How to Start a Business in California in 11 Steps (2025 Guide)

Starting a business in California opens the door to meet the needs of the 39.24 million people that live in the state. With a robust economy, diversified cities, and a business-positive atmosphere, California has much to offer many companies in most industries. It also provides good access to well-qualified and educated employees and supportive tools for smaller companies. 

Starting a business in any state can be an exciting challenge, especially when you have the right guidance and tools in place.

If you plan to start a business in California, you’ll need to establish it properly, which includes several legal and operational steps. Here’s where to start.

Here are the steps to follow when starting a business in California:

1. Fine-tune your business idea
2. Create a business plan 
3. Choose a business name
4. Choose a business structure
5. Set up Banking, Credit Cards, & Accounting
6. Get Funding for your California business
7. Get Insured
8. Obtain Permits & Licenses
9. Find your team
10. Market & Grow Your Business
11. Open the doors!

Step #1: Fine-tune your business idea

It’s an exciting process to start a business, but California does have a competitive atmosphere. That’s why it is critical to make your first step one that revolves around fine-tuning your business idea to ensure it’s viable. Here are some places to help you get started:

How to get new business ideas:

• What problem do you have that you can solve?
• Is there a service or company that you wish offered something new or just a bit “more” than they do?
• Ask family and friends what their biggest problems are and find a solution for them.
• What can you do or provide to make a task easier?
• Do you have a product you love that you could add on to in some way to make it even better?

Play to your strengths

When considering all of the business ideas available to you, consider choosing those that can provide you with specific benefits. For example, choose a business that plays to your specific strengths. If you’re an outgoing, sales-oriented person, you are uniquely qualified to work to sell a product to customers. If you have a problem-solving mindset and experience in the manufacturing industry, a consulting business could be the route you take.

Verify your business is viable

There are a few big things you’ll do to build a business, but none may be more important than this. You need to be sure people would pay for the service or product you plan to offer. The best way to do that is to ask. Start with talking to friends or family or other people you know who could benefit from this product or service. Ask them, honestly, what they would pay for it.

You can then expand your research to a larger scale, including doing some market research. Consider competitors in the area, too. What can you do that’s truly different or better than what they offer?

Be sure your business idea fits the needs of people in California

As you consider your business, determine how well it fits the needs of people in California. The state is quite unique, and though it has the largest economy in the country, some business ventures may be less viable. Here are some ideas:

• California is very eco-friendly. Can your business play into that role?
• Do you want to build a business related to the outdoors? If so, California’s weather makes that easy to do.
• In the Los Angeles area, you may wish to cater your business to meet the needs of celebrities and movie executives.
• If you’re in the San Francisco area, consider making your business more in tune with the Silicon Valley high-tech industry.
• California is very protective of its natural amenities. Can your business support them in some way?

Analyze what you want to do

With this information in hand, you can then start to truly understand where your business should go. Consider using the data you’ve obtained to refine your business approach. Consider your local audience as well as any specific companies or groups of people you wish to target in California. With such a large state that ranges widely from luxury to low income, from manufacturing to natural beauty, there’s a way to connect your business to the right people here.

Step #2: Create a business plan

Market research

Start with market research, which involves developing a comprehensive understanding of your target market. Are there customers here? More so, what is the competition like? Market research helps you learn if your business could be profitable on a very local level, not just in the state but within the community you plan to operate.

Financial plan

How will you have money to launch your business? Do you need to borrow it? What assets are you bringing into the business to get started? Then, you’ll need to consider the cost of your service, the cost of operating your business, and profitability. 

Marketing plan

The third component of a business plan revolves around how you will market your company. This can help to define both your online and offline goals for building your business. It also identifies local target customers and creates a plan for reaching them.

Choose a location

Where should you open your business? If you have a business that relies on walk-in traffic, such as people stopping by as they pass the area to make a purchase, choosing a location that’s near a busy street or walkable shopping district is essential. This accounts for most types of retailers, restaurants, artisan shops, and coffee shops.

California is a large state, and each area has its own zoning rules and regulations. It’s critical to learn what your specific community’s zoning requirements are. Nearly all cities have some zoning restrictions that you must check before establishing a business there. Tools like ZIMAS in Los Angeles can help you learn more about specific zoning requirements throughout the state. Not all cities offer this, but all will provide zoning information if you call the local Chamber of Commerce.

Location, aside from zoning, is very much dependent on the type of business you operate. Look at where the competition is, but also where there are gaps in coverage. For example, if you hope to open a business in San Diego, locations along I-805 and I-8 tend to be ideal for attracting not just locals but those visiting the area and heading to the beach. That could prove to be ideal for businesses that benefit from tourism.

Decide If you’re an online only business

Do you need or want to have a brick-and-mortar location for your business? Do you need to have just a website to operate your business? Many companies need both. You can start with an online location and expand to have a local business, too, perhaps once you learn where the concentration of your customers is coming from. 

An online presence is a big part of success for many companies today. If you want to launch your business online, you’ll need to:

• Create a website so customers can find you.
• Develop a social media presence to aid with marketing and engagement with potential clients.
• Create a supply and distribution plan if you are selling products.
• Determine the tax laws for your business (even if it is only an online business). This will change not just based on location but also on the industry you operate in. The California Department of Tax and Fee Administration offers more insight into state-wide requirements.
• Obtain necessary business licenses even if you are just operating an online business – California requires them of all companies.

Step #3. Choose a business name

Start the creative juices flowing to create a business name that’s going to fit your company, attract customers, and meet the state’s requirements.

• Consider how you will brand your business name to make it unique. Think about logos, colors, symbols, or just a general look that will fit your company.
• Consider your domain name for your online website. Is the name you’re considering available? Type it into the search engines to get a better idea.
• Once you have a few ideas, ask a few friends for their opinions. Can they tell what the business offers? Does the name have appeal or interest? Is it too hard to remember?

Next, be sure your business name meets the state’s requirements. You will need to do this through the California Secretary of State. The organization offers a business entity name search tool. Use it to help you determine if the name you’re considering is available. If it is, be sure to reserve it (you have 60 days to do so after you complete the Name Reservation Request Form from the website.)

If you are operating a Limited Liability Company (LLC) in California, you will need to include some destination of this. That may include L.L.C., LLC, or other variations that ensure that people know that the company is an LLC. The state does not allow companies to use the following words in their LLC name:

• Bank
• Incorporated
• Inc.
• Insurer
• Insurance company
• Trustee
• Trust
• Corporation

Once you create a name, determine it’s available, and reserve it, you’ll then want to move forward with your business.

Step #4: Choose a business structure

The next big step in building your business in California is to create the business structure. It is possible to operate as a sole proprietor or a partnership without incorporating the business further. However, doing so offers numerous benefits. Take a closer look.

The common types of business structure in California

• Sole proprietorships: If you start a business and do not incorporate it, it will be a sole proprietorship. That means 100% of the profits go to the owner, and all of the liability for the company is on the owner as well. That could include putting risk on the owner’s personal assets should the company be sued.
• Partnership: This is the same basic structure as a sole proprietorship, with the difference that it has more than one owner. There is still no incorporation. The partnership does not have any liability protection either.
• Limited Liability Company: An LLC helps to provide liability protection for the business. Many of the benefits of a small business sole proprietorship remain, such as full profit going to the owner. However, there is a division between the business’s assets and that of the owner. This helps to minimize risk to personal assets in the case of a lawsuit. The tax advantages tend to be more agreeable for LLCs for smaller companies as well. Learn more about the California LLC registration process here.
• Corporations: A corporation is a separate legal entity from the owner. Instead of being treated as if it is owed by the person establishing it, it is instead its own legal entity. Corporations often have investors and may even offer stock.

Tax advantages of each business type

Taxation is a big factor when considering business formation and structures. Here are some factors to keep in mind:

• Sole proprietorships: Operates as a pass-through entity, which means there are no corporate business taxes, and the business’s profits are claimed by the owner. There are few required reporting requirements.
• Partnerships: Also a pass-through entity, meaning the business does not pay taxes itself. There are also no corporate taxes here, and the structure requires little reporting requirements. Learn more about LLC tax advantages here.
• LLCs: There are no corporate business taxes here, and companies can choose a tax structure that works for their needs.
• Corporations: Higher taxes based on business revenue, with double taxation being a concern in many cases. S-Corporations, which are a bit different, do not have corporate business taxes and operate as a pass-through entity, while C-corporations do not.

Step #5. Set up banking, credit cards, and accounting

Companies next need to establish their financial tools. This requires, in the state of California, for the company to have an established Employer Identification Number (EIN). That can be obtained from the IRS right online. 

Additionally, companies must present their formal business formation documents, ownership agreements, if applicable, and their business license. California law requires anyone opening an account to have proof of identification for the business. 

Banking

You may opt to open a business bank account. There are many benefits for opening a business bank account, including protection from liability, a more professional look, and the ability to make larger purchases in the name of your business.

Business Credit Card

Consider setting up a business credit card for your business, though it is not mandatory as a first step, it can be beneficial. Some credit suppliers will offer you benefits such as cash backs or airline miles. 

Accounting

Every small business needs to handle accounting. Whether you hire a professional accountant, make use of accounting software, or both, managing your finances smoothly from the get go is essential. There are even apps that can help you handle tax season more easily. 

Consult with the California Secretary of State website, to get full information about California tax policy.

Step #6. Get funding for your California business

Many companies need capital to get started. You could use your personal savings or tap into family and friends. For companies that need additional funding, there are a wide range of tools available.

Start with the Small Business Administration in your local area. 

• SBA in Los Angles
• SBA in Sacramento
• SBA in San Francisco

Additionally, the state offers a number of potential grants and funding programs that you may qualify for depending on your needs and the business’s industry. You can find more about these at the California Office of the Small Business Advocate. Some examples include:

• California Dream Fund: A see program designed to provide intensive training and access to grants upon completion of up to $10,000.
• California State Loan Programs: Several options exist here, including a Loan Guarantee Program and a California Capital Access Program.

When considering loans, be sure to factor in the cost of borrowing to the company’s expenses. Most lenders also want to see a business plan before they will offer a loan.

Step #7. Get insured

Insurance provides protection to companies, minimizing financial risk to you, as the owner, but also to your customers. There may be local requirements in some cities to maintain specific types of business insurance to qualify for a local business license.

However, the California Department of Insurance provides guidance on selecting and utilizing business insurance products which is a good starting point for most organizations. The state does not require businesses to obtain any specific coverage. 

Commercial auto insurance liability coverage is a requirement, as it is for all vehicles operating on the roadways. Most employers in the state must obtain workers’ compensation insurance. The State of California Department of Industrial Relations offers insights into these requirements, including how to establish coverage. This will range by industry.

Also, in California, you will need to pay unemployment insurance tax if you have employees. 

Step #8. Obtain permits & licenses

Most businesses will need a license from the city they operate in to do so. There are resources to help you:

• Department of Consumer Affairs
• CalGOLD (The Gold Standard for Permit Assistance)

Utilizing CalGOLD will allow you to determine what licenses and permits are required in the California city you plan to operate in.

Federal income tax and California local tax

In California, businesses first need to establish federal income tax identification (creating an EIN). Additionally, the Employment Development Department (EDD) provides an identification for employers. Business taxes in the state may include:

• Corporate tax: This tax applies in the state if your LLC is treated like a corporation or you have a corporation. It is a flat 8.84% fe
• Franchise tax: If your business is operating as an LLC or S Corp, you will need to pay a franchise tax, which is $800.
• Alternative minimum tax: At a tax rate of 6.65%, this tax rate applies to C corporations and LLCs that are being treated as corporations.

Be sure to comply with all local tax requirements, which apply at the county and the city level. It is always advisable to consult with an accountant.

Step #9. Find your team

Hiring a team of people to help support your business is a big process, and there are some specific rules to keep in mind.

• California law makes it illegal to discriminate against protected classes.
• Employers must provide equal pay for equal work.
• Accommodations must be made for pregnancy.
• Employees are allowed to discuss their personal files and wages.
• Pre employment drug testing and background checks are allowable, though employers cannot request salary history.
• Wage and hour laws must be followed, which include regulations related to when overtime is paid.

The State of California Department of Industrial Relations offers a guide for companies planning to hire their first employee.

People are the backbone of the business

Surrounding yourself with the right people can make or break your business. Start with a consultation with an accountant to learn about all of the specific requirements within your community, and working with an employment lawyer can help as well, especially since California’s worker laws change often.

You can also turn to fellow business owners who you may know who can provide guidance and tips for minimizing frustrations. They may also help you learn about local organizations for help with hiring people and keeping them. Competitive salaries and benefits are a big part of this.

Remember, people build the product, they then communicate with the customer, and they are the face of the business. Be sure you’re hiring the best talent possible.

Comply with California payroll regulations

If you decide to hire employees, you will need to meet the state’s payroll regulations. California has very specific rules and requirements for employers to follow. You can find these spelled out through the Department of Industrial Relations.

This includes paying employees at least twice a month, paying overtime wages on the next payroll, and paying for all accrued vacation when an employee is discharged.

Hire contractors

Just about every business needs help in some form. You may need to hire contractors to help you with specific tasks. That includes things like hiring an accountant or keeping an attorney on retainer for any needs you may have and ensuring tax and legal compliance. 

California doesn’t have limitations on who you can hire or pay to do this type of work for you. However, you do need to be clear on whether the person is an employee or an independent contractor. Read about the differences at the Department of Industrial Relations site to avoid misclassification.

Step #10. Market & grow your business

It’s time to tell the world about your business. That’s surely the best part, right? There’s still much to do.

Invite customers to opt in to a mailing list or newsletter

Start by creating a mailing list and newsletter that will capture your customers’ email addresses and contact information. This way, you can continue to bring them back into your business for repeat service. It’s easy to set up a newsletter.

Consider making special offers to attract your first customers

This could be special promotional discounts or even a limited edition “first launch” of your product. The goal is to get people talking.

Invest in word of mouth

Happy customers attract each other. Encourage your customers to tell others about your business. Send them a text message to do so, or just ask them when they stop in to see you.

Pay attention to online reviews

Ask your customers (the happy ones) to support your business by providing a review. Send them a link to your website or Google Reviews, so they can leave it for you.

If you encounter negative reviews, respond to them in a professional way, and try to work on resolving the issue by contacting the customer if needed, or applying the feedback to your next deal. Remember – it’s not about IF you will get a negative review, it’s about when, and when it happens, it all comes down to how you respond to it. 

Even the best businesses may get a negative review once in a while, but ones that take responsibility and reply in a professional manner will remain trustworthy in the eyes of new customers

Create unique, helpful content to showcase your activity

Another big step is to create content on a blog and your website and then link it to your social media. This helps you become an expert in the industry. If you don’t have a blog or website yet, create them. Then, work to add cool content to your social media pages, like before and after photos of the work you do – a dog groomer could show before and after shots, for example. Create content that will resonate with your audience.

Step #11: Open the door!

It’s time to launch your company.

Plan a successful launch event

It may be something that you spend a bit of time creating, such as inviting specific people to attend and welcoming the mayor and local business leaders.

Land your first sale

As you open the doors, offer some recognition of that first sale. The first steps are always the hardest, so celebrating small milestones can keep you motivated. 

Making note of your milestones can help remind you what the end goal is and what your dream business is all about. Work to provide information about your products and services through one-on-one conversations with your customers. Welcome people in to see you or interact with them on social media if you are an online only business.

Conclusion

Now that you’ve done the work, congratulations! It’s time to open the doors and start managing your business. Take it one day at a time. You’ll love lots of questions along the way, but great resources and tools are available to support you through the process.

FAQ