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Starting a Business in California: The Step-by-Step Guide

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So you’ve decided to start a business in California, congratulations! You’re probably feeling a rush of emotions, possibly including an overwhelming feeling that you don’t know exactly how to start a business in California. It’s no easy feat, but the best approach is to take it one step at a time.

There are several requirements for starting a business in California so that your company can run efficiently, and more importantly, legally. In this guide to starting a business in California, we’ll explain all the steps you’ll need to take to get your business up and running.

Step 1: Choose a business name and structure

When starting a business in California, the first thing you’ll need to do (after coming up with your business idea, of course) is to choose a name for your business and decide on a business structure.

A business can fall into one of several business entity structures. Some common options are forming an LLC in California, starting a sole proprietorship, or a C-corporation. There’s no “best” type of business entity; this will depend on what type of company you’re starting in California, as well as how you want your company taxed and how much risk you want to be exposed to in the event that someone sues your company. In other words, there are serious legal and financial implications tied to this decision, so it doesn’t hurt to consult a business attorney when deciding which structure is best for your business.

You will also need to choose a business name to officially start a business in California. You may have the perfect name in mind, but before you can make it your own, you first need to check to make sure that name isn’t already in use. In California, you need to check the names for limited liability companies, limited partnerships, and corporations. For these structures, the business name must be distinguishable from names already on the record of the California Secretary of State, and in the case of LLCs and corporations, it cannot be misleading to the public.

It’s important to note that each name is only checked against the type of business you’re trying to open, so an LLC name would be checked against already established LLC names. In order to check the availability of your business name, you will need to mail a name availability inquiry letter to the California Secretary of State’s office in Sacramento. This process can be done for free. However, if you frequently check business name availability, you also have the option to set up a prepay account for a telephone service. This option requires a minimum deposit of $100, with a $4 fee for each name you search.

If the business name you want is available, you’ll then need to reserve it. You can reserve a business name for a total of 60 days and to do so, you will fill out and mail the name reservation request form, which costs $10. You also have the option of dropping off the form to the California Secretary of State’s office in Sacramento with the $10 reservation fee plus a $10 handling fee. Or, if you have the prepay telephone service, they’ll automatically charge you $10 for every name you reserve.

Step 2: Create a business plan

Once you’ve decided on your business name and structure, the next step in starting a business in California is to write a business plan. Just like you would draw up blueprints before building a home, a business plan creates the strong foundation from which you’ll build and grow your business.

Your business plan will include everything from the basics, including an overview of the business, what type of business it will be, whether you plan to have a physical location, etc. to the more specific, heftier details like what sort of marketing or sales you have in mind, your financial plan for running the business, and a plan for growth. Be sure to avoid common mistakes such as a lack of risk analysis and unrealistic financials.

The business plan you create can be a roadmap for you to follow as you’re developing your business. It can also be important in your efforts to get funding for your business. Whether you’re looking for a small business loan or an investor, you’ll need to provide your business plan during the application process. If you’re unsure how to get started on your business plan, there are several business plan software options to make the process as easy as possible, and the Small Business Administration also features their own business plan builder.

Step 3: Register your business 

When starting a business in California, you will also need to register your business. The steps to register your business will vary depending on how your business is structured and what type of business it is. The California Secretary of State offers a “Forms, Samples, and Fees” section that outlines exactly what you’ll need to file and how much it will cost to officially register your business.

At this stage, you’ll also need to register as an employer with the IRS and get a federal employer identification number (EIN), also known as a business tax ID number. This is a nine-digit number assigned to your small business by the IRS and is used when filing taxes, applying for a business loan, opening a business bank account, and more.

If you plan on filing a DBA, or “doing business as,” meaning you will use a name other than the legal name you file with California, also called a fictitious name, you’ll need to file this with the county in which your business is located. Filing requirements vary by county.

Step 4: File the appropriate taxes

Starting a business in California also means paying taxes on that business. There are a number of agencies responsible for administering taxes on a state and federal level, as well as state agencies and programs to help you navigate the small business taxes you’re required to pay, like the Franchise Tax Board, the California Tax Service Center, and the California Department of Tax and Fee Administration.

Most businesses will likely have to pay a franchise tax for simply doing business in the state of California. Corporate income tax applies to most businesses as well in the state. Sole proprietors pay income taxes on the money they bring home as personal income. Members of an LLC have to pay income tax on that money, and the LLC has to pay a state tax as well. Shareholders in corporations have to pay taxes on the dividends they get and the corporation is also responsible for its own California corporation taxes. This is one area where your EIN comes into play, as you’ll need to file business taxes separately from your personal taxes in many cases.

In addition to the various California state taxes you as an individual and your business have to pay, there are always federal taxes to be paid to the IRS, as well.

Step 5: Obtain any required business licenses or permits

While the Secretary of State does handle a lot of business-related forms and filings, business licensing and permits is not in the department’s wheelhouse. To obtain any necessary licenses or permits you’ll need when starting a business in California, the CalGold website hosted by the California Governor’s Office of Business and Economic Development is your go-to resource. While this site itself does not issue permits or licenses, it catalogs the appropriate agencies you’ll need to contact. First, select your city or county and your business type.

Once you input that information you’ll get a list of permits and licenses that apply to your new business and resources that are available to help you with setting up your business, plus the contact information for the agencies that oversee them.

Source: California Governor’s Office of Business and Economic Development

To look up licenses, file a complaint, or apply for your own licenses, the Department of Consumer Affairs’ BreEZe online services portal is a great resource.

Step 6: Open a business bank account and explore your funding options

With your business legally ready to open for business, there’s still the question of whether you’re financially ready. Starting a business in California is not inexpensive, especially depending on the type of business you want to open.

First, you’ll want to open a business bank account and potentially get a business credit card, as well. You can read more about the best banks for small business in California here. Keeping your business finances separate from your personal finances is incredibly important. You don’t want your personal financial decisions impacting your business or your business credit score (you can check your free business credit report online). Plus, for tax purposes you want to make sure it’s clear what you spent on your business versus personal spending.

Having a business bank account and credit card—and managing them responsibly—can help boost or establish your business credit score. Building your business credit score can also help your eligibility for certain types of small business loans. If you find you need some extra cash to get your business off the ground, there are several financing options you can explore, even as a new business.

The bottom line

Coming up with a good business idea may be the easy part compared to the steps it takes to actually start a business in California. And the work doesn’t stop once your business is registered and you have your permits and licenses.

There’s plenty to keep doing after you take the initial steps above; after all, these are just the steps to take if you are starting a business in California. You’ll also want to look into getting small business insurance, hiring employees, creating a marketing plan to get the word out about your new business, finding a location if you’re going to need a physical store or office, and more.

This article originally appeared on JustBusiness, a subsidiary of NerdWallet.

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4 Tips for Starting an Industrial Business

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The industrial sector is a broad category that covers businesses involved in the manufacturing, production, and distribution of goods. Small industrial companies are growing across the country and there are many opportunities for entrepreneurs to get involved in this sector.

As with any type of business, there are certain things you need to do to set yourself up for success. Here are four tips for starting an industrial business:

photo credit: Pixabay

1. Do Your Research

Market research means figuring out who your target customers are and what they want or need. There are a number of different ways to do this, but some of the most common include surveys, interviews, focus groups, and observation.

Surveys can give you a good overview of customer opinions while interviews or focus groups can help you to delve deeper into specific issues. Observing potential customers in their natural environment can also be helpful in understanding their behavior and needs.

2. Choose the Right Niche

When it comes to starting an industrial business, one of the most important decisions you’ll make is choosing the right niche. There are a number of factors to consider when making this choice, and it’s important to do your research before settling on a particular industry.

First, you’ll need to identify the needs of your potential customer base, such as the products or services they need. Once you have a good understanding of the market, you can then start to narrow down your options. Consider the competition in each niche and decide which one offers the best opportunity for success. When making your final decision, it’s essential to choose a niche that you’re passionate about.

3. Create a Business Plan

In today’s competitive marketplace, it’s more important than ever to choose the right niche for your industrial business. When you specialize in a specific industry or type of product, you can better meet the needs of your target market and stand out from the competition. How do you know what niche is right for your business? Here are a few things to consider:

First, think about your strengths. What does your company do better than anyone else? What unique skills or experience do you bring to the table? Use these strengths to narrow down your focus and choose a niche that you’re passionate about.

Next, consider your target market. Who are you trying to reach with your products or services? What needs do they have that you can address? When you choose a target market and understand their needs, you’ll be better able to choose a niche that meets their demands.

Finally, don’t be afraid to experiment. Trying new things is essential for any business, so don’t be afraid to test out different niches to see what works best for you. By keeping these tips in mind, you can be sure to choose the right niche for your industrial business.

Engineers work with industrial printer

4. Optimize Your Processes

Through industrial control engineering, you will be able to identify opportunities for improvement and design solutions that achieve the desired results. In many cases, these solutions involve the use of automation and other advanced technologies.

By optimizing industrial business processes, industrial control engineers can help to improve efficiency and increase productivity. In addition, they can also help to improve safety conditions by reducing the potential for accidents. As industries continue to grow and become more complex, the demand for qualified industrial control engineers is likely to increase.

Endnote

With an increased demand for industrial operations and manufacturing, there has never been a better time to start an industrial business. By following these four tips, you can be sure to set your business up for success.

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How to Find the Right Business Coach — and Avoid the Wrong One

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At its best, business coaching can connect you with a mentor and supporter who helps you generate ideas, make plans and execute on them.

But at its worst, a business coaching offer can cost you time, energy and money — without much to show for it.

Here’s what to expect from a business coach, how to find a coach that suits you and how to spot red flags.

What a business coach can do

Business coaches draw on their professional experience to help you set and achieve your own business goals.

“I’m here to help you, and I’m here to raise your level of knowledge in whatever way I can,” says Gary Robinson, who chairs the Memphis, Tennessee, chapter of SCORE. SCORE offers free business mentoring for entrepreneurs nationwide.

Some ways a business coach or mentor might do this include:

  • Offering feedback on your ideas and suggesting new ones.

  • Giving you templates and other tools that help you make plans.

  • Connecting you with resources in your region or your industry.

  • Giving you deadlines and holding you accountable to them.

Some business coaches may also offer coursework or group training sessions on particular topics, like sales.

Working with a coach should help you identify opportunities you hadn’t seen before or develop new strategies for pursuing those opportunities, says Sophia Sunwoo, who coaches women and nonbinary entrepreneurs through Ascent Strategy, her New York City-based firm.

“[Coaches] don’t necessarily have to have all the answers,” Sunwoo says. “But they are the people that know how to maneuver and create a bunch of different thinking paths for their clients.”

What a business coach can’t do

A business coach isn’t the same as a consultant, whom you would hire to perform a specific task. A coach or mentor could look over your business plan, for example, but they wouldn’t write it for you.

“If you were to hire me as a consultant, you would expect me to roll up my sleeves and pitch in and work with you to get things done, and you would pay me for that,” Robinson says. Coaches, on the other hand, “try to show you how to do things so that you can do them [yourself].”

Business coaches are also not therapists, Sunwoo says. Entrepreneurship can be emotionally and mentally taxing, but it’s important that coaches refer clients to mental health professionals when necessary.

Business coaching red flags

If a business coaching opportunity “promises guaranteed income, large returns, or a ‘proven system,’ it’s likely a scam,” the Federal Trade Commission warned in a December 2020 notice.

In 2018, the FTC took legal action against My Online Business Education and Digital Altitude, which purported to help entrepreneurs start online businesses. The FTC alleged these companies charged participants more and more money to work through their programs, with few customers earning the promised returns.

In both cases, these operations paid settlements, and the FTC issued refunds to tens of thousands of their customers in 2021 and 2022.

To avoid offers like these, the FTC recommends that you:

  • Be wary of anyone who tries to upsell you right away or pressures you to make a quick decision.

  • Search for reviews of the person or organization online.

  • Research your coach’s background to see if they’ve accomplished as much as they say.

Sunwoo says to also be skeptical of one-size-fits-all solutions. A coach should customize their advice to your personality and skill set, not ask you to conform to theirs.

“The moment that a business coach pushes you to do something that is really not compatible with your personality or your beliefs or values,” Sunwoo says, “that’s a huge problem.”

How to find the right coach — maybe for free

Here’s how to find a coach that will be as helpful as possible.

Determine whether you need advice or to hire someone. A coach isn’t the right fit for every business owner. If you need hands-on help organizing your business finances, for instance, you may need a bookkeeping service or accountant. And take legal questions to an attorney.

Seek out the right expertise. A good coach should be aware of what they don’t know. If they’re not a good fit for your needs — whether that’s expertise in a particular industry or a specialized skill set, like marketing — they might be able to refer you to someone who’s a better fit.

Consider free options. There may be some in your city or region:

  • SCORE offers free in-person and virtual mentoring in all 50 states, plus Guam, Puerto Rico and other U.S. territories.

  • See if your city has a Small Business Development Center, Veterans Business Outreach Center or a Women’s Business Center. All are funded by the U.S. Small Business Administration and offer free training and advising for entrepreneurs.

  • Do an online search for city- or state-specific programs. Philadelphia, for example, offers a business coaching program designed for entrepreneurs who want to qualify for particular business loan programs. Business incubators often offer courses or coaching.

Make sure your coach is invested in you. They should take the time to learn about you, your business and its unique needs, then leverage their own experiences and creativity to help you.

“I’m on your team now,” Robinson says of his clients. “Let’s do this together and make this a success.”

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Are There SBA Loans for the Self-Employed?

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Many of the same SBA loans are available to both self-employed people and more formally structured businesses, such as limited liability companies and corporations. However, self-employed individuals, like sole proprietors and independent contractors, might face a higher barrier to entry for having limited credit history, inconsistent revenue or no collateral. If they can’t qualify for an SBA loan, other business financing options are available.

Who qualifies as self-employed?

Sole proprietors, independent contractors and partnerships all fall under the self-employed category. In these cases, there is no legal distinction between the business owner and the business itself. Sole proprietors, for example, are solely responsible for their business’s gains and losses, while LLCs and corporations are legally distinct from their owners. This distinction helps protect the owners’ personal assets if their business runs into legal or financial issues.

Are self-employed SBA loans hard to get?

While a sole proprietorship is much easier to set up than an LLC or corporation, lenders may be more hesitant to finance them for a few reasons:

  • Self-employed business owners are legally responsible, as individuals, for any debt and liabilities that their businesses take on. If someone sues their business, for instance, their personal assets — not just their business — could be at stake. This makes it riskier for lenders to finance them.

  • Sole proprietorships and independent contracting businesses may have lower revenue or less collateral to offer since they’re often a business of one. This could make it more difficult for them to prove that they can pay back the loan, plus interest. And it may require more paperwork.

  • Some banks set lending minimums that surpass what a self-employed business owner is looking for, either because the business owner doesn’t need that much funding or doesn’t qualify for it.

  • Since there is no legal distinction between the self-employed business owner and their business, they may lack business credit history. To establish business credit, you’ll want to register the business, obtain an employer identification number and open a separate business bank account and credit card to keep your business and personal finances separate.

SBA loans for the self-employed

SBA microloan: Best for small loans and more lenient requirements

Applying for an SBA microloan is a great option for self-employed business owners, especially if they’ve been turned down by traditional banks and don’t need more than $50,000 in funding. In fact, the average SBA microloan is around $13,000, according to the SBA. SBA microloans are administered by nonprofit, community-based organizations that can also help train applicants in business practices and management. And because the loans are small, the application process may be easier — applicants may have limited credit history and typically don’t need as high of a credit score as they do for an SBA 7(a) loan.

SBA 7(a) small loan: May not require collateral

Funds from the SBA’s most popular 7(a) lending program can be used for a variety of business-related purposes, such as working capital or purchasing equipment. While the maximum SBA 7(a) loan amount is $5 million, SBA 7(a) small loan amounts don’t exceed $350,000. And if the 7(a) small loan is for $25,000 or less, the SBA doesn’t require lenders to take collateral.

SBA Express loan: Best for quicker application process

SBA Express loans are a type of 7(a) loan for businesses that need quick financing and no more than $500,000. The SBA responds to these loan applications within 36 hours as opposed to the standard five to 10 days, which may speed up the process for borrowers working with non-SBA-delegated lenders. Additionally, borrowers might not have to fill out as much paperwork — the SBA only requires Form 1919. Beyond that, lenders use their own forms and procedures.

SBA loan alternatives

Online lenders

Self-employed business owners turned down for SBA or traditional bank loans may be able to qualify for financing with an online lender. These lenders offer options such as term loans and lines of credit, and they often process applications faster and have more lenient requirements. However, applicants should expect to pay significantly more in interest than they would with an SBA loan.

Business credit cards

Not only can business credit cards help build your business credit history and pay for everyday business purchases, but they can also help finance larger purchases (within your approved credit limit). And if you qualify for a credit card with a 0% introductory APR offer, you’ll have multiple months to pay off the balance interest-free. Just make sure you’re able to pay off your purchase before the intro offer ends and a variable APR sets in.

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