Registering your business is not the same as being cleared to operate. Depending on what you sell and where you work, you may need licenses or permits from your city, county, state, or the federal government. SCORE, one of the SBA’s resource partners, breaks the requirements into local, state, and federal levels. This guide follows that structure.
Start locally
SCORE says even a home-based business generally needs a license from the city where you live. It recommends visiting your city’s website or contacting the city to learn the process, along with any other licenses or permits your type of business needs. Some counties have their own requirements too, so it is worth asking both offices.
According to SCORE, a local business license typically costs from $50 to a few hundred dollars and must be renewed each year. Fees differ from place to place, so confirm the current amount with your city.
Questions to ask your city or county:
- Is my location zoned for this kind of business?
- Do I need a home occupation permit? A SCORE Minnesota article notes that a home-based business may still need licenses, such as a common home occupation permit.
- Do I need health, building, or sign permits for my space or my activity?
Then check the state
SCORE says you may need a state license if your industry, or the products or services you provide, are regulated by state law. Its examples include professions, personal services such as hair and nail work, and work that requires certification or special training, such as auto mechanics or general contractors.
Selling food or beverages, running a food-service business, and selling or serving alcohol also call for special state licenses and permits, according to SCORE. Retail businesses need a sales tax license so they can charge customers sales tax. The SCORE guide points to the SBA website for links to state-specific business license information, so start there and check with the state agency that oversees your industry.
Most small businesses do not need a federal license
SCORE says most do not, but heavily regulated industries do. It lists transportation, food and beverage manufacturing, broadcasting, agricultural production, and businesses that deal with firearms as examples. Anyone who manufactures, wholesales, imports, or sells alcohol or tobacco products has to register and apply for permits with the Alcohol and Tobacco Tax and Trade Bureau (TTB). If you are planning an agriculture-related business, check early whether a federal agency oversees what you do.
Get your paperwork in order first
Before you apply for a license, SCORE advises having three things ready:
- A federal tax ID number. See how to get an EIN.
- A filed fictitious business name, if your business name does not include your and your partners’ last names. See how to choose and protect your business name.
- Your chosen form of business, such as a corporation or LLC. See how to choose a business structure.
What can go wrong
SCORE warns that operating without the right registrations can cost you time and money if city, state, or federal authorities find out. That is a good reason to ask questions early. A quick call to the city clerk, a county office, or a state agency is free, and a business counselor can help you list what applies to your situation. Our guide to free business help for new founders explains where to find one.
Do not forget taxes
A sales tax license is only one piece of your tax picture. Read our small business tax basics to see how income and self-employment taxes fit in.
Your next step
Write one sentence that describes what you will sell and where you will sell it. Call your city and county with that sentence and ask which licenses or permits you need. Repeat the call with the state agency for your industry. Record every name, fee, and renewal date in one place, and add the renewal dates to your calendar.