Starting a business? You need a license

Winston Churchill once described the Soviet Union as "a riddle wrapped in a mystery inside an enigma."

The same might be said about small-business licenses and permits. In fact, they're as potentially bewildering an issue as you're likely to find in the small-business universe. What's mandatory in one location is laughably irrelevant in another. It all depends where your business happens to be.

That can make the task of identifying and obtaining necessary licenses and permits a rocky hill to climb—but not an insurmountable one.

First, some good news: Chances are you're not going to need a license from the U.S. government. Those are usually limited to financial advice, interstate trucking, and other niche areas regulated by the feds.

Whether that holds true at the state level depends on where you live and your particular business. Many states require licenses for businesses ranging from beauty salons to physicians to day care providers. Additional accreditation or licensing by industry-specific boards may also be necessary.

Start with your state government Web site

A solid starting point is to visit your state's official Web site to find out what's required. The Secretary of State's office is often the keeper of such information. For instance, the Maine Secretary of State site has a "business licensing assistant" that interactively walks you through various licenses.

"Most regulation of small business is done by the state," says Dale Oesterle, who teaches law and finance for entrepreneurs at Ohio State University. "That's why their Web sites are usually very good—they’re informative about the permits you'll need in specific industries."

Here are eight things you need to know when looking into a business license.

1. Do you need a local business license?   Many municipalities also regulate a variety of operations—again, it all matters where you live. A trip to your city or town hall will tell you if you need a license, as well as fees and application procedures.
2. What to do if you're "doing business as," or DBA.   As part of the local licensing process, you will need to take added steps if you're using a name for your business that's different from your own. You'll need to fill out a DBA statement, have it published in a general circulation newspaper (this is usually your local daily newspaper), and file with the county where your business is located.

   However, Matt Korona, a Rochester, N.Y., attorney who specializes in small-business issues, offers this caveat: A DBA can leave you personally liable if someone takes legal action against your business. In contrast, you're better protected if your business is incorporated—which exempts you from having to file as a DBA. See this article about organizing as a sole proprietorship.

3. Could someone else have your name? Check it out.   If you do choose a name for your business other than your own, make sure no one already has it. Here, hit both local offices (your county clerk office is a good bet) as well as online state resources. If it's available, reserve it, Oesterle says, so no one else can lay claim to it later. As well, consider other online search options, such as LegalZoom. (Read this article for more information on registering for a trademark.)
4. Investigate zoning laws.   This is particularly important if you're working out of your home, as many residential areas prohibit or limit businesses that generate traffic, parking, and other logistical issues, such as deliveries and shipping. Also, check to see if you need a home-occupation permit, which allows you to run a business from the confines of your home.
5. Look into other possible licenses you might need.   These might include:
   • A seller's tax permit, if you sell taxable goods.
   • An employer identification number, if you have employees, withhold taxes, or meet other criteria.
   • A health permit, if you're doing any sort of food preparation.
6. Understand the reality of penalties.   These vary, but running an unlicensed business can cost you a bundle in legal fees. "You can be shut down, face some type of fine, and possibly face criminal charges," Korona says.
7. Do a business plan.   This may seem irrelevant, but it's an effective way to make sure you have covered all of your licensing bases. "If your business plan is good, you'll have to address every license and permit you'll need," says Linda Pinson, author of "Anatomy of a Business Plan." Web sites such as Bplans.com offer business plan prototypes. Also, the U.S. Small Business Administration site provides business plan tutorials. (Read this article for more information about business plans.)
8. Know that the government isn't the enemy.   Although the potential fines and jail time may fill you with dread, regulatory agencies aren't out to bust you at all costs. Instead, Korona urges clients to ask for help: "Don't be afraid to talk to local and state officials, especially if you're setting up a new business. Better to find out you can't do something before you invest time and money." Another possibility: If you can't comply with a local requirement, you can file a request for a variance.

Other resources to consider

Find an attorney in your area who specializes in small business (organizations such as the American Bar Association provide referral services). A less expensive option is SCORE, which offers free guidance and training from retired business executives. Lastly, the Small Business Administration has online information about small-business licenses.

About the author   Jeff Wuorio is a freelance writer, author, and speaker based in southern Maine. He writes about small-business management, marketing, and technology issues. You can find Jeff's business and finance blog at http://wuorio.blogspot.com.