Luckily California just passed a cottage food law that went into effect last week. Your first step will be to write a business plan, check out http://www.bplans.com
for samples. One of the most important parts is pricing, you can work out your costs on your own using Excel or buy a program called Cake Boss to help you out.
You'll need to figure out your marketing strategy (including your target market, product assortment, and web site) and work out how you will handle your accounting (either hiring an accountant or doing it yourself with QuickBooks). While you work on your business plan you can fine-tune your recipes and your baking/decorating processes to make sure they are as efficient as possible.
Once you are comfortable with your business plan you can contact your city for a business license and zoning clearance, your county health dept for a cottage food permit, and get business liability insurance. You should plan on spending at least $1-2K to get things started.
Best of luck!