What is a Business License?

First, let’s be clear on what a business license is. 

A business license, or permit, gives you the right to operate a certain business. In the case of a home business, this means the right to run a certain company from your own home.

Business licenses can make it easier to apply for business loans and bank accounts. They instantly make your business appear more professional. If you look at it from a consumer’s point of view, who would you rather work with–a licensed or unlicensed business?

A business license isn’t just a legal necessity. Think of it as a worthwhile investment.   

Licenses and Permits for Home Businesses

So, what permits do you need to run a business from home? Do all home businesses have the same license? No. Here’s a brief rundown of the different license types you might need, depending on your business and your state laws. 

General Business License

Some states require business owners to have a General Business License. This permit authorizes you to run a business in a particular area. The area could be a town, county, or state. 

Sometimes, you don’t need this license, but most home businesses do. 

Home Occupation Permit

You might see these referred to as “Zoning Permits”. But what is it? 

Basically, some areas, or zones, don’t allow certain types of businesses. The idea is to prevent businesses from adding noise, traffic, and other disturbances to designated residential areas. Not all towns require these–it depends on what zone you’re in. 

So, how do you know if you need a Home Occupation Permit? 

• First, check with your local government agency. If you need a permit, they’ll probably impose restrictions such as limiting the number of customers you can have in one day. 
• Then, ask your local homeowner’s association. They may have their own restrictions on home businesses to ensure that everyone enjoys the neighborhood. 

If you think you need a Zoning Permit, contact your local zoning department, city hall, or the mayor. They’ll explain what you need to do.

Sales Tax License

Business owners who sell goods online may need a Sales Tax License, or tax permit. You need this permit if you collect sales tax from your customers.

You’re expected to register for a Sales Tax License before you make your first sale, so you should apply sooner rather than later. 

Unsure if you need a Sales Tax License? Check with your state’s revenue department. 

Also see: Dropshipping sales tax basics 

Health and Safety Permits

If clients come to your house, or you sell food products, you might need a health and safety inspection. It involves a hygiene check and you might also get a visit from your local fire department. 

You might also need environmental permits, but these are usually only for people selling wholesale food and beverage products. 

Professional License

You need a federal or state license to practice certain professions. These professions include:

• Law
• Medicine
• Counseling
• Cosmetology e.g. hair styling 

So, for example, if you plan on offering counseling sessions from a home office, you need a valid license. Check with your state licensing agency to see if you’re working in a regulated profession.

Sign Permits

If you want to advertise your business with a sign outside your home, you might need a permit. Chances are you’ll only be allowed to put certain types of signs up, and they’ll need to be below a certain size. The requirements vary by state, so ask before you put up a sign.

If you run a home business, you probably move between your home office and other premises. But what about if you run a strictly online business? Do you still need these permits? Let’s take a look. 

Do You Need a License for an Online Business?

Possibly, yes. The laws vary by state. At the very least, you’ll probably need a General Business License. You might also need a:

• Specific industry or professional license
• Sales Tax License 

If you have any employees, you’ll need to register for workers’ compensation and unemployment. In all cases, it’s best to check with your home state’s licensing agency to ensure you’re properly covered.

How to Get a Home Business License

If you need a home business license, here’s how to get one. 

• First, make sure you’ve registered your home or online business. You can’t get a business license unless you’re already registered.
• Once you’ve registered the business, check your state’s application process. You can find this out by visiting your state’s official website. 
• Most states let you apply online. Otherwise, they can mail you the relevant forms.
• Complete the relevant paperwork or online form and pay the fee. License fees vary depending on which state you’re in. Check out your state’s website to find out the exact fees applicable and how often you need to renew your license. 

Once you’ve applied for your home business license, all that’s left to do is wait for it to arrive. Depending on what license you apply for and how busy the department is, you might wait a few weeks. 

In the meantime, you shouldn’t perform regulated activities at home. Wait until you’ve received your license to get started.

Now, you’re almost ready to run your home business. There’s just one thing left to check–your insurance coverage.  

Does Your Home Insurance Policy Cover Business Permits? 

If you only have a standard home insurance policy, there’s a good chance that it only covers personal property. You might still need business liability coverage and insurance to protect business assets. 

Check with your policy provider if you’re unsure what coverage you have. They can also recommend what additional coverage you’ll need, and how to get it. 

Takeaway

Most home businesses need at least a General Business License to operate, and this includes online businesses. The best thing to do is to contact your local government department and ask what permits you’ll need. You can also find more information on the USAGov website.

Most importantly, don’t run your business from home without a license. Wait until your license is approved before you get started.

We are going to discuss the topic of Business or Economic Entity Assumption on this page.

Accounting 101: Basic Accounting Principle

This assumption requires us as small business owners…

to keep all of our business expenses separate from our personal transactions.

The easiest and best way to do this is to open a business bank account.

Some people think that just keeping separate records is enough in separating business from personal. It is not. You should physically keep your money separate. Some business owners will go as far as keeping their personal and business accounts in different banks.

They said it is better for them as they have to write out a check to deposit instead of transferring between accounts in the same bank.

Personally, I like having my personal and business accounts at the same bank. Whatever works for you as long as you maintain separate bank accounts.

Note: Some banks will not let you open up a business bank account if you do not have a registered DBA (doing business as). If you are very small or just starting up and do not have a DBA…just open up a separate personal account.

The main thing is not to pay for personal expenses out of that business account. If you need money from your business for personal expenses, write yourself a check or transfer the money into your personal bank account.

Accounting 101: Separate Bank Accounts

One of the biggest justifications for keeping a separate bank account for your business is a clean and accurate bookkeeping system.

If you have a separate bank account for all of your business transactions, it will be easier to match and record all of those transactions .

I have even missed recording a few expenses and caught them when I did my bank statements bank reconciliation…which, by the way, is 100 times easier when you have a separate account.

Come tax time, you or your accountant will be happy you maintained a separate accounting system too.

Also, if you were ever audited for tax obligations…you do not want to bring in a bank record that has your personal expenses mixed in. Auditors tend to frown upon that.

Another important aspect of small business accounting and keeping your personal and business receipts separate is setting up a category for maintaining a petty cash account.

Once you have set up a separate bank account, it’s time to start posting your business income or earnings and expenses so you can create journal entries, a general ledger, and a chart of accounts that lead to a trial balance, financial statements, balance sheets, income statements, and cash flow statements. See this accounting lesson for tips on understanding and entering that data as debits and credits, also known as double-entry accounting, as part of the accounting cycle.

More accounting lessons every small business owner should study:

• Learn when to post an asset as an expense or capitalize the purchase.
• Learn how to post your payables, such as accounts payable, accounts receivable, sales tax payable, and the employee payroll system payable.

See more accounting terms in accounting 101.

Starting a new small business can be the most exciting, challenging thing you have ever done, so do your research. Study everything you can get your hands on. Learn from other people’s mistakes and successes, and remember the sky’s the limit in building your business!

Accounting Basic Definition:

Accounting is the process of documenting the financial transactions of your business entity in a way that you or other interested parties can analyze and make sound financial decisions regarding your business.

Paying your office’s utility bill affects your small business’s financial condition because it would then have less cash on hand. Such an economic event or condition that directly changes your business’s financial condition is a financial (business) transaction. The accuracy of these transactions is a key element to any successful business.

All business transactions can be stated in terms of changes in the three elements of this accounting basic equation which is to the base of all guidelines such as the Generally Accepted Accounting Principles GAAP:

Assets = Liabilities + Owner’s Equity

Learn more about the above accounting basic equation and debits/credits. A trial balance should have the same debit and credit balances at the end of the calendar year or fiscal year.

Accounting systems are designed to show the increases and decreases in each part of the above accounting basic equation in a separate record. This record is called an account.

For example, since cash appears on the balance sheets, a separate record is kept of the increases and decreases in cash.

Likewise, a separate record is kept of the increases and decreases for supplies, equipment, notes payable, and other balance sheet items.

Similar records would be kept for income statement items, such as revenue, wage expenses or employee salaries, cost of goods cogs such as labor, rent expenses, etc., that will result in the net income or total earnings of a company.

A group of accounts that contains all of the balance sheet and income statement or profit & loss statement accounts is called a general accounting ledger. An entry in the ledger is known as a journal entry. A list of the accounts in the general ledger is called a chart of accounts.

The accounts are usually listed in the order in which they appear in the financial statements. The balance sheet accounts are usually listed first, in the order of assets, liabilities, and owner’s equity. The income statement accounts are then listed in the order of revenues and expenses.

Each of these major classifications is briefly described below:

Assets are resources you own and add value to your business. Examples of a company’s assets include cash, accounts receivable (money owed by customers (individuals or corporations) to another entity in exchange for goods or services that have been delivered or used but not yet paid for), supplies, inventory, prepaid expenses (such as prepaid rent or insurance) buildings, equipment, and land. There are even assets that do not exist in a physical sense or are intangible items such as trademarks, copyrights, and patents. Depreciation or deductions is the loss of value over a certain period of time.

Current Assets are resources that you can expect to turn into cash or be used up within a year’s time.

Noncurrent Assets are resources that are NOT expected to turn into cash or be used up within a year’s time, such as property, equipment, and long-term investments. Noncurrent assets also included fixed assets.

Fixed Assets are assets that your business owns that are used to operate your business, such as land, buildings, equipment, and office furniture. Assets not intended to sell to your customers.

Liabilities are debts owed by your business. Liabilities are often identified on your balance sheet by titles that include the word payable. Examples of liabilities include: accounts payable (money owed to vendors for products and services purchased on credit), notes payable, and wages payable.

Current Liabilities are debts due within a year of your balance statement’s date.

Long Term Liabilities are debts that are not payable within a year of your balance statement’s date, such as a long-term bank loan.

Equity is the owner’s, shareholder equity, or investor’s right to the assets or working capital of their business. These are usually paid out in dividends.

Revenues are increases in the owner’s equity. Examples of revenue include sales and commissions.

Expenses are assets used up or services consumed in the process of operating your business. Examples of typical operating expenses include wage expense, rent expense, utilities expense, supplies expense, and miscellaneous expense.

First: Personalize

• SAVE an original copy.
• Look at the bottom tabs.
• Click on the second blue tab named “Jan”.
• Click on the merged cells with “Name” typed in – Row #1.
• Type in your business’s name-(All you “set up” on this first sheet will auto fill in the rest of the month’s worksheets).
• Type in the name of the report- Row #2-(This is a Bank Reconciliation Report, but you can name it whatever you want. Auto filled rest of months).
• Type in the year in cell B5. Will auto-fill remaining months.
• Type in your business’s bank and account number (can just include last 3 – 4 numbers) – Row #4- (will auto-fill rest of months).
• Notice the blue boxes in Jan. (these are the only places you will be putting in information…all the rest are formulas…will tell you later how to get rid of shading).
• Put in beginning balance on the General Ledger side-Row #8 Cell E8 (Notice: You will have to put last month’s ending balance from your general ledger even if it is not January because all the rest of the months it will automatically carry forward).
• SAVE one more copy! This one will be your original to use every year. Can delete original one not personalized now.

Second: Begin to use!

• Go to month you want to reconcile. (Your GL balance should have carried forward and be in cell E8 and also in the Book balance cell E12).
• Don’t worry if you accidently delete a formula. Just click the “Go Back Button”.
• On the GL side…put in TOTAL deposits in cell E9 from the month you need to reconcile in your GL with your current bank statement.
• On the GL side…put in the TOTAL expenses in cell E10 from the month you need to reconcile in your GL with your current bank statement.
• On the Bank Statement side…put in the date cell G8 and ending balance from your statement in cell I8.
• On the Bank Statement side…put the total checks from your statement in cell H33.
• On the Bank Statement side…put the total deposits from your statement in cell H37.
• Put in all the outstanding checks and deposits that has not cleared the bank, but is in your GL’s reconciling month.

*Notice: Your book balance and bank balance (row 12) should match each other and also match ending balance in the GL’s reconciling month. Your checks and deposits should match. (Bottom of report)

**Attention: To get rid of the shading in Jan. Simply click on the cell with the shading…look up in your toolbar and find the Fill Color (icon that looks like a paint can spilling out paint…next to the font color) and click “no fill”.

***NOTE: This is my most aggravating, make-me-want-to-throw-my-computer-out-the-window report. I’ve had several times it didn’t match and I about pulled all my hair out trying to figure out why.

Some of the reasons were:

1. Reversed cents in one entry…had to compare each check with each entry for that one.
2. Check from a couple of months back had not cleared.
3. A check that was dated for the month before was moved back into a reconciled month. Whoever fills out the GL…tell them NOT TO EVER move anything back into a reconciled month without consulting you first.

****Recommendation: Print out the bank reconciliation report each month and keep in a binder along with your business’s bank statement.

Also, I would recommend backing up your data once or twice a month and storing in a separate location from your original.

An accountant can certainly help you with this, but it helps to learn a little bit about how it works, so you are familiar with the process come tax time and analyze your business’s performance through financial statements.

Inventory is basically anything that involves manufacturing, or a company buys with the intention of selling to a customer. Think about Amazon’s huge warehouse of products. That is their inventory, all of which they intend to sell to their customers.

Over time a company should figure out the ideal amount of inventory to have on hand. If it’s too high, that means the product isn’t being sold, and it might add to a company’s expenses to keep it on hand for an extended period of time.

If inventory is too low, the company might not be able to meet consumer demand and potentially miss additional income opportunities.

As far as the inventory accounting method is concerned, it is considered an asset, and it is entered as the total cost of that asset.

Let’s take an auto shop, for example. If the company buys a tire for $100 and costs $10 for it to be trucked over to the auto shop, they would list that tire on their inventory sheet at $110.

That tire remains as an inventory item until it is sold to a customer, at which point it is no longer considered inventory and moves to the Cost of Goods Sold section.

Let’s take a look at example inventory accounting entries: