Running a business in California means navigating some of the most complex regulations in the country, paying higher taxes, and dealing with a higher cost of doing business. In no other state is running a smart and effective business more critical.
With that in mind, these 20 tips for running a California business can help budding business owners manage California businesses effectively. Mahmoud Khattab, CEO of Precision MD, shares what he’s learned while guiding Precision MD through what can be a complicated business landscape.
1. Change Is Constant
In 2021, California was the the No. 1 economy in the U.S. Holding such a prominent spot also means California is often the "laboratory" for new legislation on everything from managing hazardous waste to consumer privacy.
As such, those running a business in California can and should expect rules to change and should not take the status quo for granted.
While this matters to all businesses, it's often harder for small businesses trying to do it all. In a recent interview, Mahmoud Khattab, CEO of Precision MD pointed out, "California is very well known to have a lot of strict rules and regulations for practicing medicine. That's also for a doctor, which as I said, you're not a lawyer, you're not a businessman, you're not a manager. When you have a private practice, you see yourself in front of all those rules and regulations and the challenges. It's a totally different war than just working in the hospital."
2. Going With the Flow Is Vital
California regulations can certainly be a moving target. Business leaders need to manage changes rather than react to them. Those who learn to go with the flow float to the top, while those who fight it will easily get dragged down to the depths — in both mental health and business success.
3. It's Smart To Stay Current
Business leaders should familiarize themselves with current California regulations and actively pursue information on emerging laws, rules, or changes that may affect them.
4. A Little Pride Is in Order
California is an innovator. That extends far beyond Silicon Valley. What happens in California very often becomes national policy years later. Business leaders can take pride in knowing they’re the proving ground for innovations that move this country forward.
5. California Businesses Can Expect Higher Taxes
Taxes in California are no joke. While total taxation is relative, since taxes come in many forms, California had the highest state income tax at 13.3% in 2021. They also rank fifth in total state and local taxes. For those paying corporate taxes, the top rate is 8.84%.
6. Smart Businesses Invest in Their Employees
Those who have employees will need to register to pay employer taxes. These include disability insurance, withholdings, and an employment training tax (unique to California). Businesses will pay more for each employee in California. But it's 100% worth it when employers focus on hiring quality employees.
As CEO of Precision MD, Khattab said in a recent interview, "I feel choosing the right employees is probably 50% of being successful in business because if you're surrounded by the wrong people, they're going to bring you down."
7. Competitive Salaries Keep Employees
The minimum wage in California is on the rise. In 2022, employers with 25 or fewer employees had to pay $14 per hour. This is the minimum wage, not a forever wage. If employees are performing well, employers should demonstrate they value their employees’ contributions by paying them more than minimum wage.
Paying employees more is not a zero-sum game. Higher-paid employees tend to be more engaged. That means higher productivity. Employers get what they pay for.
8. Competitive Pay Is About More Than Salary
In the current employment market, it's important to think of compensation as a whole. People care about more than money and when California businesses recognize this they can attract top talent.
Factors like flexibility, morale, training, growth opportunities, and perks can all influence the decision to join the team and stay.
9. Remote Employees Can Be Indispensable
In some parts of California and in some industries, it's hard to maintain staffing levels. While this can be a problem with some customer-facing jobs, current technology means a lot of roles employers once insisted must stay in the office can be managed remotely. Evaluating this potential and leveraging remote workers can help companies succeed in an otherwise uncertain hiring environment.
10. A High Cost of Living Can Translate To Higher Revenues
Those who've moved from another state to California to open a business may be shocked to find out how much everything costs. Cost of goods, cost of raw materials, cost of services — they’re all higher. But many forget the other side of that equation.
California customers are also accustomed to paying more. With an appropriate pricing strategy, this should balance out that equation, making the costs somewhat less painful.
11. ‘You Have to Have a Vision,’ Says Mahmoud Khattab
For those wondering how to start a venture in California, a business plan is a great place to begin the journey. Writing out a business plan forces the entrepreneur to do their homework, explore the business landscape, set reasonable goals, and develop competitive strategies to tackle challenges during startup and beyond.
Mahmoud Khattab advises, "You also have to have vision, a strategy for the business. You have to know where you're going. What are the goals that you want to achieve for the next few years?"
12. Tough Decision-Making Is Part of It
California business owners must be proactive. There's no standing on the sidelines in a state where rules and the business climate can shift quickly.
"You have to be a decision-maker. I can't say you’ll always make the right decisions, but business is all about making them," says Khattab.
13. Structure Is Important
Before starting a business in California, the entrepreneur will need to consider what structure it will take: LLC, S corp, C corp. Which is best in California?
The answer to that question varies. Founders should evaluate the pros and cons of each structure to find the one that offers the greatest benefits.
14. Founders Should Explore Funding Now
As with everything in California, the cost of starting up can be prohibitively high. Startup founders can and should explore startup funding options even if they don't need that capital infusion immediately. This can reduce the stress of needing money later and allow leaders to make more sound decisions for their companies.
15. Financial Experts Can Be Invaluable
Most people aren't good at everything. That includes business owners, and too often they find out too late the thing they're not so good at is managing the financial side of the business. Unfortunately, they're trying to cut costs by doing it themselves, not realizing that not hiring a financial expert usually costs businesses more.
They don't know what they don't know until it's too late.
Score is a nonprofit organization that offers expert business mentors. It has regional offices: Sacramento Score, Central Valley Score, Monterey Bay Score, etc. These organizations coordinate volunteer mentors to work with entrepreneurs. They recognize the challenges, making this an excellent resource for those who realize they don't know it all and that's OK.
17. SBA Resources Are There to Use
The Small Business Administration (SBA) also has many resources for startups and small businesses, helping companies access grants and financing through its programs. It also offers counseling services and support.
18. California Small Business Development Centers Further Support the Business Community
The Golden State wants business to succeed, so California Small Business Development Centers exist to support small businesses with the nitty-gritty from building a functional business plan to understanding the tax code.
19. A Business Needs a License
It’s more than likely that every business will need a license to legally operate.Those operating in more than one city may need a license for each city of operation.
To better understand individual licensing requirements, business owners can use the CalGold Business Permit Assistance, a government tool that allows users to search by city and business type to learn about licensing requirements.
20. Some Industries Also Need Permits
The CalGold tool will also discuss how permitting works for the city and industry the user selects. For example, restaurants need a health permit. Most physical businesses need a building and construction permit, and some businesses — like dentistry — will need a police regulations/public safety permit. These are permits a new business owner could easily fail to acquire because they don't know they need them.
Doing business in California can certainly be complex at times, but following Khattab’s tips can help business leaders navigate the system and thrive as a California business.