With a large population which has an inappropriate appetite for spending money to impress others on their social media accounts, California is rather difficult to beat in terms of locations to start a business.
[Full Disclosure: this started as an instruction manual for a friend who asked me a series of very specific questions about starting a resale company and evolved into the blog post you’re reading now. Hopefully you find this information useful as it will be updated/revised over time. Please leave feedback!]
California is simultaneously one of the best and worst places to start a new business. If you are thinking local, then you will have very stiff competition in nearly every industry and market. You will need an advanced marketing plan to properly position and differentiate your business.
We will focus on the actual steps that you will need to take and you won’t have to purchase a thing. For your convenience, I have included relevant links where necessary.
The State of California does provide a great handout and checklist that you should definitely review prior to starting a business in the State and I would be amiss if I did not point you in their direction.
The Absolute Basics
Decide on a Business Structure and File the Organizational Documents
You will want to begin by navigating to the California Secretary of State website and read about the different business structures. Since COVID-19 struck the heart of the California Economy, the state has finally gotten with the times and now offers online services to file your organizing documents. You have a couple options, each with their own benefits: Limited Liability Company (LLC) and the Corporation.
(Yes, there are other business structures, but I can either confuse you like other posts on the internet, or I can thin slice it for two of the most likely structures you will use. This is also why they are the only two options on the State’s filing website.)
There are a lot of great resources on the internet that will explain what a Limited Liability Company (LLC) or Corporation is, so I won’t rehash that information here. The bottom line is that it is absolutely necessary to limit your personal liability from lawsuits. This is the primary reason for incorporating or forming an LLC. It creates a barrier between your personal assets and the business that you are operating. Generally, if your business is held liable for something that happened, then you will not be held personally responsible and your assets will be safe.
I say “generally” because there are exceptions to everything. Piercing the Corporate Veil (eg., using the business funds as you personal wallet) or making personal guarantees are just a couple examples of how you can be held personally liable for your business’s infractions.
Once you are ready to begin filling out your incorporation paperwork, then I would recommend using the Business Search tool to make sure that your business name is not already taken. It would be to your benefit as a new business owner to avoid any legal trouble associated with any infringements of other people’s intellectual property or simply the wasted time of having your formation documents rejected.
Apply for an Employer Identification Number
Just as your Social Security number is attached to you as a person and is used for tax purposes and credit risk, your new Employer Identification Number (EIN) is attached to your business for tax purposes and credit risk. Requesting an EIN from the Internal Revenue Service (IRS) absolutely free and is so easy that there are hundreds of websites out there which will trick you into paying them to do something that you can do on your own.
To apply for your EIN (and receive it instantly) simply use the online tool provided by the IRS.
Open a Business Bank Account
With your new business structure approved by the State of California and you EIN in hand, it is time to open your business bank account. Many new business owners make the mistake of starting out with their personal bank account, or opening a second account still attached to their primary account.
Remember that stuff earlier about piercing the corporate veil and getting sued…yeaaaah…
Fortunately, opening a small business checking account is easier than ever! You can choose between Wells Fargo, Bank of America, Chase, Banc of California, Novo, Azlo, and many others. You want to find the right account for you and your business and I would definitely take some time researching the options.
Acquiring a Resale Certificate
If you are going to be sourcing items for resale, then you will absolutely need a Resale Certificate. This certificate is used with your manufacturers or distributors so that you can purchase your stock tax free. Without it, you will be required to pay sales tax on the items that you purchase from your distributor and pay taxes on the money that you make (Revenue – Cost of Revenue = Earnings).
We all get taxed too much in California as it is…don’t give them more!
As a note, you may also need a county or city Seller’s Permit and Business License. This is to ensure that you give some of your money to your local government, as well. Because there are so many websites, I will not be providing those links, but you can easily find them on DuckDuckGo.
Sales Taxes
You are required to pay your quarterly sales tax to the State of California. Because nothing is easier than giving you money away to politicians, the state has a useful website where you can set up an account and pay your quarterly sales tax. You will need to create an account which you will use for reporting and payment.
Because each city may have different taxation requirements in addition to the state sales tax, you need to review the sales tax rate for your locale.
Extra Stuff…
Shipping and Receiving
These days, many new business owners are simply sourcing items from distributors or directly from manufacturers. The problem with this quickly becomes apparent as your first stock arrives at your home: logistics. You want to focus on your business and not on inventory or shipping, right? Wrong. (Don’t get business advice from YouTube paid advertisements.)
The point is, focusing on your business includes focusing on the logistics. One of the best options for new business owners is to use a third party fulfillment company to store your items in a warehouse (for a fee) and ship them out to your customers when you receive an order. Using one of these fulfillment companies does not mean that you are “letting someone else do the boring stuff while you focus on making money” like all those annoying ads say. The use of a fulfillment center is focusing on your business because if you don’t use the right one, then you’re not going to be able to benefit from the services they provide.
So, what is all this fulfillment and logistics talk? Any business needs to focus on its supply chains. The supply chain begins when the business makes an order from a supplier for items that it will then resell for a profit. The supply chain ends once that item is in the hands of your customer. Because it is unlikely that you have storage facilities and a crew to deliver your products, it may be necessary to outsource that role to a Third Party Logistics (3PL) company.
A 3PL company is one which will store your products, pick them for shipment, and deliver them to your customers. The best 3PL companies have integration with common online storefronts.
The most well known 3PL operation is Fulfillment By Amazon (FBA), but it is not the only one and may not be the one that your business needs. Other great 3PL operations include: Ship Bob, Ship Monk, FedEx Fulfillment, and many others. Again, make sure that you do your research and pick the company that provides the best benefit to both you and your customers.
Online Storefront
While everybody seems to want to get on Amazon, which is a great option, there are other options that may work better for you. Shopify and Big Commerce, for example, offer custom storefronts with their own domains. Personally, I would choose an option where I don’t have a world of competitors crowding me out of the space.
Help With Everything (Almost)
If you don’t know anything about marketing, web design, then you’re in the same situation as the majority of people on this planet. Fortunately for you, there are services out there that will assist you with everything from logo and business card design to online storefront creation.
Two great options are Fiverr and Freelancer. They both have people with skills who are willing to provide a service to you in a myriad of categories. Need help with your business plan? You can certainly find that on these websites.
A newer company is Advisory Cloud. Advisory Cloud is a service that can connect you with professionals in their fields who are willing to work with you for the opportunity to have the business experience on their resume. Alternatively, you can set up hourly meetings for a fee. They have professionals in every field to help you with marketing, finance, operations, etc. This is a great concept and one that I wish I thought of first!
None of this is to be taken as legal advice and I do not claim to be an expert in starting a business in the State of California. I’m just an MBA student…which means that I haven’t even graduated, yet. This advice is worth what you’re paying for it. The steps outlined here are simply what I had done when I started by (2) businesses. The impetus for this post was a friend who approached me to ask for advice and direction in starting a business in CA….this post answers his questions. It will be revised and updated continuously over time.
Christopher Padilla 
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