Starting and running your own business can be a tremendously satisfying and exciting venture—as long as it’s done appropriately. Individuals who wish to start home-based enterprises are frequently so eager to get started that they fail to obtain all of the necessary licenses and permits.
Failure to do so can lead to big complications in the future, and the last thing you want is to have your business up and running only to have it suddenly shut down due to a lack of required permission. It’s well worth the (necessary) effort and (small) expense to make sure you have all your business licenses sorted out right from the start.
Specific licenses, permits, and zoning rules vary by location, so check with the Small Business Administration (SBA) to find out what your state requires. The basic licensing and permission requirements, on the other hand, are largely consistent from state to state. Here are the five you should be aware of.
License vs. Permit
Before you begin, you should probably grasp how the licensing and permitting process works. Many people confuse the two, and their definitions are frequently confused, but licenses and permits are two distinct entities.
Government agencies issue licenses. They are a sort of legal contract that allows holders to engage in activities that would be illegal for people without them, such as driving a car or conducting business. Driving a car without a license is prohibited and conducting a business and supplying individuals with professional services is forbidden. These activities are governed by the issuing government, which is usually at the state level. The corresponding agencies are responsible for issuing these licenses.
A permit, on the other hand, is a legal document that gives you permission to do something. For instance, if you have a license to run a cafe, your state and/or municipality may require you to get a building permit, which confirms that the building you intend to occupy is suited for your business. You’ll also need a food service permit if you have a kitchen from which you intend to serve food to your customers.
1. General Business License
Any business, including home-based businesses, must obtain a local city or county business license. This is a basic license that allows the holder to engage in business activities within the local jurisdiction. If your city or county doesn’t have a specific business licensing department, you can obtain information on obtaining a basic business license at your local tax office.
In addition to obtaining a general business license, ensure that your business complies with local zoning ordinances. Sometimes this is certified when you apply for your license, but in other areas, you need to double-check with the city or county zoning department.
Neighborhoods also tend to have restrictions on the operation of home businesses. You tend to find this in the form of homeowners associations (HOAs). If your business does not meet local zoning ordinances or neighborhood requirements, it is possible to obtain an exception or variance, but go through the proper channels to do so.
2. Professional License
Certain home-based businesses require professional licensing or certification from the state or federal government. This comprises businesses such as daycare centers, hair salons, legal services, and financial consulting services.
Contacting your state business office is the best approach to ensure you receive the necessary documentation. The term “responsibility” refers to the act of determining whether or not a person is responsible for his or her own actions.
3. Permits for Health and Safety
Depending on the type of business you intend to run, the local fire department may require an inspection and a permit. This is frequently essential if customers or clients visit your house to conduct business. Unless you have an inventory of potentially flammable products at your home, it’s usually not necessary if your home-based business just provides goods or services online.
Home-based enterprises are less likely to require environmental licenses or health department permits. These documents are most commonly necessary for enterprises that deal in the wholesale or retail selling of food and beverage items.
4. Sign Permit
If you intend to put up a sign in your neighborhood to market your business, make sure you follow all local laws. Almost all cities and counties have sign rules that restrict the size, kind, and position of business signs. The lighting of signs is also frequently restricted. The term “independent” refers to a person who does not work for the government.
If you own your house, review your deed and, if applicable, contact your HOA. If you rent, it’s generally a good idea to acquire permission from your landlord before you put out any signage.
5. Sales Tax License
In some places, a sales tax license may be included with the normal business license. But a second sales tax license is necessary for other places in addition to a local business license.
Are you unsure whether you require a separate tax license? If you need a separate sales tax license, the local department where you obtained your business license can advise you where to get it at the state or municipal level. Before you start your business, be sure you have this covered.
While the licenses and permits listed above are needed by almost all home-based businesses, the following are some of the other documents you may need. Whether these are required depends entirely on the type of business you intend to run.
- VAT Tax License: If you sell goods and services to foreign consumers, you may be required to get a special license for the reporting and payment of value-added taxes. You may also use a payment service that collects the tax for you.
- Health Department Permit: This special permit is for anyone who runs a food-based business, such as a catering service. It outlines food handling, preparation, and storage.
- Employer Identification Number (EIN): This is required at the federal level. The EIN acts like a Social Security number, which you need if you aren’t operating as a sole proprietorship. This allows you to file your taxes under your business name. If you have employees, you can use this number for payroll purposes.
Remember, this isn’t an exhaustive list. Be sure to check with your state and local agencies to ensure you have the proper documents to run your business. You can also contact the SBA for additional resources
Do You Need to Register a Home-Based Business?
You need to register most home-based businesses at the local, state, and federal levels. Begin by registering at the state level, which entails providing the appropriate agency with pertinent details like the kind of business you intend to operate. You’ll also need to register it with the local government, which will provide you with any necessary permits needed so you can begin operations. You will have to register with the IRS for taxation purposes.