If you run a home business, you might need to apply for a business license or permit. Here’s what you need to know about business licenses and when they’re necessary.
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.
You need a federal or state license to practice certain professions. These professions include:
- 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.
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.
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.