Starting a California business: The Good, the Bad, and the “Wait Really?!” of it all.

When people think of California, many different images might go through their heads. Whether it’s the beautiful beaches, the stars taking advantage of the year-round stable weather, or for some, the endless traffic we all hear about. No matter what your thoughts are, you have to agree you have thought about it. It isn’t a state like Nebraska. I’m sure Nebraska is beautiful in its own right, but aside from a Cornhusker highlight on ESPN every so often, I can’t say I’ve thought about it much.

 
But, what do business owners think of California? Well, to start off, California has the largest population in the United States. That means more opportunities for Clients/Customers than anywhere else in the country. Also, according to Business Insider, California has the 5th largest economy in the world. Read that again. Not the country, but the world! To put that into context, places like the United Kingdom and India, which by the way has over a billion people in their country, have a smaller economy than the State of California.

 
While all of the above facts are great, let’s get to the reason why you’re really reading this. You want to open a business, and you want to know whether California is the best place to do so.

The Good

The California economy is no joke. Regardless of what you are selling, there will be people who are looking to buy. Let’s start with physical products. If you’re starting a business as a retailer, manufacturer, or any kind of producer or seller of goods, then just being in California is going to be a boost to your business. Let me explain.

 
While many people live in California, a large chunk of its economy is accounted for by its tourism industry. You have international hotspots such as San Diego, Los Angeles, and San Francisco. Not to mention the tech home that is Silicon Valley. Resources and opportunity are two things that are never going to run dry for you while in California. Finding anybody you need shouldn’t be a problem.

 

 Also, think about the international market. If you are selling physical products, it is a lot more cost-effective to have your merchandise sent/received/transported to California than any state that isn’t on the cost. Add to that that California pretty much owns the west coast from a geographical sense, and things like the cost of shipping are suddenly a little easier to manage.

 
If you provide services in your business, then California has some pluses for you too. No matter what market you intend to market to, you will find somewhere in California that can hone in that marketing message. Think about just the mentality of when people think of California. They are usually linking the location with successful people who live a lifestyle many people want to live. Whether that is you or not, they don’t need to know, but at the very least, it gives you complete control of your message.

The Bad

So, it’s not all sunshine and rainbows, unfortunately. There are some downsides to being a California business owner. The biggest issue is everyone’s favorite word, TAXES! Based on a tax index prepared by the Tax Foundation, California is only 1 spot away from being the worst-ranked State in Tax Index. This means that the taxes to own a business, live, and work in California are the second-highest country. The only State to grade worse is New Jersey. Something tells me the Boss isn’t too happy about that.

 
Another thing to consider is regulatory burdens. California has more regulations placed on business owners than any other state in the entire country. These regulations add to the cost of running a business. It becomes costly to be able to hire employees as well as to just live a balanced life. Believe it or not, California was actually voted the worst State to start or expand a business into (ouch!).

 
The truth is, it is costly to run a business in California. Most of the people who choose to register their business in California live in California and can’t avoid doing business there, or they are just local businesses with no plans to expand. One of the questions I frequently get asked when helping a company set up its entity is whether it can set up its entity in another state. While the answer is always “it depends,” the truth is most of the time for those people, forming their business in California is almost unavoidable.

The "Wait, Really?!"

There are some things that you should know when setting up an entity in California. The first thing is the Franchise Tax. This pesky little Tax is levied against any owner of an LLC or Corporation. The Tax is a mandatory $800 every year that you are in operation. BUT WAIT, THERE’S MORE! The tax increases as the amount of money you make increases. The fee goes up when you make $250,000 and then again after $500,000. Ultimately you can land yourself in a situation where you are paying over $11,000 if your company is really successful.

 
The second thing to consider under the “Wait Really?!” section is employees. If you are starting a business, you are not reaching your goals doing it on your own. Well, California notoriously makes it hard for employers to afford help. They are stringent on their rules regarding contractors and employees. This means even if you hire a contract worker, the laws in California are set up so that that the work is strictly limited to the scope of their services. The problem isn’t sticking to the contract; the problem is that even with a contract, some of the things the contract worker does might spill into employee territory. If it does, they can come after the business owner for things like back wages and other benefits employees must be provided in California.

 
The truth is, you might not have the option to start a business anywhere but in California. That isn’t a bad thing. However, it does mean how you navigate the business is really important if you plan on making it profitable. That’s where My Brand Esquire comes in.


 Not only do we help you on the legal side of your business, but our extensive network of professionals makes it so that you have an answer to every question. Regardless of what that question is. Don’t shy away from starting a business in California, but when you start that business, the least you can do is know what you are getting yourself into. We are here for that.

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