What Small Businesses Need To Know About Navigating Licenses And Permits

Starting a new business is an exciting proposition. As an entrepreneur, the allure of setting your hours and making money outside of a regular job is fantastic. However, while creating a new business can be fun, doing your research is also necessary.

Without the right permits, licenses, and other documents, your business could face issues, so let’s break down the basic ones and discuss some of the most important factors to consider.

Thankfully, starting a business in the US is relatively straightforward. However, many states, counties, and cities set their requirements, and some states make this process easier than others. Here are the most common licenses and permits you might have to worry about:

Registering your business is not the same as licensing it. While many states don’t require a general business license, almost all of them require registering your company.

In this case, you must register the type of business entity you’re forming. There are four main options:

Sole Proprietorship: You are the only person in the business; there is no separation between your earnings and business income.

Partnership: You’re forming a business with one or more partners. If a partner leaves or wants to restructure the business, you have to create a new partnership agreement.

Limited Liability Company: You can form an LLC by yourself or with others. LLCs are flexible in how they are structured, and you’re not liable for business losses.

Corporation: Corporations have rigid company structures and they’re generally more expensive to form. S Corporations allow “pass-through” income, while C corporations get taxed at the company level on top of your income.

Some states require you to have a general business license. Typically, this would be instead of registration, as you must list your business entity when getting licensed. Each state sets its own requirements and fees, which may vary based on the type of business you’re starting, such as a restaurant or retail space.

Because almost all states impose a sales tax, you must have a seller’s permit to sell products. This way, you can charge and submit sales taxes to the state. Otherwise, you must pay sales tax on your inventory before reselling it.

While an EIN isn’t a permit or license, it’s still necessary for starting a business. You can obtain an EIN from the IRS for free, and it’s necessary to open business accounts or hire employees. Typically, you can submit your application and get the number in a matter of minutes.

If you’re starting a restaurant or other food service business, you’ll have to get a license from the state’s food safety administration. All employees involved in food preparation must complete a state-approved food safety training course and obtain a food handler’s permit.

Depending on your specific business, you may need additional permits from local health departments or for handling specific types of food. Securing the necessary permits and adhering to these standards protects both your customers and your business reputation.

One of the greatest things about starting a new business is that there are so many options available. Typically, for restaurants and retailers, the licenses above should cover everything. However, there are other permits and licenses to obtain if you’re starting a different kind of company. Some examples include:

Alcohol – Usually, states have different alcohol permits for companies selling beer and wine than those selling liquor and hard spirits.

Tobacco/Cigarettes: Since you have to check IDs when selling tobacco and cigarettes, you need a special license. You’ll also have to pay separate sales taxes.

Cannabis: Cannabis legalization is spreading and more states are allowing entrepreneurs to open dispensaries. Often, a separate cannabis commission regulates these stores and requires additional licensing.

Hair Styling: Many states require hairdressers and stylists to become licensed before opening their business.

Contractors: Some states have a general contractor license and many large cities and counties set their own licensing requirements.

Auto Dealers: If you’re selling cars to customers, you need a separate motor vehicle dealer license.

Overall, you should check with your state and county administrators to get a rundown of the various licensing requirements. Some examples of requirements can include training hours, test certification, credit score, liquid assets, and background checks.

Regardless of the type of business you’re starting, you’ll likely have to get multiple licenses and permits to start earning money. Even if you have your business plan fleshed out, there are other factors to consider, such as:

Some states can charge a lot for business licensing, while others are relatively cheap. For example, in California, it costs $800 to register an LLC, while it only costs about $100 in Georgia.

Another cost you may have to consider is bonding. Some business types, like contractors and mortgage brokers, must be bonded to get a license. A bond is a form of protection for consumers, meaning they can file a claim against the bond if they have a case. Typically, bond premiums cost about one percent of the total bond amount. So, if you need a $20,000 bond, you’ll pay $200 for it.

Usually, you must renew your licenses annually. Also, the renewal fee can be higher, lower, or identical to the original licensing fee. Additionally, you may only have to renew every other year, so keep track of all dates so you never miss a deadline.

Finally, some licenses renew on the same date, regardless of when you got licensed. For example, you may have to renew by April 1st of each year, even if you were licensed in November of the previous year.

Sometimes, you may need business insurance to get licensed. For example, as a contractor, you must provide proof of worker’s compensation insurance. Similarly, some licenses may require liability or umbrella insurance.

Even if a license doesn’t come with an insurance requirement, it’s always smart to protect your assets. Fortunately, many large insurance providers also cover businesses, so you can set up a policy quickly and easily.

Getting your business licensed and permitted doesn’t have to be a lengthy ordeal. The best option is to look up all licensing requirements and work through them one by one. This way, once you’re ready to apply, you have everything in order and can provide additional documentation and evidence as needed.

Another thing to keep in mind is your growth plan for the future. For example, you may want to expand into other markets or services. Knowing the licensing procedures beforehand allows you to grow and thrive more smoothly. Then, you can move to other cities, counties, or states seamlessly.

This post originally appeared on Score.