Obtaining the necessary business licenses and permits to legally operate your company is a critical part of running a small business. Ignoring these requirements can result in penalties like hefty fines or a complete shutdown of operations, so it can pay to do your research ahead of time. If you have any questions about license requirements and compliance, it’s best to speak to an attorney.
What is a Business License?
A business license is a document issued by a city, county, state, or federal agency allowing a company to legally operate within that jurisdiction. These agencies oversee a variety of activities and run the gamut from tax authorities to city hall and the fire department. Many people refer to business licenses and permits interchangeably, and we’ll do the same for simplicity’s sake.
You may already be familiar with the business operating license often posted in public view if the company has a physical location, but there are many types of business licenses; understanding which ones apply to your location and industry is key. While it can be difficult to speak about business licenses as a whole, this article seeks to address some of the most common concerns.
Why are Business Licenses Important for New Companies?
Government agencies require business licenses for improved accountability, transparency, and to protect consumers. Failing to obtain the proper business licenses can get you off to a rough start with these agencies, and they’re often empowered to issue fines or even shut down a business that isn’t in compliance. There’s a reputational risk, as well: customers and vendors might think twice about patronizing your business if they find you’ve been operating outside the law.
Note that business licenses aren’t just required for companies with brick-and-mortar locations; a home-based or online business may need to obtain licenses, too.
While sometimes tedious, ensuring you have the necessary business licenses from the beginning can prevent stress and save money down the line.
Types of Business Licenses
New business owners quickly discover there’s a whole world to staying in compliance with business licensing requirements. Here are some of the most common business licenses:
- Business Operating License
- Seller’s Permit
- Fire Permit
- Building Permit
- Food Safety Certification
- Health Permit
- Zoning Permit
- Use Permit
While common, the business licenses listed above won’t be required for all companies. It falls on the business to obtain the necessary licenses, and the process begins before you open your doors.
Do Business License Requirements Vary by Industry?
Yes, different businesses have different licensing requirements. That often means several business licenses are required—sometimes issued at multiple levels of government—to operate. According to the U.S. Small Business Administration, the following industries need federal permits in addition to those that may be required by local governments:
- Alcoholic beverages
- Firearms, ammunition, and explosives
- Fish and wildlife
- Commercial fisheries
- Maritime transportation
- Mining and drilling
- Nuclear energy
- Radio and television broadcasting
- Transportation and logistics
Are Business Licenses the Same All Over the U.S.?
No, cities, counties, and states can all require business owners operating in their locale to obtain specific licenses based on their ordinances. Entrepreneurs may consider the licensing requirements of different locations when starting or expanding their businesses. Remember that these requirements can come from multiple levels of government.
Steps to Getting a Business License
The process of obtaining business licenses varies by location and industry, but often follows the broad outline below:
- Begin by researching the business license requirements in your industry at all levels of government. Find out which agencies will regulate your activities and get in contact with them for the necessary paperwork. You may also find that the local chamber of commerce or economic development agency can help set you on the right path to getting information.
- Be meticulous when filling out paperwork. Answer all questions, include copies of requested documents, and pay any fees on time. Failure to do so could result in delays and push back your plans to open or expand a business.
- Assuming the application is approved, you’ll receive a copy of your license along with information about if or when it needs to be renewed.
How Much Does a Business License Cost?
The cost of a business license can vary depending on type and location. In addition to the cost of the license itself, you may have to pay fees to apply. Consult the issuing agency for detailed cost information.
In many cases business license costs are tax deductible, but you should see a tax professional to review your situation.
While they may not be the most exciting aspect of starting or growing a company, it’s important to obtain and budget for all the necessary business licenses to keep you on the right side of the relevant government agencies. Once the basics are taken care of, you can focus on doing what you love—running a business.