What You Need to Know About Licensing a Business

What You Need to Know About Licensing a Business.

Opening a business is an exciting step in your career. Between choosing a prime location or deciding on a website URL, picking in-demand inventory, and setting up your sales process, your decision-making capabilities are on overdrive. However, one essential step not to skip is properly licensing your business. It’s one of the more tedious and detail-oriented tasks of setting up shop – but the right kind of business licensing makes sure you’re following local, state, and federal laws, saving you from one of the most common mistakes new retailers make.

What Kinds of Licensing Do You Need?

Knowing what your state and county requires before opening any type of business can save you from many headaches later. Let’s talk about some of the most common types of licenses and permits that small-business owners typically need to sell in a brick-and-mortar store or online. The licensing needed for either type of business is actually pretty similar. There are generally four factors that determine what kinds of licensing you need: the type of business you’re planning to open, your business structure, the number of employees, and your location.

Business Licensing

This type of license grants the right to operate a business within your city, which is important for both online and offline sales. Renewed annually, it not only protects local residents by identifying nearby businesses, it also raises revenue for the local government. You can contact your city’s business license department to find out how to get one, where to fill out an application, and how much it costs. Once you file your application, city planning or zoning departments may need to get involved to make sure your area is properly zoned for your business needs. Business licensing fees will vary depending on location, business type, and business activities, but they usually cost $200 or less.

Zoning ordinances are particularly important to take note of when licensing a home-based business, since residential neighborhoods usually have strict zoning regulations. If you’re holding a substantial amount of inventory, check your lease or deed/zoning codes to make sure there aren’t any restrictions on running this type of business out of your home.

If the area isn’t zoned for your type of business, you might need to get a variance or conditional-use permit. To get a variance, the process is pretty easy as long as you can show that your business’s location will not interfere with the surrounding area’s reputation or charm. You may need to present your case to your city’s planning commission. For more information on business licensing or local zoning regulations, contact your city’s business license department.

County Permits

The next type of important licensing involves the county where your business is located. County governments often require similar licensing to cities, but the regulations usually aren’t as strict. Before you start selling, you’ll want to check what your county requires for online or brick-and-mortar businesses. Again, costs for this type of permit vary but they’re typically a few hundred dollars or less.

State Licensing

Depending on what type of business you’re starting, you might need to obtain occupational permits or pass state examinations before you’re open for business. States usually require special licensing for those who offer services related to building, fixing, or personal services, so contact your state government office for a complete list. Costs for a state business license usually range from $50 to $200 annually.

Sales Tax Licensing

"Certificates of resale," "seller’s permits," and "certificates of authority" all refer to the ability to collect sales tax. This license is important for online and offline businesses and, in many states, must be obtained prior to your first sale. Sales taxes do vary by state, are imposed at the retail level and must be collected on each sale you make if you’re selling taxable goods.

Since the definition of taxable service varies from state to state, be sure to register to collect sales tax for all places you’re conducting business in. In some cases, it’s a criminal violation to complete sales transactions without this important licensing. Your state’s department of revenue website will have the most up-to-date information on how to apply and how much it costs to submit your application, but it’s typically less than $100.

Federal Licensing

There are only a few types of businesses that need to acquire federal licensing, and the Federal Trade Commission can tell you if you need it. Here’s a quick FYI though - if you’re in the meat processing business, setting up a radio or TV station, or conducting investment advisory services, this type of licensing is something you’ll definitely need to look into.

Venue Permits

Fire department permits, air and water pollution permits, sign permits, and health department permits all depend on what you’re selling and where you’re selling it. If you’re using flammable materials or your business venue will be open to the public, you might have to apply for a fire department permit or schedule an inspection. If you burn materials, release anything into sewers or use products that produce gas, a special permit may be needed from your city, county, or state environmental state protection agency.

Some areas, particularly residential areas, have sign ordinances to control the size, location, brightness and type of signage used, so check regulations and make sure to get written approval from the land owner prior to buying and installing your own. If you plan to sell food, an inspection from the health department will be required before you get your county health department permit.

Other Licensing Points to Consider

We just covered the major types of licensing you could need to get your business running, but there are also other licensing options you might want to think about. For example, many small business owners decide to license their business as an LLC, also known as a limited liability company, to protect personal assets, avoid fines, and boost business credibility.

Some states also require professional or occupational licensing depending on the industry you’re in. Attorneys, cosmetologists, and architects are just a few of the service-oriented businesses that need this licensing. Check your state laws for a full list of license-required occupations.

Some home-based businesses might also require a home occupation permit to prevent a business from adding extra noise, traffic, or other environmental changes that would interfere with the homeowners’ surrounding property. Restrictions often include the amount of space that can be used for the business, the number of clients that can visit daily, the number of vehicles that can be parked at the home, the number of employees the business can have and more. To be on the safe side, check with your county to see if you need this type of licensing.

To wrap up this licensing list, always check your licensing requirements before opening your business, whether you’re starting a brick-and-mortar shop or simply selling online. It’ll save you lots of time, money, and aggravation down the road by setting everything up the right way from the start.