Do you want to invest or start a business in California? If YES, here is a detailed guide on how to start a profitable business in California with no money.
It is the norm for entrepreneurs to look for locations that can support the growth of their business hence the need to conduct thorough feasibility studies and other researches. There are loads of reasons why you should consider starting your business in California.
In case you are wondering why, then going through the list of small, and medium scale businesses in California and also the number of Fortune 500 companies that are domiciled in California should give you the assurance that California is indeed a business – friendly state.
California is the most populous state in the United States. It holds a lot of potential; with respect to human, mineral and natural resources. California is also home to Silicon Valley; the hub of the greatest technology companies in the world. This is not to discourage you but the truth is that California is considered as one of the states where it is difficult to start a business unlike Texas, Utah and Idaho.
There have been books, reviews and press publications such as Entrepreneur Magazine that have written on how to start a business in California. But in this article, I will be taking you on a step by step checklist on what it takes, including legal requirements to start your own company in California; whether it is an online technology company, a healthcare service, an internet company or a brick and mortar business.
Starting a Business in California – Important Statistics You Must Know
California is a state that can boast of a GDP of $2.797 trillion (2017), GDP growth of 3.0 percent (2017), and GDP per capita of $71,209 (2017). California has a 13.3 percent (absolute) 19.0 percent (relative) of population below poverty line and an effective Labor force of 19,286,476 (December 2017) with an Unemployment rate of 4.2 percent (Jan. 2019).
A Brief Demographic Analysis of California
California is a state in the Pacific Region of the United States with Sacramento as the capital of the state. Interestingly, California is the most populous state in the United States of America with a population of approximately 39.6 million residents. Of course, California can boast of having the third-largest landmass by area.
The Greater Los Angeles Area and the San Francisco Bay Area in California are the nation’s second and fifth most populous urban regions, with 18.7 million and 8.8 million residents respectively. Los Angeles is California’s most populous city, and the country’s second most populous, after New York City.
California also has the nation’s most populous county, Los Angeles County, and its largest county bay area, San Bernardino County. The City and County of San Francisco is both the country’s second-most densely populated major city after New York City and the fifth-most densely populated county, behind only four of the five New York City boroughs. As a matter of fact, California is the 3rd largest state in the United States in area, after Alaska and Texas.
Interestingly, some of the highest income counties in California are Marin County and San Francisco County, which both can boast of per capita personal incomes of over $100,000, and are 2 of the top 12 highest-income counties in the United States. As a matter of fact, some coastal cities include some of the wealthiest per-capita areas in the U.S., notably in the San Francisco Bay Area and the Greater Los Angeles Area.
Statistics show that in 2010, there were more than 663,000 millionaires in California, more than any other state in the nation. In 2010, California residents were ranked first among the states with the best average credit score of 754.
Starting a Business in California – Economic Analysis
California with a $2.9 trillion economy is larger than that of any other state, larger than those of Texas and Florida combined, and the largest sub-national economy in the world. If it were a country, California would be the 5th largest economy in the world (larger than the United Kingdom, France, or India), and the 36th most populous as of 2017.
The Greater Los Angeles Area and the San Francisco Bay Area are the nation’s second- and third-largest urban economies ($1.253 trillion and $878 billion respectively as of 2017), after the New York metropolitan area. The San Francisco Bay Area PSA had the nation’s highest GDP per capita in 2017 ($99,000), and is home to three of the world’s ten largest companies by market capitalization and four of the world’s ten richest people.
California is responsible for 14 percent of the United States’ approximate $20.4 trillion gross domestic product (GDP) and California’s economy ranks among the largest in the world. As of 2018-Q2, the gross state product (GSP) is almost $3.0 trillion ($74,000 per capita), the largest in the United States.
As of 2018, California’s nominal GDP is larger than all but 4 countries (the United States, China, Japan and Germany). In terms of Purchasing Power Parity, it is larger than all but 8 countries (the United States, China, India, Japan, Germany, Russia, Brazil and Indonesia).
When it comes to employment, in California, the five largest sectors of employment are trade, transportation, and utilities; government; professional and business services; education and health services; and leisure and hospitality. As regard output, the five largest sectors are financial services, followed by trade, transportation, and utilities; education and health services; government; and manufacturing. As of September 2016, California has an unemployment rate of 5.5 percent.
Interestingly, California’s economy is reliant on trade and international related commerce accounts for about one-quarter of the state’s economy. Statistics shows that in 2008, California exported $144 billion worth of goods, up from $134 billion in 2007 and $127 billion in 2006. Computers and electronic products are California’s top export, accounting for 42 percent of all the state’s exports in 2008.
Agriculture is no doubt an important sector in California’s economy. Farming-related sales more than quadrupled over the past three decades, from $7.3 billion in 1974 to nearly $31 billion in 2004. This increase has occurred despite a 15 percent decline in acreage devoted to farming during the period, and water supply suffering from chronic instability. Factors contributing to the growth in sales-per-acre include more intensive use of active farmlands and technological improvements in crop production.
In 2008, California’s 81,500 farms and ranches generated $36.2 billion products revenue. In 2011, that number grew to $43.5 billion products revenue. The Agriculture sector accounts for two percent of the state’s GDP and employs around three percent of its total workforce. According to the USDA in 2011, the three largest California agricultural products by value were milk and cream, shelled almonds, and grapes.
California is considered as a global pacesetter in popular culture, innovation, environmentalism and politics. It is considered the origin of the American film industry, the hippie counterculture, fast food, the Internet, and the personal computer, among others. The San Francisco Bay Area and the Greater Los Angeles Area are widely seen as global centers of the technology and entertainment industries, respectively.
California has a very diverse economy: 58 percent of the state’s economy is centered on finance, government, real estate services, technology, and professional, scientific and technical business services. Although it accounts for only 1.5 percent of the state’s economy, California’s agriculture industry has the highest output of any U.S. state.
What Does It Take to Start a Business in California?
Now it is important to note that the Governor’s Office of Business and Economic Development has some business specialist who can be assigned to you to help you start a business in California. To access these specialists, all you need to do is to visit www.business.ca.gov and click on the ‘contact a business specialist’ button.
A lot of publications and analysts have tainted California as a challenging place to do business but it would interest you to know that California has a large number of small businesses that have continued to survive, grow and make profits. So, do not allow all what you have heard scare you. With the right information, adequate planning and research, you would have no problem running a successful business in California.
Starting a Profitable Business in California With No Money – A Complete Guide
The first step to starting a small business in California is to adequately prepare yourself; you need to get in the right frame of mind. You may assume this is not significant but it can be the thin line between success and failure. Running a business on California is tough but highly rewarding.
Now how do you get yourself in the right mindset? You can get yourself ready by attending a seminar on the chosen line of business you want to undertake. You can also prepare your mind by accepting the reality that you can fail tomorrow; you prepare yourself by increasing your capacity to handle risk. And ultimately, you prepare yourself by making up your mind to excel despite the odds and competition.
2. Have an Idea of the business you want to start
To effectively start a small business in California, you must have a good idea. In fact, any idea or business opportunity will do; except you are pioneering a new invention. I stress that any business opportunity will work out because majority of entrepreneurs concentrate exclusively on the business idea without being aware that a business idea is just a tip of the iceberg in the entrepreneurial process of building a business.
“A business idea is just another idea. But an idea backed by a strong feasibility, a thorough business plan and a smart business team is no longer an idea. It’s now a solid business opportunity worth pursuing.” – Ajaero Tony Martins
An excellent business idea itself does not ensure success in business; an average business idea with strong business fundamentals does. The world is overflowing with amazing “million dollar ideas” but the world is short off experienced entrepreneurs.
You don’t have to crack your head attempting to create something new; don’t make an effort re-inventing the wheel, just discover a proven business line and study the basics. You can even decide to purchase a franchise if the money is available. California has the population to mop up any product that is backed by a strong business sense.
The third step to opening a small business in California is to do a thorough feasibility study before putting your money into any business venture. This is where the crash of most entrepreneurs begins.
I have seen people put money in a business idea or opportunity just because a relative told them that the industry is profitable. I have seen people plunge into an industry without precaution, in reaction to unverified information. Now i know entrepreneurship is all about risk taking but going into an industry without a proper knowledge of its fundamentals is suicidal.
So before commencing a business, you have to carry out an extensive feasibility research on the business terrain in California to find out lucrative businesses that you can do and the best way to go about them so as to achieve success. Anybody can start a business but only people who have taken time to research and obtain necessary information can succeed.
For instance, businesses that focus on social activities, entertainment, tourism, food and beverage, childcare services, clothing, cleaning, consulting, pet care, photography and technology are very lucrative in California.
Thriving Business Sectors in California
Some of the most thriving and also the most dominant sectors of California’s economy are agriculture, science and technology, trade, media and tourism. As the most populous US state as well as a coastal state, the economy of California is quite varied, with each sector performing in equal footing. Studies show that a large percentage of the economic activity is concentrated in the coastal cities, while the inner areas are mostly focused on agriculture.
The strongest economic areas are around Los Angeles, which focuses on media, tourism and trade, and San Francisco, where technology, trade and tourism are the main industries. Besides, as a coastal state, California is also a major gateway for trade to and from the United States.
California is notable for supporting and promoting strong business communities. Little wonder it is known as the home to the film industry in Southern California, the tech industry in Silicon Valley, and wine country in Napa Valley. With the combination of strong entrepreneurship spirit, strong tourism, great universities, and ideal weather all year round makes businesses, especially small businesses, thrive.
Researching businesses and California rules and regulations would allow you to avoid problems. Research would also allow you to know competitors. It will give you a chance to plan your business more efficiently.
Before going into any business or industry; ensure you have detailed knowledge about its primary metrics. All businesses and industry have its own covert information and if you must excel, you must seek it. Know the market of the business you are going into.
Who are the customers? How do they want to be served? Who are your major competitors? Who is the market leader? Do you have a chance for survival? Can you grab some market share in that proposed business industry of yours? These are the questions you must provide answer to before starting a small business in any industry.
This is another point where most people neglect. It is projected that over 85 percent of small business owners run without business plans. While I won’t condemn them, since I began my initial business without a business plan; it is considered sensible if you detach your business from the multitude.
Do not ever go into any business without writing a business plan. Psychologists are of the opinion that people are more likely to do things when they write them down and I quite agree because running a business is hectic and it is easy to get carried away and forget all the initial glowing plans you had for your business. But if you have them written down, you would be able to refer to it from time to time and use it as a blueprint for running your business.
Since most business owners are working without business plans; why not leverage on it and turn it to a competitive edge for your business. Banks don’t loan money to businesses that are managed without business plans but what if you have one? Well, I leave that for you to answer.
Please write down a business plan for any business venture you want to undertake. Even if it is an informal, one page business plan; write one. Your one page business plan may not catch the bank’s interest but it will assist you focus on pursuing your business mission.
6. Undergo some training
You can never go wrong with enrolling for business training to update your business knowledge. There are statewide programs that you attend such as California Small Business Education Foundation (CSBEF), California Employment Training Panel (ETP) and the California Association for Local Economic Development. These programs would give you the right information and increase your chances of succeeding in the California business terrain.
So you want to do business in California? If yes; then where will you site your business? Will you locate your business within your district or are you going to site your business in an industrial or commercial area? Will you detach yourself from the multitude by developing your own brand in a peculiar location? Or you are going to run business from the centre of trade and commerce places in California?
When conducting your research, you must have discovered that some areas are more suitable for some kinds of businesses than others. Therefore, you have to carefully consider the area where you want to start your business to determine what kind of businesses would be suitable there; as well as the infrastructure that would be available to you and tax regulations.
Another thing to consider is the zoning laws in the area. Make sure you understand the zoning regulations of your locality before you go ahead to set up your business.
8. Choose a business name-: The next step is to select three possible names that you would like for your business and check for availability. If your preferred name has not been taken, you can register it after payment of some money. You can do this at the office of the Secretary of State.
9. Choose business structure and register you business
Majority of businesses run as sole proprietorships in California; you can decide to apply the same route. But if you sincerely want to build a profitable business that will prevail; I will advice you incorporate a business name or put it in your cost projections as a short term plan. You can go to the California Secretary of State to register your business entity.
A good way to commence your business name registration is to conduct a name search. The business structures that are available in California are Sole Proprietorship, General Partnership, Limited Liability Companies, Corporation, Limited Partnership and Limited Liability Partnership. The type of business structure you want to go for is totally up to you. I will advice you go through a lawyer to avoid making silly mistakes.
Another important step to take is to find out what licenses and permits you would need for the type of business that you want to operate. For instance, you have to register with the state and federal government to get an employer’s identification number before you can start a business in California. Along with the identification number, you will also be informed regarding sales tax, payroll, etc.
Well, I don’t need to emphasize much on this. If you don’t want the government and its law enforcement agents on your heels; ensure you get the essential licenses and permit needed to run your business. Each industry has regulatory bodies governing it; so ensure you verify their operational policy to avoid going against the law. Moreover, there are varying rules among cities and counties about building permits. It is best to consult the regulating bodies for details.
Also, don’t forget that you need to get licenses and permits from both the local, state and federal government. Be sure you consider their costs in your budget. You can verify with the SBA (Small Business Administration), CalGold (California Government Online to Desktops), Department of Consumer Affairs and CalBIS (California Business Investment Services) for more information on licenses and permits.
11. Seek for funding-: A little extra funding for your business would not hurt. The government of California in its bid to encourage investors and small business owners; offers a California Small Business Loan Guarantee program that you may want to take advantage of. It is for businesses with less than 100 people and operating in the state. The loan can be used for purchasing equipment or facilities. It is also suitable for expansion.
12. Set your prices-: The market in California is highly competitive but when you carefully set your prices to be competitive and encouraging, you won’t have a problem struggling for customers.
After passing through all the processes above; you have to get down to the real deal, you have to start the business. Most individuals make fantastic plans, do feasibility research and even raise the required money to start a business. But for reasons best known to them; they simply refuse to start.
Maybe it’s because of the fear of failure; but what I do know is that not everybody has the brevity to create a business. Most can only fantasize about it but only few have the guts to undertake the risk. Are you prepared to assume the risk to start your own business in California? Only you can answer that.
Realistically, this is the point where your task as an entrepreneur gets tougher because statistics show that 75% of all new businesses fail in their first five years. And of the 25% that survived; 80% of them will fail in the next five years. It means that about 90% of all businesses will fail in their first ten years. This statistics may be harsh but it’s the truth in its entirety. Are you prepared to lose it all? If your answer is yes, then start.
14. Look for Leverage
The best way to grow in business is to leverage on the organized structure of reputable businesses. So if you want to grow; then seek strategic partnerships. Leverage can be in the form of obtaining a bank loan, getting credit facility from suppliers; forming strategic alliance with a big player or obtaining a contract.
Without much cash at hand, you may also consider to explore lending companies and other institutions that provide financial assistance to those who want to start a business in California. For small businesses, home equity is commonly used but note that the government provides assistance. Regardless of the leverage you decide to pursue; go for it.
15. Become Tax Compliant-: Well, I wish they were but taxes are not free in California. You would have to pay taxes so, you should ensure that you register your business with the appropriate Federal and State tax regulatory bodies and obtain your unique Tax identification number which you would use for filing taxes.
Tax Collections in California
According to the U.S. Census, the federal Internal Revenue Service collected in California in 2012 $292.563 billion in taxes. This included federal income & payroll ($193.489 bn), excise ($3.227 bn), corporate income ($37.181 bn), gift ($0.288 bn), estate ($2.590 bn), unemployment ($0.838 bn), and trust ($1.091 bn) taxes.
Records shows that state and local tax and fee collections in California (2011) were $268.224 billion plus another $75.875 billion in federal transfers were spent by state and local government agencies. As a matter of fact, in 2010, when measured as a percentage of GDP, California had the 4th highest tax burden of all the fifty states at 13.4 percent of the state GDP.
16. Create your website-: When you are done with the registration and setting up your business, you should consider the business promotion aspect and top on your to-do list should be creating a website for your business. It doesn’t matter if it’s just a coffee shop; you can never go wrong with positioning your business on the internet.
17. Hire professionals to work with you-: You cannot possibly know it all. If you know the marketing aspect well; what about the financial aspect? Oh well, you know that too but do you also know the legal aspect and the technical aspect?
Successful business owners know and understand their limits; they know the things they cannot handle and would instead allow a professional handle it for them so that the business can enjoy the attention and knowledge of diverse professionals.
18. Insure your business-: Talk to an insurance agent about how to obtain insurance for your business and the type of insurance products you would need. I understand that paying premiums is not the most enjoyable business activity but it sure helps to jealously protect your business from risks. You know, like mother hen and her chicks
19. Be socially responsible-: There are a lot of ways to be socially responsible; to give back to the community, to carry out your business in such a way that other people are not negatively affected, to pay taxes as and when due and to ensure that your employees are satisfied and happy. It pays to be a socially responsible entrepreneur.
20. Survival is the Game
If you can get to this phase, then it’s congratulations because you have simply created your own small business in California. You have began the process and showed resilience; now is the time to push it through.
At this point, survival is the name of the game because doing business in California is tough due to the government tax policy and bottlenecks. You may suffer some setback from competitors; you might make a mistake or even encounter difficult business problems but don’t surrender. Stay strong and fight it through, I will see you at the top.