New business owners may not know which licenses are required for their business, so it’s important to research which you need to stay on the right side of the law. Here’s a look at how to figure out which business licenses you may need and how to get a business license for your business.
What is a business license?
A business license is a government document that allows your company to conduct certain activities.
While many businesses don’t need licenses, companies that deal with anything that could be dangerous or impactful to the environment, that handle or sell controlled substances or merchandise, or create products for human consumption are likely going to require some kind of license.
Getting a license may be as simple as registering and filling out a form, or as complex as going through a costly, rigorous review process. And because starting a business without a license or permit could lead to serious legal consequences, it’s essential to research your licensing needs if you have any doubts or questions.
While getting a business license can feel like yet another step to go through before you’re able to get up and running, they do offer certain benefits (in addition to staying on the right side of the law!).
For one, business licenses show your customers and clients that you’re operating your new company according to rules and regulations, which helps create trust and confidence in you and your enterprise. Sure, licensing may be costly and time-consuming for certain highly-regulated industries—but requirements are typically there for a good reason.
Also, note that registering your business structure with your state’s Secretary of State isn’t the same as getting a business license. Regardless of your business structure, a permit could be required. Even a sole proprietorship or a nonprofit may have to file local business licenses to operate.
What types of business licenses are there?
The federal government requires licenses or permits for specific business activities. Those are managed by regulatory agencies such as the U.S. Department of Agriculture, Federal Aviation Administration, Bureau of Alcohol, Tobacco, Firearms and Explosives, and others. These are the main business activities that require federal licensing or permitting:
- 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
The U.S. Small Business Administration maintains a list of federal agencies for business licenses at SBA.gov.
State and local requirements vary widely by location. Some states and cities are notorious for highly stringent business license rules, while others are known for letting businesses operate with little oversight. It’s generally not a good idea to try to get around business license rules by registering your company in another state. If you live and work somewhere, you likely must follow that jurisdiction’s rules and regulations.
Zoning laws, state and local taxes, and other permit and licensing requirements may also impact your business.
These licenses may come in the form of a business operating license (general business license), seller’s permit, fictitious doing business as (DBA) name registration, and any industry specific licenses. For example, professional licensing for salons, restaurants, contractors, medical practitioners, childcare providers, and legal professionals is usually required.
Local SBA offices, Small Business Development Centers (SBDCs), Chambers of Commerce, and government agencies can offer assistance and guidance for both local licensing and federal licensing. If you want or need additional advice, it’s best to work with a trusted lawyer who can guide you through the process.
How to get a business license
In most cases, getting a business license starts with a business license application. In the best case, you can complete the application online in one sitting and submit any necessary payment at the same time. This allows you to get through the process quickly and start making money.
These are the basic steps to follow to get a business license:
- Establish your business: Before getting your business license, it’s important to form your business entity with your state and apply for an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). An EIN is a tax ID number, and it’s used for several important purposes, including opening a bank account, paying employees, and filing taxes.
- Submit the license application: An online application may take just a few minutes to complete, while others could take days or weeks of planning and preparation. In either case, complete the application thoroughly and ensure there are no errors before submitting. For a basic license, you’ll likely need to provide your business name, EIN, personal contact information, and details relevant to the specific license you want or need.
- Complete additional license requirements: Businesses with more extensive requirements may have to coordinate with government officials for inspections and testing. For example, if you’re in the foodservice industry, you’ll also need to be certified by your state’s health department.
You should see approval very quickly if you apply for a basic business operating license or tax permit. In some states, you may be approved instantly online. Plan on costs of around $50 to $300 for most basic business licenses and registration. Those fees are a type of business tax to help cover the cost of the business license program and enforcement, and are often paid to the Department of Revenue or other local government agency.
Business owners who find the licensing process overwhelming can hire a lawyer or other professional to take care of license applications and other requirements.
However, depending on the industry and your area’s requirements, savvy business owners can often handle this independently, saving time and money. Just remember that if you take the DIY approach and make a mistake or miss something, you could wind up with fines or other ramifications. Make sure to ask the proper authorities if there’s any additional information you feel you need.
How Bench can help
As America’s largest professional bookkeeping service for small businesses, Bench helps you with several key business requirements. Every company must file an accurate tax return with the IRS and possibly your state. Doing all of the bookkeeping, accounting, and tax preparation yourself can be time-consuming and complicated.
Bench handles your monthly bookkeeping and annual tax returns for you so you can focus on running your business—without worrying about making an accounting mistake or missing out on a valuable tax deduction or credit.
Small businesses new to Bench can start with a free trial (no credit card required). We have over a decade of experience helping businesses with a dedicated bookkeeper and year-round income tax advice. Get started here for free.
Don’t forget to renew your license periodically
Once you get your license, you can take a moment to sigh in relief. The hardest part is behind you. But don’t forget about them—they may need to be renewed periodically. Some licenses require an annual renewal, while others may last five years or longer.
Again, every license and business location is different, so you’ll have to do some research or hire a legal professional to be sure you’re following all business license rules.
Getting required business licenses is critical
When you run a business, licenses may not be optional. If you work in any location or industry where business licenses are required, it’s imperative to follow those guidelines.
Then you can focus on delivering the best possible product or service to build a thriving business for years to come.