing a new business where enlisting the help of a business or employment attorney is imperative. One of the biggest reasons California based small businesses file for bankruptcy or fail is due to improper employment practices. Violations of laws protecting employees can result in astronomical penalties and fines, especially here in California!
10. Set up a Double-Entry Bookkeeping System
Once you have everything else in place, you must set up an effective bookkeeping system to ensure you can keep track of how your business is performing. It also helps keep your business compliant with reporting and tax regulations. Proper bookkeeping, can also protect you from different types of liability when others make claims against you — especially any alter ego liability. The simplest and safest way to do this is to consult with an accountant or QuickBooks Certified Bookkeeper to assist you in getting started, but there are other free resources available on the internet to assist business owners in this part of the business’s administration. If you do not have an accountant that you know and trust, you can ask your business attorney for a referral to a trustworthy and fair accountant to help you get your bookkeeping system started correctly.