How to Start a Consulting Business in California

Thinking about starting an LLC in California? We’ve got all the details you need.

Begin by selecting a unique business name, appointing a registered agent, and filing your Articles of Organization with the California State Corporation Commission, which includes a $100 processing fee.

You can do this independently, consult with a business attorney for specialized legal guidance, or join the other 75% of our readers and hire a specialized California LLC formation service (recommended).

Zenbusiness (Starting at $0 Plus State Fees)

Northwest ($39 + State Fees)

Starting a Consulting Business in California

Being a consultant in California means you consider yourself an expert in your industry and you are ready to help other businesses with the knowledge you possess. To start your own consulting business in California, you must have a proven track record of success; otherwise, how will you convince businesses to trust your expertise?

There are multiple steps involved in starting a consulting business in California. Below, we have explained every step in detail to help you navigate the process smoothly and set up your consulting venture for success.

Step 1: Create a Business Plan

When you’re just starting out, it’s essential to lay a solid foundation for your consulting business, which means you have to create a business plan. This is true no matter what type of business you’re planning to launch. Without a concrete business plan, you’ll be directionless and will struggle with handling uncertainties, which are very common in the world of business.

There are many different templates and resources available online to help you create the perfect business plan, but generally speaking, it should include the following things:

• Executive Summary: A brief overview of your consulting business, including your target market, financial projections, and a unique value proposition.
• Business Description: Detailed information about your consulting business and what services you’ll be providing.
• Competitor Analysis: An assessment of other businesses that are working in the same industry as you.
• Market Analysis: An assessment of your target market to show how well you understand your potential customers.
• Management: A list of the people working in your business and their roles and responsibilities.
• Financial Projections: Forecasts of your consulting business’s revenue, expenses, and profitability over a specific period, typically three to five years.

There are a couple of questions you need to ask yourself before you start writing your business plan. First, you need to understand what sort of consulting services you’ll be providing. You must be an expert in the field. For example, if you have been working in finance for 10-20 years, then you could start a financial consulting business in California.

Then, you need to understand your target market and competitors. Who are the people who will benefit from your services and how big of a demand is there for the type of consulting you want to offer? You also need to understand what your competitors are doing and how you can offer better services than them.

Once you have a clear understanding of these things, you are ready to write your business plan.

Step 2: Reserve a Name for Your Business

The next step is to come up with a name for your consulting business in California and have it reserved so no one else can claim it while you proceed with deciding on your business entity.

In California, you can have your name reserved for 60 days. If you want to hold on to your name after 60 days, you have to file a new application. The California Secretary of State can take 5-8 days to process a business name reservation.

The application has a one-time fee of $10, which you can pay online with a credit or debit card. You can also call the Secretary of State and have your name reserved if it’s available. However, this method requires you to create a prepay account and deposit a minimum of $100 into it. You are then charged $4 for each name search and a $10 name reservation fee.

If you want to check whether the name you want for your consulting business is available or not, you can visit the California Secretary of State official site. It’s free to use but you’ll have to create an account. Once you have signed up, you can search for businesses that are registered in California.

Here are some of the details required in the name reservation application form:

• Your Personal Information: This includes your name, phone number, address, and city/state/zip.
• Entity Type: Whether your business is a corporation, an LLC, or a limited partnership.
• Name to Be Reserved: You have to provide three names in order of preference. The first available name is reserved for a period of 60 days.
• Mail Back Response: Whether you want the reservation to be mailed to you if you submitted the form in person.
• Suspended/Forfeited Entity: If you’re reserving the name so you can revive a suspended or forfeited entity, then you’ll have to write the business’ entity number in this section.

Note that there are some rules that you have to keep in mind when naming your business and getting it reserved in California. Here are some of those rules:

1. You can only use English letters, Arabic numerals, spaces, periods, commas, hyphens, ampersands, and apostrophes in your name.
2. You have to ensure that your business’ name is unique and different from other businesses that are already registered in California. Use the search tool on the Secretary of State’s site to see if the name you want is available.
3. The name must include a “business entity identifier” at the end. For example, if your business is a limited liability company, your name must have “LLC” at the end.
4. You can’t use words in your name that mislead people or make them believe that you’re associated with the government. For example, words like “Agency,” “Bureau,” and “Municipal” are not allowed.

Step 3: Choose the Business Entity

Selecting the right business entity is perhaps the most important step in this entire process. It will determine how your business will be taxed, how it’ll be structured, and the amount of paperwork that’ll be required to launch it.

Here are the options that you have when you’re starting a consulting business in California:

• Sole Proprietorship: This is the easiest type of business to start. You don’t need to fill out any application form or register with the state you’re in. All you have to do is start offering your services as a consultant.While setting up a sole proprietorship is straightforward and cost-effective, it comes with some drawbacks. As a sole proprietor, you are personally liable for any debts or legal obligations of the business, which means your personal assets are at risk. Essentially, there is no difference between you and the business you’re running.

• Partnership: If you’re starting your consulting business with another person, then you have the option to form a partnership. There are two types of partnerships: general partnership and limited partnership. In a general partnership, all partners share equal responsibility for the business’s management and liabilities.In a limited partnership, one or more partners have limited liability. General partners are usually more actively involved in managing a business while limited partners typically have a more passive role and are not involved in the day-to-day operations.

• Limited Liability Company (LLC): One of the key features of an LLC is “pass-through taxation,” which means the business itself does not pay taxes on its income at the corporate level. Instead, the income “passes through” the business to the individual owners, who then report their share of the income on their personal tax returns.LLC owners are known as members and enjoy personal asset protection against business debts and lawsuits. Forming an LLC as a consultant in California will make you look more professional than a sole proprietor. It’s also easier to set up than a corporation.
• Corporation: Corporations provide strong liability protection, but they require more responsibilities (meetings, record-keeping, regular meetings, etc) and are much harder to set up than other business structures. Owners of a corporation are known as “shareholders” and they have the right to vote on certain corporate matters, such as the election of the board of directors and other major business decisions.

Consultants typically work as sole proprietors or LLCs. If you’re just starting out, then sole proprietorship may be the best option for you as it would give you complete control over your business and you can start operating immediately without the need for extensive paperwork or formal registration processes.

However, keep in mind that you will be personally liable for business debts. Creditors can go after your personal assets (such as your car or house) to cover any business-related obligations. Plus, you may not be able to raise funds or attract investors as a sole proprietor.

LLCs, on the other hand, offer limited liability protection, meaning your personal assets are typically protected from business debts and lawsuits. A corporation is more suitable for larger consulting businesses with multiple owners or shareholders.

Starting an LLC involves the following steps:

1. Pick a name for your business and get it reserved.
2. File the articles of organization with the Secretary of State and pay the $70 fee.
3. Get an Employer Identification Number (EIN). You can get it online through the IRS’ official site.
4. Hire a registered agent who will receive all your legal documents.

Can a Foreign Consultant Work in the US?

Yes, it is possible to work as a consultant in the US if you’re a foreigner. You must have the appropriate visa or work authorization to legally engage in consulting activities within the country.

If you’re a foreign LLC (an LLC that’s formed in a different state) and want to operate in California, then you’ll have to fill out the “Application to Register a Foreign Limited Liability Company” and submit a certificate of good standing from your home state. The fee for this application is the same as for domestic LLC formation in California ($70).

Step 4: Choose a Registered Agent in California

If you’ve chosen to set up your business as an LLC or corporation in California, the next essential step is to appoint a registered agent. This is a required step when drafting your Articles of Organization, the document necessary to officially register your LLC or corporation with the California Secretary of State.

But what is the role of a registered agent? A registered agent is a person or business entity responsible for receiving critical documents on behalf of your business, such as tax forms, legal notices, lawsuits, and official government correspondence. In essence, your registered agent serves as the main point of contact between your business and the state.

Who can be a registered agent? The registered agent must be a California resident or a corporation authorized to operate within the state, such as a registered agent service. If you decide to serve as your own registered agent, you must appoint an individual within your company, as California law does not permit business entities to act as their own registered agents.

For more detailed information on registered agent requirements in California, you can refer to the California Corporations Code.

Don’t forget that to run a business, you need to: register a business entity (LLC is the most suitable option, more details here), obtain an EIN (you can apply online here), open a business bank account (more details here), understand accounting and taxes (more details here), and register a domain and create a website (this is optional, you can do it here).

Alternatively, you can delegate all of this to a registered agent starting from $0 + State Fees and get everything done in 1 day. This can save you time and ensure everything is done correctly, leaving you to focus on growing your business.

Apply Online

Step 5: Open a Business Bank Account

Even if you’re working as a sole proprietor, opening a separate account for your business can help you keep track of all your financial transactions. As an LLC, it’s imperative that you open up a business bank account, as this ensures clear separation between your personal and business finances, which will help maintain the limited liability protection that an LLC offers.

A business bank account will also enhance your professional image and credibility in the eyes of your clients and business partners, who may not be willing to send money to a personal account.

A single bank account should suffice for small consulting businesses, but as your business grows, you may have to open separate accounts for different purposes such as payroll, taxes, and operating expenses.

Depending on the bank you choose, you may be able to apply for a business bank account online. Here are some of the things that you’ll be asked to provide:

• Articles of organization
• Business license
• EIN (You can show the confirmation letter from the IRS)
• The name of your business
• Other details about your business (date it was created, industry, and approximate revenue)
• Your personal information (name, phone number, and address)

Some banks have a minimum deposit amount, so you may have to add some money into the account before you can start using it. We recommend looking for banks that provide access to tools that integrate with accounting software, as this can streamline your financial management processes.

By opening a separate account for your business, you’ll be able to build a credit history, which will help you get financing and loans in the future.

Step 6: Obtain Licenses and Permits

Before you can start operating your consulting business legally in California, you need to obtain the necessary licenses and permits. This ensures that you comply with state and local regulations and avoid any potential legal issues down the line.

How to Get a Consultant License

As a consultant, you need to get a business license in California. There’s no state-wide requirement in California, so you’ll have to get it from the city or county where your business is primarily based. It is often referred to as a “business tax registration certificate.”

In most cases, you’ll be able to get it online from your city or county’s website and you should receive it within 45 days. It can cost anywhere between $15 to $300. Its price usually depends on how much revenue you make in a year and the number of employees you have. It has to be renewed every year.

The next step is to get any industry-specific licenses or permits that may be required for your consulting business. Which licenses you need depend on what type of consulting services you’re providing. You’ll also need a Land Use Permit if you’re planning to operate your consulting business from a physical location, such as an office.

We recommend using CalGold to find out which licenses and permits you need. It allows you to search for permits based on your business type and location. Simply select your city or council and enter your business type (for example, marketing consulting services), and it’ll show you a complete list of all the licenses and permits you’ll need.

Here is a list of some of the licenses you may need regardless of what type of business you’re running:

• Fictitious Business Name (FBN) or Doing Business As (DBA): Registering a FBN is necessary if you plan to operate a consulting business under a name that’s different from your own.
• Seller’s Permit: This permit is only needed if you intend to sell physical goods as part of your consulting services.
• Professional or Occupational Licenses: Depending on the nature of your consulting services, you may need specific professional or occupational licenses or certifications. This could include licenses for legal, financial, real estate, or healthcare consulting, among others.
• Home Occupation Permit: You’ll need this license if you plan to run your consulting business from a home office.
• Health and Safety Permits: Depending on your specific consulting services and industry regulations, you may need health and safety permits to ensure compliance with relevant health and safety standards.
• Environmental Permits: If your consulting services involve activities that may impact the environment, such as environmental consulting or waste management services, you may need environmental permits from state or federal agencies.

Step 7: Understand Tax Requirements

Your tax obligations will vary based on the type of business entity you’ve selected for your consulting business. If you’re working as a sole proprietor, you’re considered self-employed or an individual contractor. As a self-employed consultant, the IRS lets you pay quarterly payments based on your projected annual income.

You also have to pay federal income tax on your business profits. This means you’re required to fill out the Form-1040

As an LLC, you have to pay an annual fee of $800 even if your business doesn’t make any money. This fee has to be paid by the 15th day of the 4th month from the date you register your business with the Secretary of State.

In addition to that, you also have to pay tax based on your company’s gross income. If it’s above $250,000 and below $499,999, then you have to pay $900 by the 15th day of the 6th month. If you make more than $500,000 but less than $999,999, then you are required to pay a fee of $2,500.

If you want to start a consulting business in California from home, then you may be able to claim home office deductions on your tax return. This deduction allows you to deduct expenses related to the business use of your home, such as a portion of your rent or mortgage, utilities, and home maintenance costs.

Step 8: Build Your Brand and Hire Employees

The final step is to build your brand and hire employees. To build your brand, you have to come up with a creative logo, a user-friendly website that also displays a portfolio that you can show to potential clients, and establish an online presence with the help of social media.

You could do all of these things yourself, but hiring professionals who are familiar with building websites and creating brand identity will give you a more polished and effective result. It also allows you to concentrate on the core aspects of your consulting business without the added stress of managing technical tasks.

As your business grows, you’ll have to hire employees, which means you’ll have to adhere to wage and hour laws in California, comply with federal, state, and local employment laws, offer employee benefits, and develop anti-discrimination and harassment policies.

Make sure you familiarize yourself with the requirements for employee classification, including distinguishing between exempt and nonexempt employees, and understanding the implications for overtime pay and other wage-related matters.

Don’t forget the importance of maintaining a supportive and inclusive workplace culture. Encouraging open communication, recognizing employee contributions, and fostering a sense of belonging can go a long way in nurturing a motivated and engaged team. As you build your brand and grow your consulting business, keep your employees’ well-being and satisfaction in mind—it’s key to your success!

How Much Does It Cost to Start a Consulting Business?

The total cost of starting a consulting business can vary widely depending on factors such as the type of consulting services you plan to offer, your location, and your specific business needs. For example, if you want to work from home, then your total cost will be much lower compared to working in an office.

You’ll save on expenses like rent, utilities, and office furniture. However, you’ll still need to budget for essentials like business registration fees, marketing materials, technology, and professional development. The total cost could range from a few hundred to several thousand dollars.

If you plan to rent office space, be prepared for potential costs upwards of $100,000. This includes costs like security deposits, initial rent payments, outfitting the space, setting up utilities, legal fees, training for the employees, and other necessary expenses.

How to Start a Consulting Business With No Money

Starting a consulting business without any money is hard but not impossible. If you’re just getting started and don’t have a lot of experience yet, you could offer your services to clients for free. This will help you build a portfolio, which you can then use to attract paying clients and establish credibility in the industry.

You’ll have to work as a sole proprietor for some time since establishing other business structures like LLCs or corporations usually involves some upfront costs. As a sole proprietor, you can start operating immediately without the need for extensive paperwork or formal registration processes.

Another thing you could do is request a loan from a bank if you have good credit history. If not, then you could look for a cosigner with a strong credit history to help increase your chances of approval. Some alternative methods of funding include crowdfunding, microloans, and seeking help from family and friends.

How to Start a Consulting Business in California Online

Starting a consulting business in California online follows similar steps as the ones we have shared above. You’ll have to come up with a name for your company, register for taxes, get an EIN, open a business bank account, and get all the required licenses and permits.

The only major difference is that you won’t have to rent an office space since you’ll be working from home. You’ll have to make sure that you create a strong online presence, because of which you may have to hire professionals to build your website and social media accounts.

Ready to Start a Consulting Business in California?

Starting a consulting business in California isn’t easy, but that’s partly what makes it so exciting. The first thing you have to do is create a detailed business plan that shows your understanding of the market and your project annual revenue. Come up with a unique name for your business and then decide on its structure.

Make sure you open a bank account for your business so you can separate your personal expenses from your business finances. Then, apply for all the necessary licenses and permits, and understand your tax obligations. Finally, build your brand by creating a website and social media accounts, and hire employees as you business grows.