Starting a New Business in California
A new business in California is in your reach. Have you been wondering: just how do I start a business in California? And more importantly, can I do so no matter what the economic conditions are? Can I start a new business in California during a recession? Here are steps to starting a business in California.
Start a Business in California: Advantages and Disadvantages
Business Insider puts California in its middle ten states when it comes to starting a new business, per a 2016 article. New business owners will have to face some significant costs. CBS News has three California cities on its list of the ten most expensive cities to start a new business in, for the whole country. They are: San Jose, San Francisco, and Oakland. San Jose and San Francisco are the most expensive and second most expensive on their list.
California has the country’s second highest cost of living, second only to Hawaii. Plus the business tax in California ranks the third worst in the United States. California is also fourth when it comes to the highest rate of new entrepreneurs. It is sixth for density of startup firms.
Forbes praises California for its economic climate, the very best in the country. California also has an excellent growth prospects rank. Its labor supply is above average. But its quality of life is below average (possibly due to the exceptionally high cost of living in so much of the state). And its business costs and regulatory environment are in the ten worst in the nation. The latter is number 48.
Fit Small Business says California is number one for startup activity, and it also does rather well when it comes to access to capital. Quality of life and labor market are right around average. Labor market is a measure of the desirability of an area and the number of people with bachelor’s degrees. The costs of starting a business are worse than average. But it’s in the areas of taxes (number 48) and cost of living (number 49) which bring California down to such depths.
If you are considering starting a business in California, be ready to contend with an exceptionally high cost of living and a difficult tax structure and regulatory environment. But growth potential is off the charts, and you will have a lot of company with others starting up. Decide whether it’s all worth it.
How to Register a Business Name in California
Filing for a fictitious name allows the creation of a business name which is then separate from a business owner’s legal name. This is called “Doing Business As”, or a DBA.
Sole proprietors who want to do business under a business or company name which is different from the proprietor’s legal name will need to file a fictitious name with their county registrar at the county clerk’s office.
For example, go to this webpage to file a DBA in Sacramento County. Partnerships, corporations, or LLCs may also choose to file a DBA.
Here’s how to start business in California.
California New Business Secretary of State Requirements
Start a New Business in California – Register a Business Name
An owner can file a DBA at the appropriate county clerk’s registrar’s office. Ask about name availability with this form.
How to Get a Business License in California
Use the CalGold service to find what your business might need. It is run by the Governor’s Office of Business and Economic Development.
Local Permits and Licenses
Check with your local municipality, city or county office or website. See if there may be any local licensing or permit requirements.
E.g., in Sacramento, you need to go to the Finance page on the Sacramento County website.
Find the forms you need with the California Secretary of State.
Get a Seller’s Permit from California Tax Service Center. There is also information on other taxes you might need to sign up for there.
Start a New Business in California – Virtual Offices
California residents are spoiled for choice by Alliance when it comes to opening California virtual business offices. You may very well find you can shop around for the best price.
Alliance Virtual Offices offers numerous California cities, including:
- Beverly Hills
- Century City
- Costa Mesa
- Culver City
- El Segundo
- Huntington Beach
- La Jolla
- Long Beach
- Los Angeles
- Manhattan Beach
- Marina Del Rey
- Mission Viejo
- Newport Beach
- Palm Desert
- Panorama City
- Rancho Cucamonga
- San Diego
- San Francisco
- Also San Jose
- Santa Cruz
- Santa Monica
- Sherman Oaks
- South Coast Metro (Santa Ana)
- West Hollywood
- Westlake Village
- Woodland Hills
Alliance will also provide options in the general vicinity of a city, in case the location or pricing is better.
DaVinci offers many California virtual offices in (in addition to many of the same cities as Regus), including:
- Del Mar
- El Dorado Hills
- Laguna Beach
- San Ramon
- Santa Ana
- Seal Beach
- Thousand Oaks
- Walnut Creek
- West Covina
For any other areas of the state, be sure to check Regus or business owners might want to try to seek out local entrepreneurs.
Or maybe they can speak to local computer user groups in an effort to find help in this area.
Start a New Business in California – Build Business Credit
Business credit is credit in a company’s name. It doesn’t tie to a business owner’s consumer credit, not even when the owner is a sole proprietor and the only employee of the small business.
As such, an entrepreneur’s business and personal credit scores can be very different.
Since business credit is independent from individual, it helps to safeguard a small business owner’s personal assets, in case of a lawsuit or business insolvency.
Also, with two distinct credit scores, an entrepreneur can get two separate cards from the same merchant. This effectively doubles purchasing power.
Another advantage is that even startup ventures can do this. Going to a bank for a business loan can be a formula for disappointment. But building company credit, when done correctly, is a plan for success.
Individual credit scores are dependent on payments but also additional factors like credit use percentages.
But for company credit, the scores actually only hinge on if a company pays its bills promptly.
Start a New Business in California – Business Fundability™
Establishing company credit is a process. A business needs to be Fundable to loan providers and merchants.
That’s why, a small business will need a professional-looking web site and email address. And it needs to have website hosting from a hosting provider.
In addition, company telephone numbers must have a listing via ListYourself.net.
Likewise, the business phone number should be toll-free (800 exchange or comparable).
A small business will also need a bank account dedicated purely to it, and it needs to have every one of the licenses essential for operation.
Start a New Business in California – Dealing with the IRS
Visit the Internal Revenue Service web site and acquire an EIN for the small business. They’re free. Choose a business entity such as corporation, LLC, etc.
A business can get started as a sole proprietor. But they should switch to a kind of corporation or an LLC.
This is in order to minimize risk. And it will maximize tax benefits.
A business entity will matter when it involves tax obligations and liability in the event of litigation. A sole proprietorship means the entrepreneur is it when it comes to liability and tax obligations. No one else is responsible.
Begin at the D&B web site and get a totally free D-U-N-S number. A D-U-N-S number is how D&B gets a business in their system, to produce a PAYDEX score. If there is no D-U-N-S number, then there is no record and no PAYDEX score.
Once in D&B’s system, search Equifax and Experian’s websites for the small business. You can do this at www.creditsuite.com/reports. If there is a record with them, check it for accuracy and completeness. If there are no records with them, go to the next step in the process.
By doing so, Experian and Equifax will have something to report on.
First you should build trade lines that report. This is also referred to as vendor credit. Then you’ll have an established credit profile, and you’ll get a business credit score.
And with an established business credit profile and score you can start to get more credit.
These types of accounts tend to be for the things bought all the time, like marketing materials, shipping boxes, outdoor work wear, ink and toner, and office furniture.
But first off, what is trade credit? These trade lines are credit issuers who will give you preliminary credit when you have none now. Terms are commonly Net 30, rather than revolving.
Therefore, if you get approval for $1,000 in vendor credit and use all of it, you must pay that money back in a set term, such as within 30 days on a Net 30 account.
Start a New Business in California – Monitor Your Business Credit
Know what is happening with your credit. Make certain it is being reported and address any errors ASAP. Get in the habit of taking a look at credit reports and digging into the particulars, and not just the scores.
Update Your Data
Update the info if there are inaccuracies or the relevant information is incomplete.
Start a New Business in California – Fix Your Business Credit
So, what’s all this monitoring for? It’s to contest any inaccuracies in your records. Mistakes in your credit report(s) can be corrected. But the CRAs usually want you to dispute in a particular way. Disputing credit report mistakes usually means you precisely spell out any charges you dispute.
Start a New Business in California – A Word about Business Credit Building
Always use credit sensibly! Never borrow beyond what you can pay back. Track balances and deadlines for payments. Paying off on schedule and fully will do more to raise business credit scores than virtually anything else.
Establishing small business credit pays off. Good business credit scores help a business get loans. Your loan provider knows the small business can pay its financial obligations. Because they know the small business is for real.
The small business’s EIN attaches to high scores and lending institutions won’t feel the need to call for a personal guarantee.
Business credit is an asset which can help your company for years to come.
Want to start a new business someplace else in America? Then check out our handy guide to starting a business in any state in the country.
California’s Response to COVID-19
This is how California is handling the COVID-19 situation. The city of San Francisco has started the COVID-19 Small Business Resiliency Fund.
To be eligible for the COVID-19 Small Businesses Resiliency Fund, small businesses must have at least 1 employee. Also, they can have no more than 5 employees. Plus, they must demonstrate a loss of revenue of 25% or more. They must have less than $2,500,000 in gross receipts as well. In addition, they must be engaged in activities regulated by the City and County of San Francisco. Of course, they need to have a license or permit associated to that regulation.
In California, employers experiencing a hardship as a result of COVID-19 may request up to a 60-day extension from the EDD to file their state payroll reports and deposit state payroll taxes. This is without penalty or interest. A written request for extension must be received within 60 days from the original delinquent date of the payment or return.
On April 11, the Paradise Post provided more information on the CARES Act.