Most people think of business licenses for a coffee shop, liquor store, or nail salon. But you might need a business license for your small business as well. Before we figure out how to know whether or not you need a business license, it's important to define what a business license actually is.
What is a business license?
The purpose of a business license is so that the state or city knows what you’re up to and so they can protect the public from scammers.
You will receive a business license when you register your business in your local area, usually at the city and/or township level. Business licenses are an outdated concept, but important nevertheless. These local licenses are really just another way for your local government to get a few extra bucks out of you. In theory, your business license is supposed to pay for your small share of infrastructure (roads, police to help in emergencies on said roads, etc.) that you use to commute to your small business… but we all know how that goes in this post-2020 world.
Business licenses may be legally required before your business starts operating, but that doesn’t mean you should wait around for them, or get so put off by the licensing process that you give up before you even get out there. One upside is that a business license can make your business more trustworthy to your customers and to any other business you may be looking to work with. Some local areas also do a good job at connecting you with other licensed businesses in your area, but this is not the norm.
How to tell if you need a business license
1. Is your business brand new?
If your business is still fresh and you’re not even sure if it’s going to hit the ground running, you don’t want to waste your money or time on this resource-intensive endeavor. It’s more important to get out there and make sales to get some capital (and start paying yourself!) than it is to make sure all your “i’s” are dotted and “t’s” are crossed.
Most areas have a grace period because they know as a new business, you have bigger fish to fry than dealing with a business license right out of the gate. Even after you’re up and running, your offers might disqualify you from the need to get a business license, or you might operate outside of city limits where one is required.
2. What type of business are you running?
Some businesses, however, do require that you have a business license. Restaurants, coffee shops, salons and other local staples almost always need a business license to operate. A great place to start if you’re not sure whether you need a business license is to search “Your Town” + “chamber of commerce” to direct yourself to the site or person who can help answer this question for you.
The government always wants its money, which is why despite anything else going on with your business filings, licenses, etc., it’s always important to stay on top of paying your taxes (both personally and as a business). If you want to learn more about how to pay taxes as a small business, click here and dive into the content we’ve created all about that!
To learn more about whether or not you need a business license, check out this blog post here.