Starting a small business in California is an incredibly popular idea — but naturally, also a very competitive one. According to one report on U.S. states with the most small businesses, in fact, California ranked in the very top slot, with 4.1 million small businesses on record. Those 4.1 million comprise more than 99% of the state’s total businesses, which gives you a clear idea of just how significant the SME economy is to California.
As encouraging as this may be to people hoping to start their own small businesses in the state, however, it’s also somewhat daunting. The SME economy in California is as competitive as it is sprawling, and particularly given the challenges COVID-19 has posed to business communities, it may be particularly challenging to get a successful new company off the ground in the coming months and years. That said, it’s doable with the proper approach, and some even argue that we may see a boom in startup innovation on our way out of the COVID crisis. So with those positive points in mind, we’re going to discuss some key points for how to start an LLC or a successful small business in California.
Research the Market
Given the sprawling and competitive nature of California’s small business economy described above, an important first step is to research the market you may be entering. This means determining whether or not demands are being met by existing companies, identifying potential direct competitors, and making a strategic assessment regarding whether or not your startup has a realistic avenue for growth (or what you can do to ensure that it has one). This does not mean that you should shy away from starting your business if you identify competitors. But it’s still a good idea to get a feel for any busy market or industry you’re considering jumping into.
This can start with a simple look at California’s busiest industries, which essentially include agriculture, film, manufacturing, and various services. These will naturally account for a large number of existing small businesses, and if your company is a match in one of these industries you’ll need to figure out what you can offer that those businesses don’t. More specifically though, you should take some time to research any industry you may be attached to, and use your findings to help determine a niche you can succeed in (and grow from).
Examine the LLC Formation Process
When you’ve determined what you want your company to be and set it up internally, you should also take some time to examine the process of registering an LLC in California. Fortunately, said the process is actually not as complicated as you might guess. California makes it possible to turn your small business idea into an official LLC in just six steps — most of which are quite quick, and all of which can be address over the internet. While you will have to make a few important decisions during the process (such as who will serve as the “agent” to handle legal documents on behalf of the business), it is mostly a set of formalities. Once you go through them, your business becomes a registered California LLC.
There are a few reasons we’re making note of this as one of the steps necessary to starting a California company. As is true of forming an LLC anywhere, this step will protect your personal assets from business issues, set you up as a registered employer from a tax standpoint, and make your business appear all the more official to consumers. Additionally, though, it’s a worthwhile step to take if you hope to receive support from the state. On top of California’s small business tax relief in response to the COVID crisis, there are also occasional grants available in certain areas for qualifying companies. You’ll likely have a better chance of enjoying some of these types of aid from the state if you’re a registered LLC, as opposed to a private venture.
Prepare for Outsourcing
While it’s not necessarily essential to outsource in California — and whether or not it’s a good idea depends somewhat on the nature of your business — this is a step worth considering. There are a number of ways that small businesses can benefit from outsourcing, which include reduced costs, more flexibility to focus on specific needs, and improved efficiency. In short, if you’re prepared to outsource tasks when you need them completed, you may save significantly on inefficient work from full-time employees or departments you can’t really afford in the early going.
As for why this is necessary for a California small business, in particular, it’s simply a reflection of the fact that full-time employees in the state expect to be paid fairly handsomely for their work. In recent years, research has indicated that California’s median household income ranks in the top 10 in the United States. It’s an expensive state in some respects, and thus one in which compensation is marginally inflated. There’s certainly nothing wrong with this, and workers should of course be fairly paid. As you’re launching a small business though, the affordable nature of outsourcing can help you to save. You may have more flexibility to pursue more permanent employment situations should you choose to at a later point.
Pursue Funding Aggressively
We alluded to funding options with respect to potential assistance from the state of California. But keep in mind also that one of the side effects of this being such a busy state for startups is that it’s also an extremely busy state for startup funding. At any given time there is arguably more business investment capital moving around California than any other state, and new small businesses that are able to attract some of that capital can put themselves on the path to success. Even a relatively modest business can, with a good plan, clear vision, and appealing presentation, gain external investment. How specifically you seek to do this will depend on your business plan and the means you already have at your disposal. But keep in mind that one of the true advantages of starting a company in California is that there is more funding swirling around than in many other states.
Leading your small business to success and growth will always be a challenge, in California or elsewhere. With all of these ideas in mind though, you’ll be in better shape to navigate the California market in the early going and give yourself the best chance to make it work.
Post written especially for qbtechs.com by Bridget Jethro.