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You’re about to start your own business. But you still have a few things to figure out: funding, the business structure, registering the company — and what about business licenses? How many do you need? One? Two? Twenty?
Before you can legally operate your business, it’s critical to secure all required licenses. Determining what you need, though, can take you through a perplexing labyrinth of rules, regulations, and interpretations dictated by local, county, state, and federal governments.
Adding the confusion, licensing authorities all have different requirements and unique definitions for licenses, permits, and tax registrations. What one municipality may call a business license, another may call a permit, or even a registration. Be sure to check with your authorities for specifics.
So how do you discover which business licenses you’ll need? The answers to these questions can help you get started:
- How do I determine which licenses my business might need?
- How do I get started?
- What will happen if I don’t secure all the required licenses for my business?
How do I determine the licenses my business might need?
Almost every small business warrants at least one basic business license to operate legally in the U.S. — some businesses call for more. How do you know what your business needs?
- Location — There are often separate licenses at the state, county, city, and even township level.
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Industry — Selling tropical fish for aquariums has different regulations than supplying fish for a restaurant to prepare.
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Related activities — Certain factors can dictate license needs, e.g., outdoor seating may call for a sidewalk café permit and selling food by weight may require a weights and measures license.
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Business details — How you register your business (LLC, corporation, etc.), whether you have employees (withholding tax), and the type of facility (residential or commercial) you operate in can all have licensing implications.
This is nowhere near an exhaustive list. Business license requirements vary greatly from state to state, county to county, city to city, and industry to industry. The particulars of your business will determine what further criteria come into play that necessitate additional licenses.
How do I get started?
The first step toward obtaining licenses is getting an Employer Identification Number (EIN) for your business. To find out whether your business requires an EIN, you can look to the IRS guidelines or go directly to the EIN application.
After you get your EIN, conduct a search for business licenses in your state. Most states have a dedicated website or page for business license registration and information. But every state is unique in where you go from there. Some states offer checklists or questionnaires that guide you along the journey.
Because websites don’t always provide the most current information, check in with local clerks to be sure — a sometimes time-consuming, but often necessary chore for comprehensive compliance.
Once you’ve determined which state licenses you need, it’s time to check out your county and local government pages. Some state websites may have a link to local license registrations as well.
State and local licenses typically make up the bulk of issued licenses for small businesses. However, the federal government regulates some business activities or goods, including alcohol, telecommunications, and agriculture, requiring additional licensing. The U.S. Small Business Administration has a list of activities with links to corresponding agencies for more information and applications.
What will happen if I don’t secure all the required licenses for my business?
After all the time, money, and sweat you’ve poured into opening your business, you probably don’t want to risk its existence or your bank account on noncompliance. If you fail to acquire all the necessary business licenses, you could face a slew of penalties, including:
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Costly fines and personal liens
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Insurance coverage lapses, cancellations, and increased liability exposure
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Revenue loss due to suspension or closure of location
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Inability to raise funds, sell shares, or pass due diligence
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Voided customer contracts
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Time lost due to repeat inspections
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Inability to open new locations or release new products
You got this
Opening your own business is a monumental — sometimes maddening — endeavor. But acquiring all the proper business licenses doesn’t have to be part of the exasperating equation. Take it step by step, know there are resources available, and use them.
More than 30,000 government entities in the U.S. have the authority to issue licenses, permits, and registrations that are requisite to run a business — no wonder companies often manage their business license portfolio with the help of a third party.
If you'd like to shortcut your research, check out Avalara business license solutions. We help businesses discover and comply with business license requirements nationwide.